On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB”) was signed into law.
Introduction
Many Americans will experience the OBBB as a continuation of income and transfer tax laws passed during the President’s first administration. This is because the OBBB extends and makes permanent several tax law changes that were first introduced in 2018 as a part of the Tax Cuts and Jobs Act (“TCJA”). Due to Congressional requirements, many of TCJA’s changes were scheduled to expire automatically in 2026 without further action. The OBBB prevents the sunset of many of these provisions by extending and adjusting many items from the TCJA. Further, the OBBB introduces some new concepts into the tax code. Thus, the lower income tax rates that have been in place since 2018 will remain, as will higher income tax standard deductions, higher estate tax exclusions, and a whole host of other items. Modified limitations on the deduction for state and local taxes and the general elimination of miscellaneous itemized deductions will also carry over.
Highlighted below are key items of interest for individuals to consider as they evaluate their current tax planning strategies and prepare for the years ahead:
Federal Estate, Gift, and Generation Skipping Transfer Taxes
Beginning in 2018, the TCJA increased the lifetime exclusion amount from the federal estate and gift tax to $10,000,000 (from $5,000,000), adjusted for inflation. As of 2025, that amount has risen to $13,990,000. Prior to the passage of the OBBB, the increased exclusion amount was scheduled to sunset as of January 1, 2026, and the amount that could be sheltered from tax would drop by roughly half.
The OBBB permanently increases the basic lifetime exclusion amount from the federal estate and gift tax to $15,000,000 (or $30,000,000 for a married couple) beginning on January 1, 2026. The new exclusion amount will adjust for inflation each year beginning on January 1, 2027.
As under prior law, the federal generation-skipping transfer tax exemption is the same as the federal estate and gift tax exclusion amount, although they are used separately. The rate of tax for the estate, gift, and generation-skipping transfer taxes remains at a flat 40% for U.S. citizens and residents. The now permanently high exclusion and exemption levels create significant opportunities for individuals to make gifts and bequests without paying transfer taxes.
Income Taxes
Income Tax Rates
The OBBB preserves and permanently extends the ordinary income tax rates that have been in effect since 2018. It prevents the marginal rates for individuals from reverting back to higher pre-2018 levels (see chart below). The top marginal rate for estates and trusts also will stay at 37%.
The OBBB revises the calculation of inflation adjustments to those income tax brackets for individuals that hit the 22% (and up) marginal income tax brackets. There is no change to the additional 3.8% net investment income tax, nor are there any changes to capital gains rates.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax ("AMT") is a backup tax system that ensures high earners pay a minimum amount of tax, even after deductions and credits. Tax is assessed at lower rates, but on a broader base. The OBBB extends the increased exemption amounts introduced by the TCJA ($88,100 for single filers and $137,000 for married couples filing jointly in 2025). However, it also increases the phaseout rate of the exemption from 25% to 50% of the taxpayer’s income in excess of $500,000 for single filers and $1,000,000 for married couples filing jointly. The thresholds at which the phaseout begins are lower than under current law.
Deductions
Standard Deduction
For tax years beginning after 2024, the OBBB increases the standard deduction from $15,000 to $15,750 for single filers, $22,500 to $23,625 for heads of household, and $30,000 to $31,500 for married individuals filing jointly. After 2025, the standard deduction will adjust for inflation.
Itemized Deductions, Including the Charitable Deduction
The OBBB caps at 35% the tax benefit an individual can enjoy for itemized deductions (including charitable deductions). Under current law, a $100 itemized deduction claimed by an individual in the top 37% bracket would reduce federal tax by $37. The new cap limits that deduction to $35. Note, however, this cap does not apply to the deduction for qualified business income and is applied after all other applicable limitations are already in place.
The OBBB makes two important changes that specifically affect deductions for charitable contributions. First, the OBBB revives and expands a temporary provision from 2021 to allow non-itemizers (i.e., taxpayers who use the standard deduction) to claim charitable deductions up to $1,000 for single filers (or $2,000 for married couples filing jointly).
Second, for itemizers, the OBBB creates a floor so that an itemizer will only be able to claim a charitable tax deduction to the extent that the taxpayer’s contributions exceed 0.5% of adjusted gross income. As such, a couple who itemizes with adjusted gross income of $1,000,000 will only be able to deduct charitable donations in excess of $5,000. For corporations, the floor will be 1% of the corporation’s taxable income, and the charitable contribution deduction cannot exceed the current 10%-of-taxable-income limit.
The new floor and cap applicable to charitable deductions for itemizers means that high income individuals who are contemplating large charitable gifts should consider completing those gifts in 2025, rather than deferring them to later years.
Finally, the TCJA’s suspension of the deduction for miscellaneous itemized deductions is now permanent.
Personal Exemption
The OBBB permanently removes the deduction for personal exemptions. However, it does provide a temporary $6,000 deduction for individual taxpayers who are age 65 or older, which phases out for an individual taxpayer whose modified adjusted gross income (MAGI) exceeds $75,000. In 2017, before the TCJA, the personal exemption was $4,050 per person, subject to phaseouts.
