Tax legislation signed into law July 4, commonly known as the One Big Beautiful Bill Act (OBBBA or the Bill), is an 870-page extension and expansion of tax law changes made by of the Tax Cuts and Jobs Act (TCJA), which became law during President Trump’s first term. The Bill’s key provisions affecting high net worth individuals and family offices – many of which take effect as of Jan. 1, 2026 – include the following:
- Reduced Tax Rates Permanent: The lower individual marginal tax rates enacted under the TCJA were set to expire at the end of 2025. The Bill makes permanent TCJA-era tax brackets for individuals, trusts and estates.
- Temporary SALT Cap Increase: Previously under the TCJA, the state and local income tax deduction (SALT) was limited to $10,000. The Bill temporarily (for 2025 through 2028) raises the cap on the SALT deduction to $40,000, but availability of the increased deduction is limited for high income taxpayers. The $30,000 increase to the cap phases out for modified adjusted gross incomes (MAGI) above $500,000 and is eliminated for taxpayers with MAGI above $600,000. The cap and the phase-out amounts are identical for single filers and for married couples (filing jointly), resulting in a significant potential marriage penalty for certain taxpayers. For example, an unmarried couple's collective SALT deduction of $80,000 could be reduced to $10,000 if married. Because the SALT deduction is also available to non-grantor trusts, there may be planning opportunities to take advantage of the increased limitation. The widely used pass-through entity tax workaround is also preserved and remains an important SALT cap mitigation strategy for high income taxpayers, particularly considering the phase-out and eventual sunset of the SALT cap increase.
- Charitable Deduction Floor: The OBBBA creates a new "floor" on itemized charitable deductions beginning in 2026. The itemized deduction for charitable contributions will be allowed only to the extent that total contributions exceed 0.5% of a taxpayer's adjusted gross income (AGI). Charitable contributions falling below the floor are permanently lost. The various charitable contribution AGI caps (e.g., the 60% of AGI cap for cash to qualifying public charities) remain and are made permanent. Charitable contributions above the applicable cap generally carryforward to the next year and are subject to that year's 0.5% floor. To minimize the impact of the floor, charitable giving after 2025 should generally be "bunched" into specific years to be as far above the floor as possible but below the applicable cap.
- Deduction Benefit Cap: The OBBBA creates a 35% "cap" on the tax benefit individuals may receive from itemized deductions. For taxpayers in the highest tax bracket, this in effect causes itemized deductions to reduce the tax rate on corresponding taxable income from 37% to 2% rather than down to 0%. Because of this and the new charitable deduction floor discussed above, taxpayers in the highest tax bracket should consider accelerating charitable gifting to receive the full benefit of charitable deductions in 2025.
- Trump Accounts: Another new feature beginning in 2026 allows for the creation of "Trump accounts" for minor children, which can be accessed by the child starting at age 18. Parents or others may contribute up to $5,000 annually into a child's account and must be invested in a diversified index fund that tracks U.S. equities. Similar to a traditional IRA, Trump account earnings are generally taxable as ordinary income upon distribution and are subject to a 10% early withdrawal penalty before age 59½ unless used for qualified purposes, such as paying for college or buying a first home. Although Trump accounts allow for tax-deferred earnings, they potentially convert long-term capital gains into ordinary income and create exposure to an additional 10% early withdrawal penalty, without the key advantage of either a traditional IRA (contributions made with pre-tax dollars) or of a Roth IRA (earnings not taxable upon a qualified distribution). Accordingly, Trump accounts will often be less desirable than other alternatives (e.g., a 529 plan). [1]
- Qualified Opportunity Zones: The OBBBA revises and makes permanent the qualified opportunity zone (QOZ) capital gain deferral program. Under the revised program, beginning in 2027 taxpayers with capital gains can elect to defer those gains for up to five years by investing the gains into certain QOZ investments. A QOZ investment of capital gains held for the full five-year deferral also receives a basis step-up that eliminates 10% of the gain or 30% for certain rural investments. In addition, if a QOZ investment of capital gain satisfies a 10-year holding period requirement, the QOZ rules generally eliminate any additional taxable income or gain from the subsequent disposition of the QOZ investment (a comparable effect to the step-up in basis occurring at death). Many current QOZs will not remain as such under the revised program, which calls for a redesignation process (on a 10-year cycle) and imposes more restrictive eligibility rules for QOZ designation.
- Enhanced QSBS Gain Exclusion: The OBBBA makes several changes that broaden the availability of the potential gain exclusion for dispositions of qualified small business stock (QSBS) if acquired after the July 4, 2025, OBBBA enactment date. Prior to the OBBBA, a taxpayer had to meet a five-year holding period requirement to benefit from the QSBS exclusion. For QSBS acquired after OBBBA, satisfying the five-year holding period is still required for a 100% gain exclusion, but more limited exclusions still apply if either a four-year (70% exclusion) or three-year (50% exclusion) holding period is satisfied. In addition, the prior $10 million gain exclusion cap is increased to $15 million, and the eligibility requirements for companies to issue QSBS are expanded to include companies with gross assets of up to $75 million from the previous $50 million.
- 100% Depreciation: The OBBBA restored 100% bonus depreciation for most property acquired after Jan. 19, 2025, and extends a similar benefit to "qualified production property," a new category for certain real property used in domestic manufacturing/production. In addition to expanded immediate expensing allowed under Section 179, these rules — which generally require taxpayers make elections into or out of the rules for specific property or classes of property — offer a great deal of flexibility to taxpayers to control acceleration of deductions for capital investments and can help taxpayers significantly reduce their current taxable income with proper planning.
- Enhanced Interest Expense Deduction: Deductible business interest expense is generally limited to 30% of a taxpayer's adjusted taxable income. The OBBBA reinstates a more favorable adjusted taxable income calculation based on EBITDA rather than EBIT. The restored ability to add back depreciation, depletion and amortization to adjusted taxable income in calculating the 30% interest expense limitation can be extremely beneficial for companies with significant capital investments or amortizable intangibles. The provision particularly benefits leveraged investment structures such as those often found in private equity and real estate transactions.
- Permanently Raises Lifetime Exemptions: Most notably for our clients, the Bill permanently raises the lifetime exemption amount for estate, gift and generation-skipping transfer tax — which was set to sunset to pre-TCJA levels — to $15 million for an individual or $30 million for a married couple. This is effective January 1, 2026, and indexed for inflation going forward. With the increased exemptions, new opportunities exist to implement or expand lifetime gifting. Now is a great time to assess current estate plans to ensure maximum estate and income tax efficiency in light of the higher exemptions.
To learn more about how the OBBBA might impact you, please contact Matt Koenders, Julia Schall or a member of Warner’s Private Client and Family Office Industry Group.
[1] There are two notable exceptions. First, employers establishing a qualifying plan can make non-taxable contributions of up to $2,500 per employee to Trump accounts for the benefit of an employee’s dependents or the employee, if a minor. Second, the U.S. government will make a one-time contribution of $1,000 for qualifying children born between 2025 and 2028. The rules permit other governmental organizations to also establish contribution programs; government contributions do not count against the $5,000 contribution limit.
