This article examines a few of the changes as a result of the July 4th passing of the One Big Beautiful Bill Act (OBBBA). Given the vast number of changes included in the nearly 1,000-page Act, this article will focus on a narrow subset of tax law changes, their potential impact on both individuals, and businesses as well as potential strategies which incorporate the changes.
Key Tax Changes for Individuals
Estate and Gift Tax
The estate tax exemption and the lifetime gifting exemption received minimal news coverage during the enactment of the OBBBA, despite the significant and material impact the changes will have on High-Net-Worth Individuals. Under the 2017 Tax Cuts and Jobs Act (TCJA) both exemptions were scheduled to be cut in half and revert to their pre-2017 levels of ~$7 million per person in 2026. Under the OBBBA, the exemptions are increased to $15 million per person1 starting in 2026 and unlike the TCJA the increase does not contain a sunset provision and is permanent; with the ‘permanency’ in Washington D.C. of course being subject to the future acts of congress and administrations. Historically, the exemption has been significantly lower however it has increased over 800% in the past 20 years2. With $30 million of exemption between spouses, some HNW families might feel they are no longer candidates or have a need for ‘advanced’ estate planning. This is a fallacy and missed opportunity for both clients and their advisors. While a married couple with a $20 million net worth may no longer be at risk of paying estate taxes, with a slight shift in perspective and some planning, significant tax savings are still available. Rather than focusing on the estate tax, families can leverage the increased estate exemption to implement strategies for increasing the basis of their assets and reducing future income tax. Generally, with standard estate planning in a non-community property state, half of the assets of a married couple will be ‘stepped up’ upon the first death. This step up in basis increases the estate of the decedent but also results in the cost basis for those assets being brought up to the fair market value as of the date of death. An example can help illustrate the potential planning opportunity for a family:
- Harry and Wilma Smith are both 65 years old, live in Utah, have a net worth of $20 million and hold all their assets titled in both of their names or as joint tenants with rights of survivorship. The bulk of their net worth is in a $14 million stock portfolio which has only a $4 million cost basis and a $6 million home they purchased for $1 million. Upon their passing, the Smiths want the most assets possible to go to their children. Since Utah is not a community property state, under their current estate planning, if Harry passes away, only ½ of the family assets will receive a step up in basis. Harry’s $500k basis in the home (50% of the $1 million purchase price) would be stepped up to 50% of the current FMV of $6 million (making the new cost basis of the home $3.5 million) and his basis in the portfolio would also increase from $2 million to $7 million. If the stock portfolio were to be sold for $14 million after Harry passes, the basis would be $9 million3, and Wilma would owe taxes on $5 million4 of gain. If Wilma also sold the house, she would be taxed on that gain of $2.5 million5, meaning Wilma would owe taxes on nearly $7.5 million total.
If the Smiths worked with their attorney and updated their estate planning6, all their assets could potentially qualify for a step up in basis upon Harry’s passing. Thus, should Wilma sell the home and liquidate the portfolio as above, rather than owning taxes on $7.5 million of gains, Wilma would have zero capital gains and thus would not owe any income or estate taxes. The tax savings are an immediate benefit to Wilma. If she sells stock now to pay for living expenses, she will not owe any income taxes. Basis planning also helps the Smith’s achieve their goal of passing the most down to their children as they could now inherit the assets with a second step up in basis upon Wilma’s death, potentially saving them hundreds of thousands in income taxes and increasing Harry and Wilma’s legacy.
Prior to the increase and now permanence of the estate tax exemption, taxpayers tended to focus more on planning for the estate tax, which at a rate of 40% is higher than the top income tax bracket. The OBBBA represents a paradigm shift for high-net-worth individuals where the most significant estate planning opportunities could be related to income taxes rather than estate taxes. With proper planning, a couple with a $25 million estate could leave their entire net worth to their heirs with a current FMV basis. In other words, the kids would receive $25 million free of both income tax and estate taxes.
State and Local Taxes – SALT
Starting in 2025, the SALT Cap has been raised to $40,000 with phaseouts starting when a married couple’s modified adjusted gross income (MAGI) exceeds $500,000. The increase is temporary and will automatically sunset and revert to $10,000 starting in 2030. The OBBBA did implement a ‘floor’ for the deduction at $10,000, meaning joint filers with MAGI over $600,000 will still be subject to a $10,000 SALT deduction limit, just as they were in 2024. After the $10,000 cap was introduced in 2018, many states implemented pass-through-entity (PTE) workarounds to allow business owners to bypass the individual cap. While a curtailment of the PTE workaround was included in the House version of the bill, the final law did not limit or otherwise address these workarounds. Thus, business owners who had previously utilized the workaround will be able to continue to avoid the SALT cap regardless of their MAGI.
