Understanding the One Big Beautiful Bill Act (OBBBA): Key Tax Updates for Individuals and Families

President Trump’s recent signing of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, marks a significant shift in federal tax policy, particularly regarding gift, estate, and generation-skipping transfer (GST) taxes. This new legislation eliminates years of uncertainty surrounding these tax exemptions, which were set to expire at the end of this year. In this article, we’ll break down the critical components of the OBBBA and its impact on individual taxpayers.

Key Highlights of the One Big Beautiful Bill Act

Permanent Increase in Estate and Gift Tax Exemptions

The 2017 Tax Cuts and Jobs Act (TCJA) temporarily doubled the lifetime estate, gift, and GST exemptions for U.S. citizens and green card holders from $5 million to $10 million. With OBBBA, this exemption is now permanently set to $15 million per individual starting in 2026, increasing annually for inflation thereafter. This means:

• Current Exemptions (2025): $13.99 million per individual
• New Exemptions (2026 Onwards): $15 million per individual

Married couples can effectively enjoy a combined exemption of $30 million. In the years preceding OBBBA, many individuals rushed to leverage the temporary exemption, fearing a decrease back to pre-TCJA levels. Now, taxpayers have the peace of mind to plan their gifts without the end-of-year urgency.

Enhanced Exclusions for Qualified Small Business Stock (QSBS)

The OBBBA introduces favorable changes to the tax treatment of Qualified Small Business Stock (QSBS) under Internal Revenue Code Section 1202. Here are the enhancements effective in 2026:

• New Holding Periods: The minimum holding period for stock to qualify for full exclusion has been reduced to three years from five. The graduated exclusion is as follows:
  • 50% exclusion for three-year holding
  • 75% exclusion for four-year holding
  • 100% exclusion for five-year holding
• Increased Maximum Exclusions: The capital gains exclusion is now $15 million (or $7.5 million for married couples filing separately), adjusted for inflation from 2027 onwards.
• Raised Gross Asset Limit: A corporation’s gross assets cap has increased from $50 million to $75 million, enabling more businesses to qualify as QSBS.

This reform significantly broadens the scope for businesses seeking to optimize their tax situations.

Modifications to State and Local Tax (SALT) Deductions

OBBBA temporarily amends the SALT deduction for tax year 2025. Key changes include:

• Increased Deduction Limits:
  • From $10,000 to $40,000 for itemizers.
  • For married taxpayers filing separately, the deduction rises from $5,000 to $20,000.
• Future Changes: Beginning in 2026, there will be yearly increases of 1%, lasting until 2029. However, phaseouts apply for those with $500,000 in modified adjusted gross income, though deductions won’t drop below the $10,000 threshold.

In 2030, the SALT deduction provisions will revert to pre-OBBBA rules.

Introducing Trump Accounts for Child Savings

Starting approximately 12 months from now, the OBBBA allows employers to contribute to “Trump Accounts” set up for children under 18. Here’s how it works:

• Annual Contributions: Employers can contribute up to $2,500 annually to a Trump Account, which won’t count toward the employee’s gross income.
• Government Contribution: For every child born in 2025 through 2028, the government will contribute $1,000 to their Trump Account.
• Investment Limits: Contributions cannot exceed $5,000 annually, and withdrawals won’t be possible until the child turns 18. Upon reaching this age, funds can be utilized for college tuition, starting a small business, or purchasing a first home, with preferred tax treatment.

Additionally, these accounts can be rolled into ABLE accounts for disabled children.

Conclusion

The passage of the One Big Beautiful Bill Act introduces crucial changes across various tax domains, especially concerning estate and gift tax exemptions, QSBS exclusions, SALT modifications, and child savings accounts. These measures aim to provide greater tax planning opportunities for individuals and families.

For personalized advice and to understand how OBBBA impacts your unique financial situation, consulting a qualified tax advisor is highly recommended.

Frequently Asked Questions

• What is the new gift exemption under OBBBA?
  The gift exemption rises to $15 million per individual starting in 2026.

• How has QSBS treatment changed?
  The minimum holding period has reduced to three years, with increased capital gains exclusions and asset limits.

• What updates apply to SALT deductions?
  The SALT deduction for itemizers rises temporarily to $40,000 for 2025, with gradual increases until 2029.

For more insights, feel free to reach out to your trusted legal advisors at Arnold & Porter. We are dedicated to helping you navigate these changes effectively.