President Donald Trump on July 4, 2025, signed into law H.R.1, commonly referred to as the One Big Beautiful Bill Act (OBBB). (For a detailed analysis of the bill, see Holland & Knight's previous alert, "Trump Signs the One Big Beautiful Bill Act," July 3, 2025.) Notably, the OBBB makes comprehensive changes to the U.S. Tax Code, including provisions relevant to single-family offices.
Executive Summary
There are five provisions of the OBBB with particular impact on single-family offices:
- The OBBB provides for "permanent" repeal of Internal Revenue Code (Code) Section 212 miscellaneous itemized expenses for investment expenses, meaning that certain ultra-high-net-worth (UHNW) taxpayers could continue to benefit from a family office structured as a profit-motivated trade or business able to deduct family office, investment advisory and related expenses under Code Section 162.
- The OBBB permanently increases the federal estate, gift and Generation-Skipping Transfer (GST) tax exemption to $15 million per person (or $30 million for a married couple) indexed for inflation, expanding wealth transfer planning opportunities for UHNW families and their family offices.
- Charitable deductions are limited to amounts exceeding 0.5 percent of adjusted gross income (AGI) for individuals and 1 percent for C corporations, which may prompt family offices to consider pooling larger charitable contributions to surpass these thresholds. The bill also extends higher AGI limits on deductibility, including the 60 percent deductibility limitation for cash contributions to public charities.
- The OBBB raises the state and local tax (SALT) deduction cap to $40,000 for joint filers ($20,000 for separate filers) from 2025 through 2029 and continues to permit the pass-through entity (PTE) tax workaround, enabling family offices with pooled investment partnerships to further reduce state-level tax exposure.
- The OBBB significantly expands qualified small business stock (QSBS) tax benefits for family offices by reducing the minimum holding period to three years with phased-in exclusion percentages, increasing the qualifying C corporation asset limit to $75 million and raising the capital gains exemption cap to $15 million, thereby enhancing the attractiveness of investing in qualified small businesses.
Deductibility of Expenses
Since 2017, the Tax Cuts and Jobs Act (TCJA) has eliminated miscellaneous itemized deductions (MIDs), including some most valuable to family offices such as deductions for investment fees, legal and tax preparation fees, and other similar expenses incurred for the production of income. These deductions were formerly allowed under Code Section 212. The loss of this valuable category of deductions motivated many family offices to employ a modified hedge fund structure for the family office and its clients. In structuring single-family offices in part to enable deductibility of investment advisory and similar expenses borne by the family office, these families were buoyed by the U.S. Tax Court's 2017 decision in Lender Management v. Commissioner, which involved the management company of the family that popularized off-the-shelf bagels. Other family offices, such as Lender Management, had implemented hedge-fund style structures before the advent of the TCJA, thereby avoiding alternative minimum tax complications and the 2 percent floor limitations of Code Section 67(a). Meanwhile, some families waited, perhaps believing that the TCJA would sunset on Dec. 31, 2025, thereby restoring prior deductions.
The OBBB poked a hole through the dough of those awaiting revival of investment-related MIDs. The bill "permanently" repealed such deductions, and families on the sidelines should now evaluate adopting a family office structure similar to that in the Lender case. Holland & Knight often works with UHNW clients and their family office advisors to establish a management company for family integration and address the loss of deductibility for investment expense. The family office can engage multiple generations and branches of a family to create or expand pooled investment vehicles and other family office clients. The management company provides investment advisory and other services to these family office clients in exchange for compensation. When family clients are appropriately organized and the family office operates as a trade or business, it is possible for the overall effect to resemble (or improve upon) the pre-TCJA miscellaneous itemized deduction regime.
Increased Federal Estate, Gift and GST Tax Exemption
The TCJA doubled the federal estate, gift and GST tax exemption (i.e., transfer tax exemption) for each individual. With applicable inflation adjustments, the current exemption is $13.99 million per individual, reduced by prior taxable gifts. However, under the TCJA, these exemptions were scheduled to sunset to approximately $7 million per person after Dec. 31, 2025.