- Planning Opportunities: The increased limitation represents a significant tax savings for filers who are not phased out and also presents potential planning opportunities. For example, a married couple who has a MAGI of $400,000 and has not already hit the $40,000 SALT cap could execute a Roth conversion for up to $100,000, which would allow them to deduct the state income taxes resulting from the conversion under the increased cap. A taxpayer looking to take advantage of this strategy and maximize their deduction can work with their accountant in Q4 to estimate what amount of additional income to realize and then effectuate the Roth conversion prior to December 31st. This strategy allows individuals, especially in high tax states, to take advantage of the temporary increase in the SALT cap to reduce their effective tax rate and plan for their retirement. There are also increased planning opportunities utilizing non-grantor trusts to increase the SALT deduction.
Charitable and Philanthropic
The OBBBA makes changes to charitable giving that impacts both individual and corporate donors. Effective January 1, 2026, individual taxpayers who make charitable donations will be subject to a 0.5% of AGI floor. What that means in practice is that if a taxpayer had an AGI of $500,000 and made $10,000 of charitable donations in 2026, they would only be able to deduct $7,5007 rather than the entire $10,000 donation. Further, also effective for tax year 2026, taxpayers that are in the 37% top marginal tax bracket will have their itemized deductions reduced by 2/37 (~5%), which can further reduce the tax benefits of charitable giving.
- Planning Opportunities8: Charitably inclined doners can ‘bunch’ their contributions together in 2025 to avoid these upcoming changes to charitable deductions. A taxpayer can combine or bunch their current and desired future charitable contributions together in 2025 to be able to take advantage of the current, more favorable, law regarding deductibility. If a taxpayer is unsure which specific charity or charities they wish to support in the future, but nonetheless has charitable intent and a desire to give, a donation to a Donor-Advised Fund (DAF) would allow for bunching while retaining the ability to decide which charity ultimately receives the funds years down the line.
Key Tax Changes for Businesses
Bonus Depreciation
For qualified property acquired after January 19th, 2025, the OBBBA permanently restores the 100% first-year bonus depreciation deduction. Generally, taxpayers are required to deduct the cost of property used in a trade or business over a period of time. The TCJA allowed for 100% immediate expensing of qualified property, but under 2024 law this ‘bonus’ deprecation was in the process of being phased out. Qualified property includes most tangible property with a recovery period of 20 years. Some examples of qualified property include vehicles used for business, machinery, office furniture, and computer software. Another benefit of bonus depreciation is that it can result in a net loss for a given year, which could result in an income tax bill of zero.
- Planning Opportunities: Taxpayers who purchased real estate after January 19th, 2025, should consider working with their accountant and a qualified professional to perform a Cost Segregation Study (CSS). By breaking down different components of a building with a CSS, owners can expedite portions of the standard 27.5-year depreciation schedule for residential property (39 years for commercial property) under the new OBBBA which could result in an immediate tax benefit and lower tax bill for 2025.
Research and Development Expensing
Prior law required taxpayers to amortize most Research and Development (R&D) expenses over a five-year period which reduced the tax benefits. Under the OBBBA, all R&D expenses incurred after 12/31/24, are allowed to be immediately deducted. Further, domestic small businesses with annual revenues less than $31 million are allowed to apply this change retroactively to their tax years starting in 2022.
- Planning Opportunities: Businesses with less than $31 million of gross receipts that incurred R&D expenses for tax years 2022-2024 should coordinate with their accountants and consider amending prior returns to fully expense the R&D costs in the year they were incurred, which could result in the business receiving tax refunds.
Qualified Business Income – §199A
Under the TCJA, S-Corps, Sole Proprietorships, Partnerships, and some trusts were able to deduct up to 20% of their qualified business income. The OBBBA makes this provision permanent and increases the phase-in thresholds for limitations on the deduction. The phase-in thresholds are increased by $25,000 for single filers and $50,000 for married filing jointly, which will result in more taxpayers being able to claim a deduction. Further, the OBBBA provides a new minimum deduction of $400 for businesses with at least $1,000 of qualified business income.
- Planning Opportunities: Non-C-Corp business owners can take advantage of the increased limitation phase-in windows by continuing to coordinate with their accountants to plan for tax-efficient decisions around income, wages, and retirement contributions to maximize the §199A deduction.
