Understanding H.R. 1: The One Big Beautiful Bill Act and Its Impact on Estate and Tax Planning

Focus Keyword: H.R. 1 Estate Tax Changes

As financial and legal landscapes evolve, recent legislation like H.R. 1, colloquially known as the One Big Beautiful Bill Act, presents substantial shifts for estate and tax planning. Enacted on July 4, 2025, this act encompasses numerous tax law changes that may redefine clients’ strategies, especially concerning federal estate tax exemptions, deductions, and planning.

Overview of H.R. 1

The OBBBA introduces permanent increases to federal estate, gift, and generation-skipping transfer tax exemptions. As of January 1, 2026, these exemptions will rise to $15 million per individual, and $30 million for married couples, and will be indexed for inflation. This change may open new avenues for gifting strategies and estate planning.

Key Changes from H.R. 1

Increased Federal Estate Tax Exemptions

Previously, the exemption amounts were set at $13.99 million per person due to the Tax Cuts and Jobs Act of 2017. The OBBBA marks a significant increase, offering opportunities for clients to leverage enhanced exemptions in their estate planning.

Planning Suggestion: As these exemptions grow, consider additional gifting strategies before year-end to maximize benefits.

Enhanced State and Local Tax (SALT) Deductions

Starting in 2025, the SALT deduction cap will temporarily rise to $40,000 for individuals and married couples filing jointly. This increase is phased out for individuals with modified adjusted gross income (MAGI) over $500,000, and will revert to $10,000 on January 1, 2030.

Planning Suggestion: Clients should assess their eligibility for claiming SALT deductions relative to their overall planning goals.

Improvements in Pass-Through Business Income Deductions

The OBBBA extends benefits for owners of “specified service trade or businesses” (SSTBs) by raising the income phase-out threshold and introducing a new $400 minimum deduction. This initiative includes various industries, such as investment management and medical practices.

Planning Suggestion: Evaluate if your business qualifies as an SSTB to benefit from the increased thresholds and review entity structuring for tax optimization.

Modifications to Itemized Deductions

Limitations on Itemized Deductions

The act establishes a 35% effective rate for itemized deductions for the top marginal tax bracket, effectively replacing the earlier “Pease limitation.”

Charitable Deductions Floor

Beginning January 1, 2026, itemized charitable deductions will only apply to amounts exceeding 0.5% of adjusted gross income (AGI).

Planning Suggestion: Discuss strategies to maximize itemized deductions, especially regarding charitable contributions, within a specific tax year.

Above-the-Line Charitable Deductions for Standard Filers

For taxpayers opting for the standard deduction, a contribution deduction of up to $1,000 ($2,000 for married couples) to public charities is permitted.

New Senior Citizen Deduction

A $6,000 above-the-line deduction for qualified taxpayers aged 65 and above (+$12,000 for joint filers) has been introduced, subject to income phase-out limits.

Corporate and Business Tax Changes

Trump Accounts

Eligible U.S. citizen children born from January 1, 2025, to January 1, 2029, will automatically receive custodial accounts with a $1,000 seed contribution. Future contributions can total up to $5,000 annually.

Bonus Depreciation Restoration

The restoration of the 100% bonus deduction allows businesses to claim deductions on eligible assets put into service after January 19, 2025.

Capital Gains Tax Exclusion Enhancements

For qualified small business stock (QSBS) acquired post-July 4, 2025, the capital gains tax exclusion now goes up to $15 million, with newer provisions allowing up to 75% exclusion based on holding periods.

Planning Suggestion: Review how new QSBS provisions influence personal and business planning.

What Remained Unchanged

Despite various modifications, the OBBBA notably did not alter the tax treatment of carried interest, corporate tax rates, or introduce new millionaire tax brackets.

Implications for State-Level Taxes

It’s crucial to note that some states maintain their own estate and inheritance taxes. For instance, states like Illinois and New York impose estate taxes with varying exemption amounts.

Here’s a quick summary:

• Illinois: Estate tax exclusion of $4 million.
• New York: Estate tax exemption at $7.16 million.
• Florida, Indiana, Wisconsin: No state estate or inheritance tax.
• New Jersey: Inheritance tax applicable but no estate tax.

If you reside in a state without an estate tax but own property in another state, you might be subject to that state’s estate tax.

Conclusion: What Are Your Next Steps?

In light of H.R. 1’s significant impact on federal estate tax exemptions and other provisions, it’s imperative to discuss your estate plans with financial advisors and attorneys. Reviewing these changes and aligning them with your family’s specific needs and goals can help ensure optimal estate and tax planning strategies.

For More Information

To explore how to adapt your estate plan under these new regulations, consult your private client attorney.