SALT Deduction
The limitation on the deduction of state and local taxes (“SALT”) was a major feature of the TCJA and has been one of its most controversial provisions. The OBBB temporarily increases the federal deduction for the cap on state and local taxes to $40,000 (from the current $10,000) beginning in 2025. The cap increases by 1% per year beginning in 2026 until 2030 when it reverts to $10,000. Thus, unlike many other portions of the OBBB, the higher SALT cap is not permanent.
The increased SALT deduction does not apply to everyone, however. The deduction begins to phase out when a taxpayer’s modified adjusted gross income reaches a threshold of $500,000 (or $250,000 for married individuals filing separately), which will grow by 1% annually. The amount of the phaseout is equal to 30% of the taxpayer’s modified adjusted gross income over the threshold; however, the deduction will not decrease below $10,000. For example, joint filers whose modified adjusted gross income is $512,000 will have a SALT deduction cap of $36,000.
Tips and Overtime
The OBBB eliminates a portion of federal tax on tips for the years 2025 through 2028 through the creation of a new deduction. The deduction is capped at $25,000 and begins to phase out for individuals with adjusted gross income over $150,000 (or $300,000 for joint filers). Similarly, there is a new deduction that eliminates a portion of federal tax on overtime pay. The overtime deduction is limited to $12,500 (or $25,000 for joint filers) and begins to phase out for individuals with adjusted gross income over $150,000 (or $300,000 for joint filers). Both deductions are allowed to non-itemizers.
Trump Accounts
The so-called “Trump Account” is a new concept introduced by the OBBB. This federal tax-advantaged account operates like a quasi-IRA for the benefit of a minor. Contributions can only be made in calendar years before the beneficiary turns 18 and distributions can only be made starting in the calendar year when the beneficiary turns 18.
There are limited investments allowed in Trump accounts, generally including mutual funds and indexed ETFs, and cannot have annual fees and expenses of more than 0.1%. A fund must be comprised primarily of United States companies. These accounts allow family members to give up to $5,000 per year (adjusted for inflation after 2027) per beneficiary account and have that account grow tax deferred until such beneficiary reaches age 18. Once a beneficiary turns 18, he or she may withdraw without penalty, but those withdrawals in excess of contributions are subject to ordinary income taxation.
In addition, employers may contribute up to $2,500 per year (adjusted for inflation after 2027), on a tax-free basis, on behalf of their employees’ dependents or their teenage employees. Note, however, that this contribution counts towards the $5,000 annual limit.
There also is a contribution pilot program that provides a $1,000 tax credit for opening a Trump account for a child born between January 1, 2025, and December 31, 2028.
529 Plans
The 529 Plan is a tax-advantaged savings vehicle originally implemented to encourage families to save for future college education. Money is invested in the 529 account and if account funds are used for “qualified higher educational expenses,” then no tax is due on distribution. While originally implemented to provide tax favored treatment when used for the costs of higher education, the TCJA expanded the definition of qualified higher educational expenses to include elementary and secondary school tuition costs and capped the amount that can be withdrawn in any year to cover such costs at $10,000.
The OBBB now further expands the definition to include additional expenses for K-12 education that include purchasing curricular materials, online educational materials, tutoring, standardized testing fees, and education related therapies for students with disabilities. Further, the OBBB increases the cap on withdrawals for K-12 education to $20,000.
Qualified Small Business Stock (QSBS)
The OBBB significantly expands the benefits available for qualified small business stock (QSBS) in ways that are friendly to entrepreneurs and investors. Prior tax law allowed a capital gain exclusion for the sale of QSBS acquired by the taxpayer at original issuance and held by the taxpayer for more than five years. The amount of the exclusion was limited to the greater of (1) $10,000,000 (less the sum of any gains already taken by the taxpayer for that corporation in prior taxable years) or (2) ten times the taxpayer’s adjusted basis in the QSBS of the corporation disposed of during the taxable year. Only certain types of corporations were eligible for QSBS treatment, and the assets of the business at the time of the issuance of the shares could not exceed $50,000,000.
The most important detail is that the expanded benefits apply only to stock acquired or, in some cases, issued after July 4, 2025. Pre-existing QSBS holdings remain subject to the prior rules.
Reduced Holding Period Requirements: Prior law required a 5-year holding period for any gain exclusion (still the case for any QSBS holdings acquired before July 4, 2025). Stock acquired after the date of the OBBB’s enactment has new phased-in exclusion:
- 3 years: 50% gain exclusion
- 4 years: 75% gain exclusion
- 5 years: 100% gain exclusion (unchanged)
Increased Per-Issuer Gain Exclusion Cap: As noted above, the capital gains exclusion was generally limited to $10,000,000 per issuer. For shares acquired after the OBBB, the cap will be $15,000,000 per issuer (indexed for inflation beginning in 2027).
Expanded Gross Assets Threshold: Finally, shares issued by larger corporations will be able to qualify as QSBS. The prior $50,000,000 limit on aggregate gross assets is increasing to $75,000,000 (indexed for inflation beginning in 2027).
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