Qualified Small Business Stock §1202
The OBBBA updates and improves one of the largest potential tax benefits for business owners with its adjustments to Qualified Small Business Stock (QSBS) or §1202 Stock. Prior to the OBBBA, owners of C-Corp stock which met certain requirements, were able to exclude up to $10 million dollars of gain, or 10x their basis, upon the sale of their stock. For stock acquired after July 4th, 2025, the dollar exclusion is increased to $15 million. The OBBBA also eases some of the requirements to qualify for QSBS. Stock acquired after July 4th, 2025, is no longer required to be held for 5 years to receive any benefit. Now, the benefit is phased in depending on holding period. Stock held for three (3) years receives 50% of the benefit and stock held for four (4) years receives 75% of the benefit. Finally, the OBBBA relaxed another requirement. Prior law required company gross assets not to have exceeded $50 million, now, under the new law, the ceiling for stock issued after July 4th, 2025, has significantly increased to $75 million.
Planning Opportunities:
- Owners of unexercised stock options: Owners of C-corporation options should work with both their corporate and personal accountants to analyze exercising options now, which previously may have been excluded from QSBS eligibility due to the company having exceeded $50 million of gross asses. If the company has not exceeded $75 million of gross assets and the options are exercised after 7/4/25, the resulting shares, which previously were not QSBS eligible, are now likely eligible and thus could result in the owner excluding up to $15 million in gains upon the sale of the stock.
- Owners of Closely Held C-Corporations: A taxpayer that owns a controlling share of a C-Corp with a gross asset value between $50 and $75 million could consider issuing replacement stock for older shares which were acquired after the company exceeded the gross asset limitation. The previous shares would not be eligible for QSBS treatment, but the newly acquired shares could fall under the $75 million cap and qualify. If the owner is not expecting to sell the business for at least 4 years, additional planning opportunities exist for acquiring additional stock which could qualify for the increased $15 million exemption. For example, if the company issued new shares today, possibly in exchange for the old shares, and the company was sold 4 years later each owner of stock could be eligible for $10 million of exemption; just as they would be without additional stock issuance. However, if the company was sold 5 years later, the per taxpayer exemption would increase to $15 million and potentially result in each owner saving an additional $1,000,000 of taxes9.
- Owners of Closely Held Non-C-Corporations: The increase and indexing for inflation, of the Gross Asset Test, also provides non-C-Corp business owners additional time to benefit from their current pass-through taxation treatment. Now, instead of needing to convert early to qualify for the QSBS exclusion, owners of growing businesses can continue benefiting from single-level pass-through taxation for a longer period before switching to a C-Corp and facing double taxation on profits.
- Owners of Closely Held Non-C-Corporations: The changes to the required holding period could present planning opportunities for corporate conversions that previously were not viable due to the 5-year holding requirement. If a business owner was planning on selling their company in the next 3 or 4 years, even if they converted today, they would not meet the holding period requirements to qualify for QSBS. Under the OBBBA, if the stock meets the other requirements and the business was sold more than 3 years after the conversion, the stockholders could qualify for $7.5 million of gain exclusion. For business owners planning an exit within the next 5 years, converting from an S-Corp, sole proprietorship, or partnership to a C-Corp in order to be eligible for QSBS under the new provisions could result in millions of dollars of tax savings.
Conclusion
This article touched on only a fraction of the tax implications and changes American taxpayers will experience in the coming years. Even weeks after passage, there remain certain aspects of the Act which will require a myriad of governmental agencies to make rulings and clarifications on, which only further emphasizes the importance of having an expert team of advisors supporting you and your family.
1The exemption is indexed for inflation starting in 2027
2The exemption in 2005 was $1.5 million increased to $13.99 million in 2025
3Harry’s stepped-up basis of $7 million plus Wilma’s $2 million of basis
4$14 million sale price minus $9 million of basis results in $5 million of gain subject to income taxes
5Harry’s stepped-up basis of $3 million plus Wilma’s $500,000 of basis; this example does not include the primary residence sale exemption, which can exclude up to of $500,000 of gain on the sale of a primary home by a married couple
6Common strategies to maximize the basis step up include community property trusts and joint step-up in basis trusts (JESTs)
7$500,000 AGI * 0.5% = $2,500 Floor, which must be subtracted from the gift amount for deductibility purposes
8For additional analysis on the changes to charitable deductions, see Crewe Foundation Services Insight: Avoid the Charitable Deduction Haircut: How to Maximize Gifts Before 2026
9Assuming a 20% long term capital gains rate and $5 million of additional gain exclusion
