One Big Beautiful Bill Act – A Tax Planner’s Review

The One Big Beautiful Bill Act (OBBBA) is a tax and spending bill that was signed into law on July 4, 2025. This summary provides an overview of the individual income tax provisions and details selected tax law changes, relevant to tax planning for affluent taxpayers.

Overview

The OBBBA largely extends the current tax environment on a permanent basis. Absent the passage of OBBBA, the current tax laws were set to revert to the pre-Trump era tax code (TCJA 2017) on January 1, 2026.  Generally, reversion to pre-Trump tax laws would have brought higher income taxes for most Americans.

Key income tax provisions, such as lower individual income rates, elevated standard deduction amounts, corporate tax rates, and Qualified Business Income (QBI) deduction will remain.

Federal estate tax provisions will remain largely the same, but with an increased exemption from approximately $14 million in 2025, to $15 million in 2026. The exemption amount will continue to have spousal portability and will increase with inflation. The OBBBA prevented reversion to pre-TCJA exemption amounts – a taxpayer-friendly reprieve for those with assets above $7 million (single) or $14 million (joint).

While largely an extension of current tax laws, the OBBBA creates important changes to consider and plan for in the 2025 tax year.

Tax Law Updates

This is a select list of tax law updates, and planning opportunities, relevant to affluent taxpayers.

Electric vehicle credits end September 30, 2025 – If considering an EV purchase, vehicles must be acquired by September 30, 2025 to qualify for the current tax credit ($7,500 on new vehicles, subject to modified adjusted gross income [MAGI] limitations).

Energy efficient and clean energy credits end December 31, 2025 – To receive a tax credit, the purchase and installation of qualifying energy efficient home improvements (windows, HVAC, solar panels) must be complete by year end.

SALT limitation increases starting in 2025 – The State and local tax (SALT) deduction limitation increases to $40,000 (from $10,000) subject to phaseout between $500,000 and $600,000 of adjusted gross income (AGI). For taxpayers with AGI at or below $500,000, they may deduct up to $40,000 for state and local income tax paid on Schedule A. For those above $600,000, the SALT deduction limit remains at $10,000.

• The SALT limitation applies immediately. For many taxpayers this is an opportunity to front load state and property tax payments and increase federal deductions in 2025.

Reduction of charitable deduction – In 2026, deductibility of contributions is reduced by 0.5% of each dollar of adjusted gross income (AGI). For example, at $100,000 of AGI, the deduction for charitable contributions would be reduced by $500 (0.5% times $100,000). Several planning opportunities exist to maximize the tax benefit for charitable contributions.

• Consider accelerating contributions in 2025; utilize a donor advised fund to capture the deduction in the current year and distribute cash to charities in future years.
• Consider charitable bunching of donations in lower AGI years to minimize AGI reduction.
• Contribute to charities directly from IRA accounts to bypass the 0.5% AGI reduction.

Itemized deduction limitation – New for 2026, top bracket taxpayers (37% rate) are limited to the benefit of itemized deductions, capped at no more than a 35% reduction of taxable income. Several planning opportunities exist to manage taxable income and itemized deductions.

• Consider accelerating charitable gifting in 2025, and utilize a donor advised fund.
• Plan for charitable bunching in future years where taxpayers are not in the top tax bracket.
• Consider accelerating Roth conversions in 2025 before limitation becomes law.
• In future years, consider alternating charitable giving years with Roth conversion years.

Senior Deduction – For tax years 2025 – 2028, taxpayers age 65+ are allowed a $6,000 deduction, subject to MAGI limitations. The deduction is available to senior taxpayers at lower income thresholds, phasing out between $150,000 and $250,000 of MAGI (for married filing joint). While the proposed “no tax on Social Security” law was not included in OBBBA, this provision was added to create tax relief for many Social Security recipients in a parallel fashion.

Final Word

The OBBBA allows the favorable income tax and estate tax environment to continue, but there are several planning opportunities to consider today, for changes taking place in 2025 and 2026.

Importantly, the OBBBA does not reduce spending or address the burgeoning national debt. If you believe taxes must eventually rise to pay America’s bills, then the OBBBA assures a higher income tax environment in the future. Through a longer-term lens, the current tax environment is a multi-year opportunity to strategically buy the government out of retirement assets, benefit plans, and potentially from capital assets, at what are likely to be favorable tax rates.

Whether near term or long term, the OBBBA resets the tax planning landscape. Thoughtful review and execution of a planning strategy may drive significant tax savings in 2025 and beyond – contact your JMG advisor to discuss. We invite you to share this article with others who may also find it insightful.

Source: https://www.congress.gov/bill/119th-congress/house-bill/1/text

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