On May 22, 2025, the U.S. House of Representatives, by a razor thin margin of 215-214, approved an amended version of the budget reconciliation bill (Bill), sending it to the Senate. The legislative process is far from over. Although Republicans hold a majority, the Bill's substantial changes and internal party disagreements could lead to significant revisions before it clears the Senate. Sen. Ron Johnson warned, "We have enough to stop the process," highlighting potential roadblocks ahead. Even if the Bill passes the Senate, it must return to the House, where it narrowly passed by a single vote amid a divided Republican conference.
The Bill, coined the "One Big Beautiful Bill Act," brings significant extensions and expansions to the 2017 Tax Cuts and Jobs Act (TCJA), as well as other provisions that impact estate and income tax planning for high-net-worth individuals. Below is a summary of some of the key provisions.
Gift and Estate Tax Exemption
The Bill makes "permanent" the increased gift and estate tax exemptions enacted under the TCJA, currently set at $13.99 million per individual in 2025. These elevated exemption amounts were set to sunset next year, reverting to $5 million per individual (as indexed for inflation). Under the Bill, the exemption amount increases to $15 million in 2025 (as indexed for inflation each year after 2025). The permanent increased exemption amount would remove pressure to use exemption before the sunset. Since estates valued above the exemption are taxed at 40 percent, using the exemption while available can result in millions in tax savings.
Creation of Trump Accounts
The Bill establishes "Trump Accounts," tax-advantaged investment accounts for children born between January 1, 2025, and January 1, 2029. Each eligible newborn receives a one-time $1,000 government contribution, and annual contributions are capped at $5,000 per child (as indexed for inflation). Parents can open an account for any child under age 8, but only newborns receive the government funding. Key features and limitations include:
- Funds must be invested in diversified, low-fee portfolios managed by regulated firms that track major U.S. equity indices and avoid leverage;
- Withdrawals are not allowed before age 18. From ages 18–25, only up to 50 percent of the account's value at age 18 may be withdrawn, with full access granted after age 25;
- Qualified withdrawals are taxed as capital gains. Non-qualified withdrawals are taxed as ordinary income and may face a 10 percent penalty if made before age 30; and
- At age 31, the account is dissolved and treated as a full distribution to the beneficiary.
SALT Deduction
The Bill eliminates the temporary $10,000 limitation on individual state and local tax (SALT) deductions and increases the aggregate deductions for specified taxes to $40,000 (as reduced for certain taxpayers with modified adjusted gross incomes over $500,000). The increase in the SALT deduction allows high-net-worth individuals to reclaim a larger deduction for property taxes they are already paying, significantly lowering their federal tax burden and improving their after-tax cash flow.
Other Notable Provisions
- Individual Tax Rates: The Bill extends the reduced individual income tax rates enacted under the TCJA and modifies the inflation adjustment mechanism for various brackets.
- Standard Deduction: The Bill makes permanent the increased standard deduction amounts, temporarily enhances the increased amounts for tax years 2025 through 2028 (increasing it $1,000 for individuals and $2,000 for joint filers) and eliminates personal exemptions.
- Qualified Business Income (QBI) Deduction: The Bill increases the 20 percent deduction for pass-through business income to 23 percent and extends it beyond its scheduled expiration.
- Child Tax Credit (CTC): The Bill increases the CTC to $2,500 for tax years 2025 through 2028 and thereafter sets it at $2,000 (as indexed for inflation after 2028).
- Section 179 Expensing: The Bill increases the maximum amount a taxpayer may expense under Section 179 to $2.5 million and increases the phaseout threshold amount to $4 million.
- Interest Deduction (Section 163(j)): The Bill reinstates the use of EBITDA (rather than EBIT) for calculating interest deductibility for tax years 2025 through 2029.
Outlook
As noted above, the legislative process is far from over. We will continue to track developments closely and provide updates as more details emerge.
While a permanent increase to the estate tax exemption may reduce urgency, it doesn't eliminate the value of acting now. Using your exemption today removes future asset growth from your estate, potentially increasing long-term tax savings. Further, even if the higher exemption becomes law, future political changes could still reverse it. Clients should continue to explore proactive estate planning strategies—such as lifetime transfers and strategic gifting—to lock in current benefits, reduce future estate tax exposure, and maximize wealth transfer.
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.
