The One Big Beautiful Bill Act (OBBBA): What to Know and What to Do

At the close of 2024, much uncertainty surrounded the federal estate tax exemption. As practitioners feared the federal estate tax exemption might return to a level we had not seen in over seven years and many professionals hedged toward the sunset of the exemption occurring rather than the law being amended, much “better safe than sorry planning” took place. However, all such planning was made unnecessary in hindsight once the One Big Beautiful Bill Act (OBBBA) was passed, 119 P.L. 21; 2025 Enacted H.R. 1; 119 Enacted H.R. 1; 139 Stat. 72. While some portions of the Act took effect in 2025, others have taken effect in 2026 and still others will take effect in future years.

Before we consider the one-ness, big-ness and beauty of this new Act, let’s consider the tax exemption landscape historically.

The estate tax in the U.S. came about in 1916. For many years the estate tax exemption was $60,000, doubling in 1977. In my first year of practice, 2000, the exemption was only $675,000, where it remained until the Economic Growth and Tax Relief Reconciliation Act of 2001, which raised the 2002 tax exemption to $1M. In 2004 it rose again to $1.5 and then to $2M in 2006. In 2009 it was $3.5M. The exemption as we know it today was introduced in 1976. Throughout the years there has been much tinkering with both. Interesting but oft-forgottten fact: For one year in 2010 there was actually no estate tax (a result of a temporary repeal due to sunset provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001). In 2011, the $5M limit was reinstated, gradually indexing to inflation until 2017. In 2018 the Tax Cuts and Jobs Act increased the exemption in 2018 exponentially to over $11M, which would increase incrementally until 2024’s just over $13M.

With the passage of the OBBBA we have certainty — at least for now — that the individual exemption will remain at a high level, $15M, adjusted for inflation, with portability between spouses. However, the omnibus also contained many other significant provisions that affect estate planners as well as businesses. Of course, Congress could always adjust the exemption, but the OBBBA does not have a built-in “sunset” as previous exemption laws.

With this historical background behind us, let us examine the elements of the OBBBA.

THE ONE-NESS

The OBBBA, signed in July 2025, represents the most significant tax overhaul since 2017. While it makes many popular provisions of the Tax Cuts and Jobs Act (TCJA) permanent, it also introduces new hurdles for high earners and unique savings vehicles for families. Its comprehensiveness (read: lengthiness) is reflected in its name.

The scheduled 2025 “sunset” of the Tax Cuts and Jobs Act that caused much angst in 2025 among practitioners has been averted by the OBBBA. The OBBBA didn’t just prevent the exemptions from dropping; it locked in a significant increase. The exemptions have increased to $15 million per person ($30 million for married couples) and are now permanent. Starting in 2027, this amount will be indexed annually for inflation.

THE BIG-NESS

The OBBBA is marked by its sheer breadth of areas of life affected.

Income Taxes and SALT Relief

First, the individual income tax rate brackets, beginning with 10% and topping out at 37%, have been made permanent. Additionally, the State and Local Tax (SALT) deduction cap has temporarily increased from $10,000 to $40,000 for joint filers and $20,000 for single filers for tax years 2025 through 2029. However, this benefit begins to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) above $500,000. It is also important to note that, unlike the estate tax exemption, this increase is temporary. The SALT deduction cap is scheduled to revert back to $10,000 in 2030.

New Tax Deductions

Another significant change is the increased standard deduction. For the 2026 tax year, the standard deduction thresholds are $16,100 for single filers and $32,200 for married couples filing jointly, indexed annually for inflation.

The Act also introduced several temporary deductions (2025–2028) available to everyone, regardless of whether or not they itemise.

Also preserved are the old favourite step-up in basis and 1031 like-kind exchange benefits – important provisions that allow the benefit of a fair market value basis and the opportunity to mitigate capital gains taxes by reinvestment, respectively.

Corporate Considerations

From a corporate standpoint, the Qualified Small Business Stock exclusion expands and the Qualified Business Income deduction becomes permanent. The OBBBA also brings income tax reforms impacting fiduciary income taxation and entity structuring, including the qualified business income (QBI) under IRC § 199A.

