President Trump on July 4, 2025, signed the One Big Beautiful Bill Act (OBBBA) into law. The OBBBA extends key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025 and introduces several new tax measures. With a few exceptions, the OBBBA mostly represents an extension of the status quo for high-net-worth individuals and families. This update provides a high-level overview of several key provisions and highlights important considerations for estate planning clients.
“Permanent” Gift, Estate and Generation-Skipping Transfer Tax Provisions:
- Most notably for wealthy families, the OBBBA extends the increased lifetime gift, estate and generation-skipping transfer tax exemptions and avoids the potential “sunset” under which the exemptions were scheduled to decrease from the 2025 exemption amount of about US$13,990,000 to about US$7,000,000 in 2026. Instead, the exemptions will increase to US$15,000,000 per individual on January 1, 2026, and will continue to be inflation-adjusted each subsequent year thereafter unless altered by a future act of Congress, as is the case with any “permanent” tax provision.
- The OBBBA makes no other significant changes to currently available estate planning techniques or applicable rules, such as the modification of grantor trust rules, implementation of wealth taxes, or the elimination of the estate tax entirely.
General Income Tax Provisions:
- Income tax rates – The ordinary income tax rates for individuals, estates and trusts established by the TCJA are permanently extended.
- Charitable Deductions – Beginning January 1, 2026, the
OBBBA will allow charitable deductions only to the extent that
charitable gifts exceed 0.5% of adjusted gross income (AGI). For
example, a taxpayer with US$1,000,000 of AGI who makes charitable
gifts of US$100,000 will receive a charitable deduction of
US$95,000 (the amount by which gifts exceed 0.5% of US$1,000,000
(or US$5,000)). Additionally, the 60% AGI limit for cash
contributions to public charities is made permanent.
Clients should consider making planned charitable gifts during this calendar year (since this new floor is not effective until January 1, 2026) and should consider contributing in years with lower expected income and/or bunch charitable gifts in one year to mitigate these changes. Please also note that this limit does not apply for clients who make qualified charitable distributions from traditional IRAs (available to those who are 70½ or older). - State and Local Tax (SALT) Deduction – The cap on the amount of personal state and local taxes that individuals can deduct is increased from US$10,000 to US$40,000 beginning in 2025 and lasting until 2029, after which it returns to US$10,000. The benefit is phased out for taxpayers with a modified adjusted gross income (MAGI) over US$250,000 for single filers and US$500,000 for married filing jointly.
- Enhanced Deduction for Seniors – A US$6,000 deduction is added per eligible filer for individuals 65 and older with MAGI under US$75,000 for single filers and US$150,000 for married filing jointly. The deduction is available for tax years 2025 through 2028.
- Alternative Minimum Tax Exemption (AMT) – The OBBBA makes the current exemption amounts for the AMT permanent but lowers the phase-out thresholds and increases the phase-out rates, making it marginally less advantageous for high-net-worth taxpayers. However, the AMT is still expected not to impact most taxpayers.
- Standard Deduction – The increased standard deduction from the TCJA is made permanent. The 2025 tax year standard deduction will be US$15,750 for single filers and US$31,500 for married filing jointly, adjusted for inflation thereafter.
- Itemized Deductions – Beginning in 2026, there is a new overall limitation on itemized deductions, including charitable deductions, for trusts, estates and taxpayers in the highest tax bracket. This will slightly reduce the value of itemized deductions for these taxpayers.
Tax Favored Investment Provisions:
- Qualified Small Business Stock (QSBS) – Under existing law, capital gains from the sale of QSBS held for more than five years were generally excluded from federal income tax. The OBBBA reduces the holding period from five years to three years (with a phased-in exclusion amount if the holding period is between three and five years). Also, the maximum size of corporations eligible for QSBS treatment was increased from US$50,000,000 to US$75,000,000 (subject to inflation adjustment), making the exclusion more widely available. Finally, the OBBBA increases the per limit exclusion of eligible gain each taxpayer can claim with respect to each issuing corporation from US$10,000,000 to US$15,000,000, indexed for inflation. The alternative limit of 10 times the adjusted basis in the QSBS stock remains unchanged.
- Qualified Opportunity Zones (QOZ) – The QOZ program, which allows for the deferral or potential reduction of capital gains for investments in economically distressed areas, was scheduled to expire December 31, 2026, for new investments. However, this QOZ tax incentive is made permanent under the OBBBA, with a few modifications to the program. In addition, each state will create new opportunity zones, effective on January 1, 2027, and there will be heightened benefits for “rural” investments in “qualified rural opportunity funds.”
Tax Favored Account Provisions:
- 529 Accounts – The definition of “Qualified Higher Education Expenses” is expanded to include expenses incurred in connection with elementary or secondary public, private or religious schooling, and not just direct tuition payments. Eligible expenses also include costs for tutoring, educational therapy for students with disabilities, standardized testing and college entrance exams, and related books and materials. The OBBBA increases the limit for all eligible K-12 education expenses from US$10,000 to US$20,000 a year.
- Trump Accounts – The OBBBA introduces a new type of tax-deferred investment option for children, known as a “Trump Account”. The program provides an automatic federal contribution of US$1,000 for each child born in 2025 through 2028. Annual contributions of up to US$5,000 annually (indexed for inflation) may be added by an individual to the account. The contributions are not deductible and count against the annual exclusion for gifts to the beneficiary.
The One Big Beautiful Bill Act introduces new planning opportunities and considerations for clients looking to minimize their tax liabilities. Many of the provisions won't take effect until January 1, 2026, so we encourage clients to reach out to your advisor to properly take advantage of the changing law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
