The long-anticipated “sunset” of the Tax Cuts and Jobs Act of 2017 (TCJA) was slated for the end of 2025. Upon this “sunset,” the federal estate and gift tax exemptions—which reached $13.99 million per individual in 2025—would have dropped to roughly $7 million per individual (after indexing for inflation), significantly expanding the number of estates subject to the 40% federal estate tax.
However, the recent legislation signed into law (the One Big Beautiful Bill Act or the “OBBB”) has dramatically altered this trajectory. The OBBA extended many of the provisions of the TCJA, and importantly made the estate and gift tax exemption permanent at $15 million per individual, or $30 million for married couples, indexed annually for inflation.
While fewer people may be subject to estate and gift tax in light of the estate and gift tax exemption thresholds, there is still plenty of planning that can be done to optimize a client’s estate, gift and income taxes. For example, the OBBB introduces significant enhancements to the Qualified Small Business Stock (QSBS) Exclusion under Section 1202 of the Code. Notably, the original five-year holding period requirement has been replaced with a tiered structure: a 50% capital gains exclusion after three years, 75% after four years, and 100% after five (or more) years. The OBBB also raises the capital gain exclusion cap from $10 million to $15 million and introduces annual inflation adjustments. The gross asset threshold for qualifying corporations has increased from $50 million to $75 million, allowing more range of businesses to qualify for QSBS treatment. Because the QSBS exclusion is applied on a per-taxpayer basis, taxpayers can leverage this by gifting qualified small business stock to multiple irrevocable non-grantor trusts, each of which is treated as a separate taxpayer. This allows for the “stacking” of multiple $15 million exclusions across independent trusts.
Lastly, although the OBBB is “permanent” and offers estate planners some certainty in the near term, future Congresses can pass legislation reducing the estate and gift tax exemption amount and foreclosing planning opportunities that remain under the OBBB. Considering that, clients should contemplate taking advantage of today’s higher exemptions and planning opportunities.
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