There are enhanced reporting obligations under the Corporate Transparency Act regime administered by Financial Crimes Enforcement Network (FinCEN), expanded valuation disclosure requirements and audit exposure under increased IRS enforcement funding.

For Investors

Qualified opportunity zones are also a highlight, preserving capital gains deferred under the original rules and new provisions receiving a permanent extension with rolling five-year deferral cycles starting as of January 1, 2027. New opportunity zones will be designated every 10 years beginning in 2026, though with slightly more restrictive qualification criteria.

Charitable Giving

The OBBBA encourages consistent charitable giving while introducing a minimum threshold for deductibility. Beginning in 2026, taxpayers may only deduct charitable contributions that exceed 0.5% of their Adjusted Gross Income (AGI). For example, if your AGI is $200,000, the first $1,000 of donations would not be deductible, but anything over that amount would be.

Also, to provide some benefit for those who do not itemise deductions, the law also introduces a new above-the-line deduction of $1,000 for single filers and $2,000 for married couples for cash gifts made to qualified charities. Additionally, the provision allowing taxpayers to deduct cash charitable contributions of up to 60% of their AGI has been made permanent.

THE BEAUTY

The OBBBAA truly has something to offer every taxpayer.

For workers, the long-awaited and lobbied “No Tax on Tips” was introduced. Employees and selfemployed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips. The maximum annual deduction is $25,000; for selfemployed, the deduction may not exceed individual’s net income. The deduction phases out
beginning at $150,000 in income for single filers and $300,000 for married couples.

For workaholics, “No Tax on Overtime” is now the rule, whereby employees can deduct up to $12,500 in qualified overtime compensation ($25,000 for married couples filing jointly). The deduction phases out for higher income earners: beginning at $150,000 in income for single filers and $300,000 for married couples.

For the 65 and older demographic, the OBBBA introduces the Senior Deduction, under which such individuals may claim an additional $6,000 deduction, which is separate from and in addition to the existing additional standard deduction available to seniors under current law. This new deduction applies per eligible individual, meaning married couples where both spouses are age 65 or older may each qualify. However, the benefit begins to phase out at approximately $75,000 of income for single filers and $150,000 for married couples filing jointly.

For automobile owners (or borrowers we should say), taxpayers may now deduct up to $10,000 per year in interest paid on loans used to purchase (1) new vehicles (2) assembled in the United States and (3) used for personal use. This deduction phases out beginning at $100,000 in income for single filers and $200,000 for married couples.

And for families, 529 is now for more than just college. The OBBBA expands 529 plans, making them more flexible than ever. Families and individuals can now use these funds for a broader range of education-related expenses, expanding their value beyond traditional college savings. One of the most significant updates is the increase in the annual withdrawal limit for K–12 education expenses from $10,000 to $20,000 per year, giving families greater support for private or specialised schooling.

In addition to the classic 529 accounts, the OBBBA introduces “Trump Accounts,” an entirely new type of incentive (scheduled to launch this July 4) that includes a $1,000 government-provided baby bonus for children born in the next four years. The accounts allow taxpayer contributions up to $5,000 a year that can grow tax-free until the beneficiary turns 18, at which point the account becomes a traditional individual retirement account (IRA). Like an IRA, any earnings in the account can grow tax-free, and eligible withdrawals will generally be taxed at the beneficiary’s income tax rate. However, withdrawals are generally prohibited until the beneficiary reaches age 18, at which point the account will need to be converted to an IRA. A key benefit of these account is that the federal government will provide a onetime $1,000 seed contribution for certain children born between 2025 and 2028, helping jump-start their savings from the very beginning.

FINAL THOUGHTS

In short, the OBBBA creates a critical window for taxpayers to utilise higher exemptions, allowing them to transfer assets and future appreciation out of their taxable estates before any potential future legislative shifts. Like all new tax laws, and multiplied by the “BIG”ness of this one, we can expect there to be many rulings and guidance sought and issued that will refine the Bill, which is exactly why taxpayers need to fully comprehend the important opportunities available to them and act swiftly and judiciously.