“The rules create the worst possible situation,” said David Miller, a tax lawyer at Proskauer Rose LLP.

The impact on hedge funds is among the curve balls taxpayers are dealing with as the one-year anniversary of the tax overhaul nears and the IRS issues thousands of pages of regulations implementing the law. The cap also represents another hit for the industry from the GOP tax law. The overhaul eliminates the deduction for management expenses investors previously qualified for, and many New York managers are hurt by the new cap on state and local tax deductions.

Eoin Treacy's view

Just what people owe on their taxes is going to become apparent when tax returns start to get turned in next year and it’s not going to be good news for the millions of people living in the USA’s highest population, highest taxed states California and New York.