The One Big Beautiful Bill Act (OBBBA), passed with slim majorities in Congress and signed into law by President Trump on July 4, 2025, represents a sweeping reform of U.S. tax policy. The OBBBA builds on the 2017 Tax Cuts and Jobs Act (TCJA) while introducing new provisions. This article provides a focused summary of the OBBBA’s changes to estate and income tax laws, highlighting their impact on taxpayers and planning considerations.
Estate Tax Reforms
A cornerstone of the OBBBA is the permanent increase of the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual ($30 million for married couples), effective January 1, 2026, with annual inflation adjustments. Under the TCJA, the exemption was temporarily raised to $10 million (adjusted to $13.99 million for 2025) but was slated to drop to roughly $7 million in 2026. The OBBBA, amending Section 2010(c) of the Internal Revenue Code, eliminates this sunset, using 2025 as the base year for inflation.
This reform significantly expands the ability of high-net worth individuals to transfer wealth tax-free. For example, a couple can now shield $30 million from the federal estate tax (which has a top tax rate of 40%), though prior taxable gifts reduce the available exemption. The GST exemption, which facilitates tax-free transfers to grandchildren, remains non-portable, requiring careful planning for surviving spouses. While state estate taxes may still apply in jurisdictions like New York and Massachusetts, the increased federal exemption offers substantial relief and removes the pressure to make large gifts before 2026.
Income Tax Reforms
The OBBBA makes several TCJA income tax provisions permanent while introducing temporary and permanent changes to deductions and credits. Key reforms include:
- Tax Brackets and Standard Deduction
The OBBBA permanently retains the TCJA’s seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) and applies inflation adjustments to all but the top tax bracket, reducing tax burdens for most households. The standard deduction – $15,750 for single filers and $31,500 for joint filers in 2025 – is also made permanent and indexed for inflation, simplifying tax filing and providing consistent relief.
- State and Local Tax (SALT) Deduction
The SALT deduction cap, set at $10,000 under the TCJA, is temporarily increased to $40,000 ($20,000 for married filing separately) through 2029, with inflation adjustments from 2025. The cap phases out for taxpayers with modified adjusted gross income (MAGI) above $500,000 ($250,000 for married filing separately), reverting to $10,000 in 2030. This benefits taxpayers in high-tax states, though high earners face limitations. State pass-through entity tax (PTET) workarounds remain viable, aiding business owners.
- Charitable Deduction Changes
A permanent non-itemizer charitable deduction of $1,000 for single filers and $2,000 for joint filers is reintroduced, encouraging giving among non-itemizers. For itemizers, a new 0.5% floor on charitable deductions (1% for corporations) applies, based on the contribution base (generally adjusted gross income). For top-bracket taxpayers, this reduces the effective deduction to 35% of donated dollars, slightly curbing benefits for high-income donors.
- Targeted Temporary Deductions
The OBBBA introduces temporary deductions for 2025-2028, including:
- Tip Income: A deduction of up to $25,000 for qualified tip income, phasing out for MAGI above $150,000 ($300,000 for joint filers).
- Overtime Income: Up to $12,500 ($25,000 for joint filers) of overtime income is deductible, with identical phase-outs.
- Auto Loan Interest: A deduction of up to $10,000 for interest on loans for U.S.-assembled vehicles, phasing out for MAGI above $100,000 ($200,000 for joint filers).
- Senior Deduction: An additional $6,000 deduction for taxpayers aged 65 and older, phasing out for MAGI above $75,000.
These provisions provide targeted relief but require strategic planning due to their expiration in 2028.
- Additional Provisions
The OBBBA permanently eliminates the personal exemption, offset by the enhanced standard deduction. The Section 199A qualified business income deduction for pass-through entities is made permanent at 20%, with a broader phase-in for high earners. The Child Tax Credit is increased to $2,200 per child and made permanent, supporting families.
Practical Implications
The OBBBA’s estate tax reforms enable high-net-worth individuals to plan with confidence, leveraging trusts and gifting strategies to maximize tax-free transfers. Income tax changes offer broad relief, particularly for middle-income households and residents of high-tax states, but temporary deductions necessitate proactive tax planning. High earners should evaluate phase-outs and consult advisors to optimize benefits, especially for SALT and charitable deductions. The bill’s $4.5 trillion in tax cuts, partially funded by spending reductions, underscores its economic significance.
