On Independence Day, President Trump signed the long-anticipated One Big Beautiful Bill Act (OBBBA) into law.
The Act delivers approximately $4.5 trillion in tax cuts over the next decade, primarily by extending the corporate and individual tax breaks from the 2017 Tax Cuts and Jobs Act (TCJA) in addition to other related provisions. It also features $1.5 trillion in spending cuts, which mainly target social programs. With passage of this bill, the U.S. federal debt is expected to increase by more than $3 trillion over a decade. However, once final trade agreements are settled and tariff policy is clarified, revenue from tariffs is expected to offset a portion of the debt incurred by the tax cuts.
Additionally, the Act includes notable pro-growth policies, such as the full expensing of capital expenditures for businesses. We anticipate they will stimulate investment and boost productivity, ultimately driving economic growth. As that happens, the tax base should expand along with income and profits for businesses and individuals, driving tax revenues higher.
Key Provisions of the Act
While the Act includes many of the president’s campaign promises, such as no taxes on tips, we’ve highlighted significant changes impacting high net worth individuals, families and business owners.
For Individuals and Families:
- Estate and Gift Tax Exemption: Permanently increases the lifetime exemption to $15 million for single filers and $30 million for married couples, adjusted for inflation.
- Income Tax Rates and Brackets: The TCJA rates are made permanent, with additional inflation adjustments for certain brackets.
- Alternative Minimum Tax (AMT): The OBBBA permanently extends the increased individual AMT exemption amounts introduced by TCJA while reverting the exemption phaseout thresholds to their 2018 levels: $500,000 for single filers and $1 million for married couples filing jointly, indexed for inflation starting in 2026. The legislation increases the AMT exemption phaseout rate from 25% to 50% of the amount by which a taxpayer’s alternative minimum taxable income exceeds the threshold amount.
- SALT Deduction Cap: Temporarily increases the state and local tax deduction to $40,000 through 2029 before reverting to $10,000 in 2030. A phase-down applies for taxpayers with modified adjusted gross income over $500,000.
- Opportunity Zones: The legislation makes the Qualified Opportunity Zone (QOZ) program permanent, with rolling 10-year QOZ designations. It offers new tax incentives for investing realized capital gains under new qualified opportunity funds on or after January 1, 2027.
- Qualified Small Business Stock (QSBS): The QSBS capital gains exclusion was enhanced in several ways. The qualifying company asset threshold increases from $50 million to $75 million. Meanwhile, exclusions are tiered depending on purchase date, and the exclusion limit increases from $10 million to $15 million.
For Businesses:
For private companies and their owners, OBBBA offers a suite of provisions intended to stimulate investment, innovation and domestic production. The provisions include bonus depreciation, a deduction for research and development, and other specific incentives.
- Qualified Business Income (QBI) Deduction: The 20% deduction for income earned by certain “pass-through” businesses, such as partnerships, S corporations and sole proprietorships, is now permanent.
- Expensing: Businesses must generally write off the cost of assets over their useful life, but bonus depreciation allows a business to immediately deduct these costs. Under the new legislation, the 100% bonus depreciation provision is made permanent with the limit boosted to $2.5 million, indexed for inflation with a phaseout beginning at $4 million.
- Research and Development (R&D): Under OBBBA, businesses can write off qualifying R&D expenditures in the year they are incurred.
Planning and Investing Considerations
Tax legislation changes can be complex but often create opportunity. The OBBBA provides a host of tax changes for individuals and businesses, offering a chance to review and adjust tax, estate and investment strategies within your overall wealth plan. Here are a few worth considering:
Assess Income and Expense Projections
Given the extension of the lower tax rates introduced through the TCJA and the higher AMT exemptions, as well as deductions for business owners, it will be important to work with your advisor to review the timing of income and deductibles in order to minimize taxes and maximize cash flow.
Revisit Your Estate Plan
Given that the act permanently sets the federal estate and gift tax exemption at $15 million, adjusted for inflation, individuals can now engage in more strategic long-term financial planning. With the uncertainty of temporary tax provisions removed, wealth transfers can be structured with greater confidence. This expanded exemption may also prompt a reevaluation of existing trust structures and the establishment of new ones to optimize tax efficiency and preserve generational wealth.
Evaluate Business Planning
Making the qualified business income deduction permanent ensures that partners and S corporation shareholders will avoid a tax increase. Provisions allowing for increased write-offs will further reduce the taxable income of small businesses, effectively boosting after-tax profits. Taxes on capital gains can continue to be deferred through investments in QOZs. In addition, investors and entrepreneurs will benefit from more liberalized rules to qualify as holders of QSBS.
Review Tax-Efficient Investing Strategies
Taxes can reduce investment returns by taking a bite out of your portfolio each and every year. For example, the return on an investment in the S&P 500 over the last decade would be reduced by half a percent annually as a result of taxes.1 This seemingly minor difference can be a negative drag on wealth over time. So even though individual tax rates and brackets are permanently extended, now is a great time to ensure your investment strategy is tax efficient. This may include managing capital gains, leveraging tax-deferred accounts and evaluating the mix of asset classes and investment vehicles you employ. Tax-managed equity and tax-managed fixed income investment strategies can offer additional tax advantages as investment managers actively seek opportunities to harvest losses to offset gains, thereby reducing your overall tax burden.
We’re Here to Help
Given the nuances of the OBBBA provisions, it is important to understand how the Act may affect your financial and tax situation. Proactive, informed planning is critical to optimize tax outcomes, protect wealth and adapt to evolving tax laws.
BNY Wealth is here to offer guidance and tailored strategies to navigate these changes in addition to any necessary modifications to your wealth plan.
