August 5, 2025
The One Big Beautiful Bill Act May Affect Your Business and Estate Plan
The One Big Beautiful Bill Act (“OBBB”) was approved by Congress and signed into law on July 4, 2025. The comprehensive act encompasses a wide range of modifications to the tax laws, some of which may affect your business tax, personal tax, or estate plan. The OBBB makes ‘permanent’ many provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”), but the current tax law may be repealed or modified by later legislation. Accordingly, you may wish to consult with your tax and legal advisors to formulate a strategy best for your needs.
PROVISIONS AFFECTING TRUSTS, ESTATES AND GIFTS
Tax Rates: The OBBB permanently extends TCJA income tax rates and brackets for estates and trusts.
Unified Estate and Gift Tax Exemption: The unified estate and gift tax exemption is made permanent at an inflation-indexed $15 million per individual for taxable years beginning after December 31, 2025. The generation-skipping transfer tax exemption is similarly increased to an inflation-indexed $15 million.
PROVISIONS AFFECTING BUSINESSES
Qualified Small Business Stock (QSBS): The OBBB increased the exclusion for QSBS, which allows taxpayers to exclude from income certain capital gain realized on the sale of qualified small business stock. Stock acquired after enactment is eligible for a 50% exclusion if held for three years, 75% exclusion if held for four years, and a 100% exclusion if held for five or more years up to the exclusion limit. The per-issuer cumulative exclusion limitation increases from $10 million to $15 million under the OBBB, with an annual inflation adjustment increase. The “aggregate gross asset” calculation is increased from $50 million to $75 million, with future adjustments for inflation.
Qualified Opportunity Zones (QOZ): The QOZ program is now permanent. A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. There is a new permanent, rolling 10-year designation beginning 2027.
Bonus depreciation: The OBBB permanently extends the additional first-year (bonus) depreciation, a tax incentive that allows businesses to deduct 100% of qualified property (most tangible personal property) acquired and placed in service on or after January 19, 2025.
Research-and-Development Expenses: Taxpayers may deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024, while maintaining 15-year amortization of foreign expenses starting in 2025. You may be eligible for two years of amended returns to claim refunds.
Qualified Production Properties: 100% deduction for the cost of new “qualified production property,” including certain real property, defined as any property used in a “qualified production activity.”
Business Interest Deductions: The OBBB permanently increases the cap on business interest for tax years beginning on or after January 1, 2025, by replacing earnings before income taxes (EBIT) with EBITDA (including depreciation and amortization), as was the case prior to January 1, 2022.
CFC Look-Through Rule: The controlled foreign corporation (“CFC”) look-through rule is now permanent. U.S. shareholders of CFCs that earn passive income such as dividends, interest, rents and royalties generally must include such income on their U.S. tax returns.
Excess Business Losses (EBL): The OBB permanently extends a TCJA restriction on the ability of noncorporate taxpayers to deduct excess business losses, which are generally losses attributable to a trade or business of the taxpayer that exceed certain income thresholds. Excess losses are carried forward subject to net operating loss rules.
Employee Retention Tax Credit: The OBBB (i) retroactively suspends some pending claims for the employee retention credit; (ii) extends the limitation period on assessments for some employee retention credit claims; (iii) extends the penalty on excess refunds to employment taxes; and (iv) adds a new of enforcement provisions targeting “COVID-ERTC Promoters.”
Payments from Partnerships to Partners: Section 707(a)(2) of the IRC, which addresses payments from partnerships to partners acting other than in the capacity of a partner with respect to services or contributions (i.e., disguised sales), is self-enacting without regulatory approval. While this update may not change existing tax liability, it signals the IRS is preparing to finalize more formal guidance on what counts as a guaranteed payment versus a true distributive share or outside transaction. The IRS may give more scrutiny on partner compensation and contributions to a partnership. You should consider documenting more clearly any payments to partners not tied to ownership percentages, including but not limited to service descriptions and payment dates.
Clean Energy Credits: The OBBB terminates a wide range of clean energy tax incentives, such as credits for electric vehicles, alternative fuel infrastructure, residential and commercial energy efficiency, and certain renewable energy production and investment.
