The enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, brings clarity on key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that were set to expire at the end of 2025. In addition to offering new tax incentives, the OBBBA extends, expands and makes permanent several tax provisions put in place by the TCJA. The changes made by the OBBBA will impact estate, tax and business planning strategies for many individuals, families and business owners.
Federal Estate, Gift and Generation-Skipping Tax Changes
Effective January 1, 2026, the OBBBA increases the federal estate, gift and generation-skipping transfer tax exclusion amounts to $15 million for individuals and $30 million for married couples (“basic exclusion amount”). The new basic exclusion amount will adjust annually for inflation starting in 2027. Historically, the basic exclusion amount has been unpredictable due to automatic sunset provisions that cause it to expire and change over time. One of the biggest changes made by the OBBBA is to make the basic exclusion amount permanent. The table below summarizes the changes to the basic exclusion amount under OBBBA.
| Federal Transfer Taxes | 2025 | 2026 (without OBBBA) | 2026 (with OBBBA) |
|---|---|---|---|
| Basic Exclusion Amount (with inflation adjustment) | $13,990,000 | Approx. $7,200,000 | Approx. $15,000,000 (plus inflation starting in 2027) |
While the basic exclusion amount will not be decreased in any future year, future legislation could specifically scale back or change the exclusion amount. That said, taxpayers should continue to monitor their estate tax situation to take advantage of these changes. Taxpayers with estates potentially subject to federal estate tax should consider certain gifting strategies to transfer assets out of their taxable estates, removing asset appreciation from their estates and preserving more wealth for future generations.
Qualified Small Business Stock Changes
The OBBBA additionally expands the tax benefits for investors who acquire qualified small business stock (QSBS) after July 4, 2025, by increasing gain exclusions and easing holding requirements. Notable changes made by the OBBBA for investors who qualify for QSBS gain exclusion include:
- Establishes a new tiered system for investors who do not meet the 5-year holding period (50% exclusion if held for 3 years; 75% exclusion if held for 4 years; 100% if held for 5 years or more);
- Raises gain exclusion cap from $10 million to $15 million amount, or 10x basis, with inflation adjustments starting in 2027; and
- Increases the gross assets limit from $50 million to $75 million.
These updates improve planning flexibility and offer significant tax advantages for investors of closely held business interests. In addition, taxpayers may use certain irrevocable trusts to “stack” the gain exclusion benefits of QSBS. Shares issued prior to July 4, 2025, are still subject to the rules in place before enactment of the OBBBA.
Select Individual Income Tax Changes
- Top Tax Rate Made Permanent. The OBBBA permanently extends the 37% top federal income tax rate for individuals, which was set to revert back to 39.6% on January 1, 2026.
- Increased Standard Deduction. The OBBBA permanently extends and increases the standard deduction, which is $15,750 for single filers and married individuals filing separately in 2025 ($31,500 for joint filers and surviving spouses), rising to $16,000 and $32,000 respectively in 2026, with future adjustments for inflation. Taxpayers aged 65 and older are also entitled to an additional $6,000 standard deduction through 2028.
- Increased State and Local Tax (SALT) Deduction Limit. The OBBBA temporarily increases the SALT deduction cap from $10,000 to $40,000 for tax years 2025 through 2029. Higher-income taxpayers begin phasing out of this benefit beginning at $250,000 of adjusted gross income (AGI) ($500,000 for joint filers) and are completely phased out at $500,000 of AGI ($600,000 for joint filers). The $40,000 cap and the phase-out thresholds both increase by 1% annually. However, the cap will revert back to $10,000 starting in 2030. The OBBBA did not change the existing pass-through entity tax workaround, which allows eligible partnerships and S corporations to deduct state and local taxes at the entity level, offering a significant advantage to taxpayers in high-tax states.
- Charitable Deductions. The OBBBA permanently preserves the 60% of AGI limit for cash contributions to qualified charities (originally 50% of AGI pre-TCJA). Beginning in 2026, however, itemizers may deduct only the portion of contributions that exceed 0.5% of AGI. Amounts under this floor are generally nondeductible and cannot be carried forward, while excess contributions above the AGI ceiling remain subject to carryforward rules. The OBBBA provides non-itemizers a new above-the-line charitable deduction of up to $1,000 for single filers ($2,000 for joint filers). In addition, for taxpayers in the top 37% bracket, the law effectively caps the value of charitable deductions at 35%, creating a 2% tax on otherwise deductible gifts.
For more information on how to take advantage of these changes or to discuss what tax and estate planning strategies are available to you, please reach out to Justin Hilton or Joseph Growney, or your regular Lathrop GPM attorney.