The OBBB permanently sets the base-level transfer tax exemption at $15 million per person (or $30 million for a married couple) effective Jan. 1, 2026, and adjusted annually for inflation. The OBBB resolves the uncertainty of the prior law and provides enhanced wealth transfer planning opportunities for UHNW taxpayers and their family offices.
Family office advisors are well advised to consider such sophisticated planning opportunities on a generational basis to facilitate the efficient transfer of dynastic wealth. The enhanced exemptions may also factor into the transition of management and ownership of the family office, ensuring the structure can facilitate not only the transition of wealth between generations but also serve as an effective vehicle to educate younger generations on a family's investment, wealth transition and charitable planning initiatives and goals.
Charitable Planning
Family offices frequently serve as advisors to family charitable foundations. They also commonly provide broader advice to the family members they serve with respect to charitable planning involving public charities, including donor-advised funds.
The OBBB modifies the availability of charitable deductions that will be relevant to and impact family office clients. Effective Jan. 1, 2026, individual taxpayers who itemize their deductions are permitted a charitable deduction only to the extent the charitable contribution exceeds 0.5 percent of the taxpayer's AGI. Other rules apply to C corporations.
Family offices and family office advisors may wish to advise their family office clients to consider larger, pooled charitable contributions – potentially aggregating multiple anticipated charitable contributions into a single year – to exceed the applicable 0.5 percent threshold. Though the new deductibility floor may not be welcome news, the extension of higher deductibility limitations should have a broader impact for UHNW clients. (For additional details, see Holland & Knight's previous alert, "Impact of the One Big Beautiful Bill Act on Tax-Exempt Organizations," Aug. 12, 2025.)
SALT Deduction and Planning
To the ire of many taxpayers, the TCJA capped the deduction for SALT at $10,000 per year. The OBBB increases the SALT deduction for tax years 2025 through 2029 to $40,000 for married couples filing jointly or $20,000 per year for separate filers.
In response to the TCJA's SALT cap, many taxpayers adopted a PTE tax workaround. Under this strategy, a PTE elected to pay state income taxes at the entity level, as opposed to passing those taxes through to the owners. The owners were then permitted to claim credits to offset their individual income taxes.
The PTE tax workaround is a strategy adopted by Holland & Knight family office clients where those clients consist of multiple pooled investment vehicles taxed as partnerships for federal income tax purposes. Importantly, the OBBB does not restrict the ability of PTEs to fully adopt and implement this strategy. As a result, family offices with one or more separate, pooled investment partnerships can leverage this strategy and the increased SALT deduction to substantially decrease the exposure of the various family members to state-level taxes without an offsetting federal deduction.
QSBS
Family offices have increasingly invested in private equity and made direct investments in closely held businesses. When these private equity and/or direct investment opportunities involve QSBS under Code Section 1202, family offices have seen substantial tax-free gains on their initial investments.
Family offices will welcome the significant expansion of QSBS planning opportunities enacted by the OBBB. For QSBS acquired after July 4, 2025, the OBBB made the following substantial, taxpayer-favorable modifications to the QSBS regime:
- a reduction in the minimum holding period requirement from five years to three years, with a phased-in exclusion percentage of 50 percent (for a three-year holding period), 75 percent (for a four-year holding period) and 100 percent (for a holding period of five or more years)
- an increase in the maximum aggregate gross asset value for a qualifying C corporation issuer from $50 million to $75 million, indexed for inflation
- an increase in the single-issuer flat cap on capital gains subject to exemption from $10 million to $15 million, indexed for inflation
The OBBB's material modifications to the QSBS regime substantially increase the value of investing in qualified small businesses. The tax benefits under the QSBS rules have always been significant for those who are patient and careful enough to pursue them. OBBB will now expand and increase these benefits. Holland & Knight has provided a broader analysis of the QSBS modifications in Code Section 1202 resulting from the OBBB.
Conclusion
The OBBB declined to reinstate investment-related MIDs. This hurdle should motivate family offices to employ management company incentive structures to recoup these lost tax benefits. Family offices should also utilize the extended and expanded tax benefits for UHNW taxpayers, including SALT deduction caps, historically high AGI limits for charitable donations and increased QSBS exclusions.
If you have any questions about family office issues, structures or related tax and administration matters, please contact the authors.
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.