PROVISIONS AFFECTING INDIVIDUALS
SALT Cap: The OBBB temporarily increases the cap on deductions for state and local taxes (SALT) to $40,000 annually for tax years beginning on or after January 1, 2025, and before January 1, 2030. That amount increases by one percent annually beginning in 2027 before reverting back to $10,000 in calendar year 2030. However, the benefit of this increase is phased out for taxpayers with a modified adjusted gross income (MAGI) over $500,000 ($505,000 in 2026 and increasing by one percent annually thereafter; those amounts are reduced 50% for taxpayers that file married filing separately). For those taxpayers over the phaseout amount, SALT deduction is limited to the greater of (a) $10,000 or (b) the cap, as described above, reduced by 30% of the taxpayer’s MAGI over the threshold amount. For any state which permits owners in pass-through entities, such as partnerships and S-corporations, to bypass the SALT cap through the so-called pass-through entity tax (PTET; allowing these owners to claim a deduction for SALT in excess of the $10,000 cap), the OBBB left the PTET workaround intact.
Tax Rates: TCJA rates are made permanent with inflation indexing for lower brackets.
Standard Deduction: The OBBB made TCJA rates permanent, and starting in 2025, the standard deduction will increase to $15,750 for individual filers and $31,500 for joint filers, which will be adjusted for inflation.
Personal Exemption: Permanently reduced to zero.
Trump Accounts for Minors: New tax-preferred “Trump accounts” for minors, a type of qualified savings fund which permit annual contributions of up to $5,000 per minor child, with qualified distributions commencing at age 18. A one-time $1,000 credit is available from the Treasury Department when a Trump account is opened for U.S. citizen children born between 2025 and 2028.
Principal Residence Mortgage Interest Deduction: The OBBB makes permanent the TCJA $750,000 ($375,000 for married individual filing separately) limit on principal residence acquisition indebtedness, as well as the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. Beginning in 2026, the OBBB treats mortgage insurance premiums as qualified residence interest.
Miscellaneous Itemized Deductions: The OBBB makes permanent the TCJA suspension of all miscellaneous itemized deductions subject to the 2% floor, including, for example, unreimbursed employee expenses, hobby expenses, and investment fees.
Child Tax Credit and Other Dependent Credit: The child tax credit has been enhanced to $2,200 (beginning in 2025) for qualifying children under 17, adjusted for inflation after 2025. There are phase-out thresholds ($200,000 for singles and $400,000 for married filing jointly).
Alternative Minimum Tax (AMT): The TCJA’s increased AMT exemptions are made permanent, subject to phase-outs levels at $500,000 for singles and $1,000,000 for joint filers, adjusted since 2018 for inflation.
Charitable Contributions: The OBBB creates a permanent deduction for non-itemizing taxpayers beginning 2026 for certain charitable contributions, up to $1,000 for singles or $2,000 for married filing jointly. For taxpayers who itemize, the OBBB imposes a new 0.5% floor on the charitable contribution deduction, i.e., an individual may only take a deduction for contribution amounts that exceed 0.5 percent of their contribution base (typically AGI), and new carryover rules apply to amounts not entitled to be deducted. The OBBB sets a floor of 1% for corporate charitable contributions, which are further limited to 10% of taxable income.
Tax Deductions for 2025 – 2028
- Overtime Pay Deduction: The OBBB exempts overtime pay up to $12,500 received by a single taxpayer, and up to $25,000 for married filing jointly, in excess of their regular rate of pay. “Overtime” is determined under the Fair Labor Standards Act. This above-the-line deduction phases out starting at AGI of $150,000 (single) or $300,000 (married filing jointly).
- Tip Income Deduction: The OBBB exempts tip compensation up to $25,000 per individual in occupations where tipping is customary, with the phaseouts at $150,000 for single taxpayer or $300,000 for married couple filing jointly. A list of eligible industries will be provided by the Treasury Department.
- Auto Loan Interest Deduction: Deduction for auto loan interest up to $10,000 per year on qualified passenger vehicle loans (vehicle must have been assembled in the U.S. and purchased new). There is a phase out starting at AGI of $100,000 (single) or $200,000 (married filing jointly).
- Senior Deduction: Individuals aged 65 and over receive an additional $6,000 above-the-line deduction, with phase outs at $75,000 for single individuals and $150,000 for married couples filing jointly.
QUESTIONS?
The foregoing summary is just a brief overview of the complexity and reach of the OBBB. Attorneys at BKF can provide experiential insight to better help you navigate the evolving tax landscape. From estate planning strategies to new business approaches, BKF is here to assist you. Should you have questions concerning OBBB, feel free to contact author of the above summary, Kevin Oberlies, Esq. or your primary BKF attorney.
DISCLAIMER
While deemed reliable, the information contained herein is not guaranteed and is purely for informational purposes. Readers should not act on the information contained in this letter without first consulting competent tax and legal professionals.