The President signed the One Big Beautiful Bill Act (the “OBBBA”) into law on July 4, 2025. The OBBBA extends certain tax provisions implemented by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) and amends others. Various provisions of the OBBBA add certainty to existing estate planning methods and create new opportunities.
Many practitioners have spent the past few years planning with uncertainty because several provisions of the TCJA were scheduled to sunset on December 31, 2025. The OBBBA provides a greater degree of certainty, which will impact tax and estate planning. Additionally, new provisions have been introduced that may provide planning opportunities. Below are brief explanations of some of the provisions of the OBBBA that will affect how estate planners advise clients moving forward.
A. Estate, gift, and generation skipping transfer tax exemption
The TCJA increased the estate, gift, and generation skipping transfer tax exemptions to $10 million for the 2017 tax year, indexed for inflation thereafter. For 2025, the federal estate and gift tax exemption was $13.99 million for each individual and $27.98 million for married couples. This increase was scheduled to sunset on January 1, 2026.
Starting on January 1, 2026, the OBBBA increases the federal estate, gift, and generation skipping transfer tax exemption to $15 million for each individual ($30 million for married couples). Thereafter, the estate, gift, and generation skipping transfer tax exemptions will continue to be indexed for inflation. This provision of the OBBBA is not scheduled to sunset.
Although Congress can alter the exemption at any time that it has the votes to do so, these changes remove some uncertainty for the foreseeable future and may simplify planning for some individuals and couples.
B. Qualified Small Business Stock Election
By 2010, the gain that could be excluded from recognition under Section 1202 of the Internal Revenue Code (“IRC”) for qualified small business stock had increased from its original 50% (where it started in 1993) to 100% on the first $10 million of gain. To qualify for exclusion as small business stock, stock was required to be held for a minimum of 5 years and the asset limitation of the business when stock was issued was limited to $50 million.
The OBBBA changes the requirements to qualify as a small business, and as stock subject to excludible gain, for purposes of Section 1202 of the IRC. Some of these changes for qualified small business stock issued on or after July 5, 2025 include the following: the gross asset limit to be categorized as a qualified small business increases from $50 million to $75 million; the cumulative per-taxpayer exclusion is calculated based on the first $15 million in gains, instead of the first $10 million; the percentage of gain excluded on the first $15 million of gains will increase gradually depending on how long the stock has been held by the taxpayer (50% if held for 3 years; 75% if held for 4 years; and 100% if held for 5 years or more). Both the $15 million per-taxpayer exclusion and the corporate asset threshold of $75 million will increase for inflation beginning in 2027.
C. Income Tax Rates and Brackets
The TCJA established new tax rates and brackets related to the federal income tax for individuals. The maximum income for which an individual would need to pay each marginal tax rate was increased, allowing individuals with higher income to be subject to lower marginal tax rates. In conjunction with the broadening of tax brackets, the marginal tax rate of many tax brackets was reduced. For example, the TCJA reduced the highest marginal income tax rate for individuals from 39.6% to 37%. Additionally, whereas prior to the TCJA individuals making over $426,700 would be subject to the highest marginal tax rate, after the TCJA this rate is not applicable until an individual’s taxable income is equal to or in excess of $500,000. This portion of the TCJA was meant to expire at the end of 2025.
The OBBBA locks in these broadened tax brackets and lower tax rates with no sunset provision.
D. State and Local Tax Deduction
The OBBBA increases the personal state and local taxes that individuals can deduct as it relates to personal income taxes. The cap on deduction of personal state and local taxes increased from $10,000 to $40,000 per household, and the $40,000 is anticipated to increase by 1% annually. The new $40,000 deduction cap begins to phase out for households with a $500,000 adjusted gross income and completely phases out for households with an adjusted gross income of $600,000.
This newly introduced provision will remain in effect through 2029, with the limit reverting to $10,000 in 2030 unless Congress takes further action to extend it.
E. Qualified Business Income Deduction
The TCJA introduced the qualified business income deduction for noncorporate taxpayers. Owners of pass-through entities including S corporations, sole proprietorships, and some trusts, can deduct up to 20% of their qualified business income. Limits on deductions applied if the taxpayer’s taxable income exceeded the threshold amount ($157,500, adjusted for inflation) by $50,000, or $100,000 if filing jointly.
The OBBBA locks in 20% as the value of the deduction. Additionally, limits on a taxpayer’s ability to take the deduction are not phased in until the taxpayer’s taxable income exceeds the threshold amount (still $157,500, adjusted for inflation) by $75,000, or $150,000 if filing jointly. This increase will allow more taxpayers with higher taxable incomes to utilize the qualified business income deduction.
F. Trump Accounts
The OBBBA creates a new type of IRA account that can be created for individuals under age 18. This new type of IRA, called a Trump Account, may be created for any individual under 18 and the account will have the same benefits as other IRA plans. The Trump accounts have a $5,000 annual maximum contribution limit, which will increase annually with inflation.
While an account may be created for any individual under 18, for children born during the years 2025 through 2028, the accounts will be eligible to receive a $1,000 contribution from the federal government or charities.
Whether the account is funded only by the federal government contribution, or parents, family, and employers contribute as well, the funds cannot be distributed to the beneficiary until age 18. Individuals interested in beginning a savings account for minors should carefully consider the benefits and restrictions compared to that of a 529 Plan or other savings account and their overall intent in creating the account.
