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Notable Highlights from the Passage of the One Big Beautiful Bill Act (OBBBA)

by Jul 9, 2025All, Taxes

While it is still early days after the OBBBA’s passing, this article provides a quick overview of tax-related items most likely relevant to our readers, including prior provisions that became permanent, new laws taking effect in 2025, and new items to take effect at the beginning of 2026.

Tax Cuts and Jobs Act Provisions that were Scheduled to Sunset in 2026 but Became Permanent

  • The top individual income tax bracket remains at 37% rather than reverting to 39.6%, with the remaining tax brackets staying the same and adjusted for inflation.
  • The 20% Qualified Business Income (QBI) deduction is now permanent.
    • Starting in 2026, the phaseout range for the QBI deduction will be expanded to $75,000 from $50,000 for individual filers, and from $100,000 to $150,000 for joint filers.
      • The phaseout range would end at $272,300 instead of $247,300 for Single Filers and $544,600 instead of $494,600 for Married Filing Jointly (MFJ), with an annual inflation adjustment.
      • The QBI Deduction phaseouts are determined utilizing taxable income, not adjusted gross income.
    • Taxpayers with at least $1,000 in qualified business income are guaranteed a minimum QBI deduction of $400, regardless of income levels.
  • The Qualified Opportunity Zone (QOZ) program has been indefinitely extended, and a new Qualified Rural Opportunity Fund (QROF) program has been created. The original QOZ program was set to expire for new investments on December 31, 2026. 
    • Gains deferred through investments in the QOZ program are now recognized on the fifth anniversary of the investment date with a 10% basis-step-up. This new provision applies to QOZ investments made after December 31, 2026. 
    • The new “Qualified Rural Opportunity Fund” (QROF) provides investors greater tax incentives. The tax benefits from investing in a QROF allow for a rolling 30% basis-step up after 5 years. A “rural area” is defined as any area other than (1) a city or town with a population of greater than 50,000, and (2) an urbanized area adjacent to a city or town with a population of over 50,000.
    • Gain Exclusion Remains: As long as the QOF investment is held for at least ten years, any appreciation in the value of the QOF investment itself during the period can be excluded from capital gains tax, limited to 30 years from the time of the initial investment.
    • For state taxes, not all states conform to Federal tax law for QOF regulation, so it will be essential to follow future state guidance to work through the state tax impacts.  
  • The Estate Tax Exemption will increase to $15M per individual and $30M per couple in 2026 and will be indexed for inflation starting in 2027.
  • Increased Alternative Minimum Tax (AMT) exemption amounts will continue indefinitely.

New Provisions that go into Effect Immediately for the 2025 Tax Year

  • Standard Deduction increases
    • $15,750 for Single filers
    • $31,500 for MFJ
    • $23,625 for Head of Household
  • State and Local Tax (SALT) Deduction Cap
    • Raised from $10,000 to $40,000 for 2025, $40,400 for 2026, and increasing by 1% per year thereafter until the end of 2029, before reverting to $10,000.
    • Single, MFJ, and HoH filers with less than $500,000 in Modified Adjusted Gross Income (MAGI)  will be eligible for the full $40,000 itemized deduction for SALT.
    • Single, MFJ, and HoH with over $500,000 MAGI will have the maximum deduction reduced by 30% of the excess of MAGI over the $500,000 threshold until the MAGI reaches $600,000. At $600,000 or higher MAGI, the maximum SALT deduction will be $10,000.
    • Married Filing Separately (MFS) filers are limited to a $20,000 cap, with a phaseout MAGI from $250,000–$300,000, reducing to $5,000.
  • The Senate’s version of the bill, signed into law, does not disallow the Pass-Through Entity Tax (PTET). This can provide substantial tax relief to Partnerships and S-Corps in states with high tax rates that offer this provision.
  • Temporary Increased Deduction for Seniors (65+)
    • $6,000 deduction for individual filers and $12,000 for MFJ.
    • Phaseout for individual filers: $75,000–$175,000 Modified Adjusted Gross Income (MAGI).
    • Phaseout for MFJ: $150,000–$250,000 MAGI.
    • This program expires at the end of 2028.
    • Aside from the increased deduction reducing taxable income, these changes do not directly impact Social Security taxation.
  • Qualified Small Business Stock (Section 1202 Exclusion)
    • For QSBS acquired before July 5, 2025: exclusion is the greater of $10,000,000 or 10x the adjusted basis.
    • For QSBS acquired after this date, the exclusion increases to the greater of $15,000,000 or 10x the adjusted basis, which will be indexed for inflation beginning in 2027.
    • Holding period requirements for gain exclusion
      • 3 years: 50% exclusion
      • 4 years: 75% exclusion
      • 5 years: 100% exclusion (unchanged)

New Provisions for Charitable Contributions that go into Effect for the 2026 Tax Year

  • Charitable deductions will be allowed for taxpayers taking the standard deduction of up to $1,000 (individual) or $2,000 (MFJ). There was a similar provision during the 2020 and 2021 tax years ($300-$600 deduction for taxpayers taking the standard deduction).
  • A new 0.5% AGI floor applies before deductions are allowed for taxpayers who itemize. While this isn’t a positive change, there is the potential for proactive planning:
    • Donor-Advised Funds (DAFs) present planning opportunities before the end of 2025 to get ahead of the change.
    • Qualified Charitable Distributions (QCDs) could become more appealing for taxpayers over 70½ with significant  IRA balances. 

Sources

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Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned,  such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment.

The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial,  accounting, tax, or legal advisers to address their specific needs and circumstances.

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