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One Big Beautiful Bill Act – Key Tax Provisions – Image Credit Unsplash+
The One Big Beautiful Bill Act (“OBBB”) was signed into law on July 4th, 2025, ushering in sweeping changes to the U.S. federal tax landscape. The OBBB permanently extends and expands many provisions of the Tax Cuts and Jobs Act (“TCJA”), and introduces significant updates that will impact both individuals and businesses. The following are among the more notable provisions in the OBBB.
Income Tax Rates
The OBBB permanently extends the reduced individual income tax rates and brackets originally enacted by the 2017 TCJA, which were previously set to expire after 2025.
Taxpayers will continue to benefit from the lower income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Estate, Gift, and Generation-Skipping Transfer Tax Exemption
The OBBB permanently raises the federal estate, gift and generation-skipping transfer tax exemption to $15 million per individual (or $30 million for married couples), effective for estates of individuals and gifts made after Dec. 31, 2025. This exemption amount will continue to be indexed for inflation in future years.
SALT Deduction and Passthrough Entity Tax
The OBBB temporarily raises the cap on the state and local tax (“SALT”) deduction from $10,000 to $40,000 for 2025, with the cap increasing by 1% annually through 2029. Starting in 2030, the cap reverts to $10,000. However, for taxpayers with modified adjusted gross income over $500,000, the available SALT deduction phases down by 30% of the excess income, but never below $10,000 (with the threshold amount also increasing by 1% annually through 2029).
Importantly, the OBBB also preserves the federal deductibility of state-level Pass-Through Entity Taxes (“PTET”) for pass-through entities such as S corporations and partnerships. These businesses may continue to pay state income taxes at the entity level, effectively bypassing the individual SALT deduction cap and providing continued relief for owners of such entities in states with high state income tax.
Section 199A – Qualified Business Income Deduction
The OBBB makes the Section 199A Qualified Business Income (“QBI”) deduction, which was previously set to expire at the end of 2025, permanent, ensuring that eligible pass-through business owners can continue to deduct up to 20% of their QBI beyond 2025.
Section 168(k) – Bonus Depreciation
The OBBB makes permanent 100% bonus depreciation for qualified property placed in service after Jan. 19, 2025, reversing the TCJA’s reduction of the rate to 40% in 2025 and complete phase-out by 2027. Property placed in service on or before Jan. 19, 2025, remains subject to the phase-down schedule under prior law. A transition rule will also permit taxpayers to elect 40% or 60% bonus depreciation for qualifying property placed in service during the first taxable year ending after Jan. 19, 2025.
In addition, the OBBB creates a separate 100% depreciation allowance for “Qualified Production Property” (“QPP”) placed in service before Jan. 1, 2031. QPP includes certain newly constructed or substantially improved non-residential real estate used in manufacturing, production, or refining of tangible personal property in the United States.
Section 1202 – Qualified Small Business Stock
The OBBB introduces several taxpayer-friendly enhancements to Section 1202 for qualified small business stock (“QSBS”) acquired after July 4, 2025:
- The maximum gain exclusion per shareholder increases from $10 million to $15 million, with future adjustments for inflation.
- The holding period for gain exclusion is now phased in: 50% exclusion after three years, 75% after four years, and 100% after five years, replacing the previous five-year cliff.
- The aggregate gross assets limit for qualifying corporations rises from $50 million to $75 million, also indexed for inflation, allowing more businesses to qualify for these benefits.
Section 1400Z – Qualified Opportunity Zones
The OBBB permanently extends the Qualified Opportunity Zone (“QOZ”) program by replacing the current Dec. 31, 2026 investment deadline with a recurring 10-year designation cycle beginning July 1, 2026 and introduces the following enhancements:
- For investments made on or after Jan. 1, 2027, deferred capital gain will be recognized on the earlier of a sale or the five-year anniversary of the investment, replacing the prior fixed recognition date and establishing a rolling deferral framework.
- A 10% step-up in basis applies to investments held for at least five years, eliminating the incremental step-up available under prior law.
- The 10-year gain exclusion is retained, allowing basis to step up to fair market value upon sale after 10 years. If held beyond 30 years, basis is automatically stepped up to fair market value on the 30th anniversary, with any later appreciation occurring thereafter taxable on sale.
To incentivize rural investment, the OBBB establishes a new class of “Qualified Rural Opportunity Funds” (“QROFs”), which follows the general QOZ framework but offer a 30% basis step-up after five years and preserves eligibility for the full 100% gain exclusion after 10 years. The “substantial improvement” requirement is also relaxed, allowing compliance with investment of 50% of the property’s adjusted basis rather than 100%.
Itemized Deductions
The OBBB permanently eliminates miscellaneous itemized deductions, such as investment expenses and tax preparation fees, which were previously suspended under the TCJA.
The bill also imposes new limitations on the value of itemized deductions for high-income taxpayers. For those in the top tax bracket (37%), the benefit of most itemized deductions is capped at 35%, meaning each dollar of deduction reduces tax liability by only 35 cents, not the full marginal rate. For the SALT deduction specifically, the benefit is further limited to 32% for top earners, so only 32 cents of tax liability is reduced per dollar deducted for SALT.
Charitable Deductions
The OBBB makes several changes to the charitable contribution rules, including new minimum contribution thresholds and the permanent extension of provisions originally enacted under the TCJA. Individuals may deduct only amounts exceeding 0.5% of adjusted gross income (“AGI”), while corporations are subject to a 1% minimum, with the longstanding 10% cap preserved. The 60% limitation for individual cash contributions is also made permanent. However, for high-income taxpayers, the value of charitable deductions is further limited by the new cap on itemized deductions, which restricts the benefit to 35%, reducing the effective after-tax value of such contributions
About JMBM’s Trusts & Estates Group
JMBM’s Trusts & Estates Group focuses on estate planning, wealth transfer planning, trust administration and the resolution of trust disputes. Our Firm has one of the most active trusts and estates practices in California and our clients include individuals and families, and their business interests.
This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.
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