The mega reconciliation bill inched its way through Congress and was signed into law by President Trump on July 4. Known as the “One Big Beautiful Bill Act” or the “OBBB” for short, it truly is a “Big” piece of legislation (around 900 pages) that is controversial in terms of the tax and spending decisions made. However you may feel about the choices enacted via this legislation, it is now the law of the land, and we will be parsing it in the weeks and months ahead in order to advise clients accordingly.
In terms of taxes, much will stay the same for people and families in the top tax brackets, with new tax cuts added for middle and lower-income Americans, including no taxes on tips up to a certain level and no taxes on certain amounts of overtime pay. There is also a $6,000 tax deduction for anyone who is 65 or over that phases out above certain income limits.
When considering the whole of the bill including the governmental spending provisions, the legislation is expected to significantly increase the U.S. budget deficit over the next 10 years. In addition, the U.S. debt ceiling was increased by $5 trillion to allow for a higher level of spending. Note that Congress will still have to engage in budget negotiations for fiscal 2026, which starts Oct. 1.
Overall, the 2025 legislation provides economic stimulus in the form of tax breaks and higher spending on defense, border patrol and immigration enforcement, while slashing green energy initiatives and postponing cuts to social safety nets (Medicaid, SNAP) until after the 2026 mid-terms.
Here are the tax provisions most likely to impact people and families with high net worth and/or high levels of income and business owners.
WHAT IS NEW
- Slightly higher estate & gift tax exemption. Starting January 1, 2026, the federal estate and gift tax exemption increases to $15 million per person ($30 million per married couple), indexed for inflation—and made permanent. For 2025, the exemption is $13.99 million per person. This preserves planning continuity for high‑net-worth individuals. The change is not a drastic increase to the estate and gift tax exemption, and appears more like the annual inflation adjustments we have seen each year since 2017.
- Higher Qualified Small Business Stock (QSBS) exclusion, shorter holding period and higher value qualification. The holding period for QSBS exclusion was reduced from five years to three years (for partial gain exclusion) and the gain excluded from taxation at sale of QSBS stock was increased to $15 million (up from $10 million).
In addition, the corporate asset cap increased to $75 million (from $50 million). All this means that those with qualifying QSBS stock issued after the OBBB Act’s passage will have a higher threshold of value to qualify the business for QSBS ($75 million value for the entity), a shorter holding period to qualify (three years), and a bigger benefit (10X basis or $15 million). This will be quite significant for those small business entrepreneurs that are exploring exits from their businesses. - Substantially higher federal deduction for state and local taxes (SALT). Residents of high tax states and municipalities will be able to deduct up to $40,000 annually in 2025 through the mid-2030s.This higher deduction phases out for incomes above $500,000, and can lead to some particularly challenging results for those in the phaseout between $500,000 and $600,000 in income. The phaseout reduces the SALT deduction by 30% of the amount that the taxpayer’s MAGI (modified adjusted gross income) exceeds the $500,000 threshold. Note that there is a floor for SALT deductions that preserves the prior limit of $10,000 for all taxpayers regardless of income.
- New cap on itemized deductions. For filers in the top tax bracket (37%), itemized deductions (charitable giving, mortgage interest, etc.) are capped: only 35 cents per dollar up to the limit.
EXTENDED/NO CHANGE
By and large, the OBBB Act extends the Tax Cuts and Jobs Act of 2017. There are notable exceptions, but the largest expenditure embedded in the new legislation was to extend the 2017 law and make it permanent rather than an expiring law.
- Income tax brackets: The relatively wide income tax brackets that were part of the 2017 Tax Cuts & Jobs Act will remain in place, adjusted for inflation. The top marginal rate stays at 37%.
- Capital gains tax rates: The 20% top rate on long-term capital gains and qualified dividends remains in place.
- Net Investment Income Tax (NIIT): The 3.8% additional tax will continue to apply to investment income for households with modified adjusted gross income above certain levels: $250,000 for couples filing jointly; $200,000 for singles (not indexed for inflation).
- Deduction on qualified business income (Section 199A). The deduction for pass-through entities (Partnerships, S-corps, etc.) will remain at 20% and becomes permanent, with expanded eligibility starting in 2026. This benefits entrepreneurs and family offices generating income from qualifying investments or businesses.
CORPORATE AND BUSINESS TAXES
— Corporate tax rate: 21% (unchanged)
— Corporate AMT: 15% (unchanged)
— Share buybacks & exec pay: No new taxes or limits
— R&D expensing: Restored (immediately)
— Clean energy credits: Repealed for new projects
— Qualified 20% income deduction for pass-through business entities (LLCs, partnerships, sole proprietorships): Made permanent.
— Certain business tax breaks, including full and immediate expensing, 100% bonus depreciation: Made permanent.
Good to Know
As the OBBB was making its way through Congress, clarifications and changes were made to some provisions that impact people involved with foundations or who travel extensively or live abroad for extended periods of time.
- Foundations will not be subject to the new 8% tax on university endowments.
- The remittance tax of 5% will not apply to money sent overseas through U.S. banks, credit cards, etc.
The above is a general summary of some of the key tax aspects of the OBBB Act. Over the coming months, we will meeting individually with clients to discuss how they might be impacted and strategies for making the most of the changes.
