On July 4, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law and as a result enacted numerous significant tax law changes. While this short article will not address each aspect of the OBBBA, it will highlight a few changes that are impactful for estate planning and wealth transfer purposes.
Increased Federal Estate/Gift Tax and GST Lifetime Exemptions
Beginning in 2026, there will be a $15 million federal estate/gift tax lifetime exemption per individual and a corresponding separate $15 million federal generation-skipping transfer tax (GST) lifetime exemption per individual. This marks a significant increase over the current 2025 lifetime exemptions, which currently sit at $13,990,000, and avoids the potential reduction of these exemptions that existed under the prior law. Further, it is important to note three points that have not changed: (i) these exemption amounts will continue to be indexed for inflation, (ii) the unused portion of a decedent’s federal estate/gift tax lifetime exemption continues to be portable to a surviving spouse, if a timely tax filing is made for that purpose, and (iii) the unused portion of a decedent’s federal GST lifetime exemption is not portable to a surviving spouse.
Finally, unlike the prior exemption law, these new exemptions do not have a built-in “sun-set” provision. In other words, these exemptions are “permanent” in so far as it would take a new act of a future Congress and president to reduce the exemptions or otherwise change them. That said, given the inherent uncertainty surrounding the future composition of Congress and the White House, these exemptions could be a target for future reductions. As ever, the strategic use of your available exemptions, while they exist, can lead to significant results for your potential estate and beneficiaries.
Loss of Personal Miscellaneous Itemized Deductions for Production of Investment Income
The personal miscellaneous itemized deductions for the production of investment income that were set to return in 2026 are now gone. Expenses that individual taxpayers could once deduct (subject to certain limitations) included investment advisory fees, investment management fees, custodial fees, investment seminars and publications, tax planning, certain tax preparation costs, accounting fees related to investments, certain attorneys’ fees, and numerous other potential itemized deductions. The absence of these personal deductions has led many taxpayers to pursue more formal business structures (e.g., operating companies, family office structures, etc.) in a good faith attempt to appropriately deduct business expenses.
Increased Qualified Small Business Stock Benefits
Previously, Section 1202 Qualified Small Business Stock (QSBS) permitted noncorporate taxpayers that held QSBS for more than five years to potentially exclude all or a portion of the gain realized on the sale or exchange of such QSBS. This exclusion was generally limited to $10 million, or ten times the aggregate adjusted basis of the QSBS issued by the corporation and sold by the taxpayer during the year. Through the use of certain non-grantor trusts, the benefit of the foregoing limitations could potentially be multiplied through a process known as “stacking.”
Section 1202 QSBS has been significantly improved through three main amendments under the OBBBA:
- Change in Holding Period: Prior to the OBBBA, a taxpayer had to hold QSBS for more than five years to obtain Section 1202 benefits. There are now three different holding periods that provide taxpayer benefits:
- 50 percent exclusion for QSBS held for at least three years but less than four years;
- 75 percent exclusion for QSBS held for at least four years but less than five years; and,
- 100 percent exclusion for QSBS held for at least five years (the existing benefit).
- Change in the Per-Taxpayer (Issuer) Gain Exclusion Limitation: This limitation was raised from $10 million to $15 million per Taxpayer, representing a 50 percent increase in exclusion.
- Change in Aggregate Gross Assets Threshold: This limitation was increased from $50 million to $75 million, potentially permitting QSBS to be issued for a longer period of time.
Moving forward, the Per-Taxpayer Gain Exclusion and Aggregate Gross Assets Threshold will be adjusted for inflation starting in 2027, which will further increase the planning opportunities for appropriately structured and maintained Section 1202 stock.
Changes to Charitable Income Tax Deductions
If you are a taxpayer in the top 37 percent income tax bracket who itemizes on your personal income tax return, you might consider accelerating significant charitable gifts into the 2025 tax year. Effective January 1, 2026, the OBBBA imposes a maximum deduction for itemized charitable deductions at 35 percent—down from 37 percent under current law—even for those taxpayers who are in the 37 percent bracket. Additionally, beginning in 2026, individuals who itemize will not receive a charitable deduction until aggregate charitable contributions exceed 0.5 percent of Adjusted Gross Income (AGI). So, if an individual has $1,000,000 of AGI, the first $5,000 of contributions to charity will not qualify for a deduction. All contributions to charity over and above that floor will be eligible for a charitable deduction subject to the other applicable limitations.
