President Trump Signs the One Big Beautiful Bill Act: Tax Exemptions and Benefits Explained
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, bringing an end to years of uncertainty regarding federal gift, estate, and generation-skipping transfer tax exemptions. This legislative change offers permanent increases to these exemptions and introduces several significant provisions that impact individual clients and families. This article will dissect the key changes brought about by OBBBA, offering clarity on how these updates may affect your tax planning.
Enhanced Estate and Gift Tax Exemptions: A Closer Look
The One Big Beautiful Bill Act permanently extends and enhances the estate and gift tax exemptions that were initially boosted by the 2017 Tax Cuts and Jobs Act (TCJA). Here’s what you need to know:
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Lifetime Exemption Increase: The TCJA temporarily doubled the lifetime exemption for estate and gift taxes from $5 million to $10 million, adjusted for inflation. For 2025, the exemption stands at $13.99 million for individuals. The most striking aspect of OBBBA is that it raises the exemption to a whopping $15 million per individual starting in 2026. This exemption will also continue to increase annually with inflation adjustments from 2027 onwards.
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Married Couples Benefit: Married U.S. citizen couples can effectively double their tax advantages, with a total exemption of $27.98 million through 2025. This shift alleviates the urgency that many taxpayers felt as the year wound down, sparking a significant surge in gift tax returns over recent years.
While OBBBA provides substantial relief, early gifting still has its advantages, and consulting tax advisors for personalized strategies is highly recommended.
Expansion of Qualified Small Business Stock (QSBS) Gain Exclusion
Another noteworthy feature of the OBBBA is its enhancements to the Qualified Small Business Stock (QSBS) gain exclusion under IRC Section 1202. This change is set to take effect in 2026, and here’s how it unfolds:
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New Holding Periods: The existing five-year holding period is modified. A three-tiered system will now allow:
- 50% exclusion for shares held for at least three years.
- 75% exclusion for shares held for at least four years.
- 100% exclusion for shares held for at least five years.
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Increased Maximum Capital Gains Exclusion: The maximum exclusion rises from $10 million to $15 million, with annual inflation adjustments starting in 2027. For married couples filing separately, this cap is set at $7.5 million.
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Higher Gross Asset Limits: The threshold for a corporation’s gross assets will increase from $50 million to $75 million, offering more businesses the chance to qualify for QSBS status.
| Changes to QSBS Under the One Big Beautiful Bill Act | Current Law | Post-2026 |
|---|---|---|
| Holding Period | Five years | At least three years |
| Capital Gain Exclusion | 100% | 50% if held for 3 years, 75% if held for 4 years, 100% if held for 5 years |
| Maximum Exclusion | Greater of $10 million or 10 times the tax basis | Greater of $15 million or 10 times the tax basis (inflation adjusted) |
| Maximum Gross Asset Test | Up to $50 million | Up to $75 million (inflation adjusted) |
Modifications to State and Local Tax (SALT) Deductions
The OBBBA also introduces temporary changes to State and Local Tax (SALT) deductions:
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For the 2025 tax year, the SALT deduction cap will increase from $10,000 to $40,000 for itemizers. For married taxpayers filing separately, the limit will rise from $5,000 to $20,000 each.
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Annual Adjustments: From 2026 through 2029, these deduction amounts will increase by 1% each year.
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Phaseout Provision: Taxpayers with a modified adjusted gross income of $500,000 (or $250,000 each for married individuals filing separately) will see phased reductions in their deduction. However, the deduction will not dip below $10,000 (or $5,000 for separate filers).
These SALT provisions are set to expire in 2030, reverting taxpayers back to prior rules.
Introduction of Trump Accounts: A Strategic Savings Tool
With an anticipated rollout roughly 12 months after OBBBA’s enactment, Trump Accounts will provide a new savings avenue for families with children under 18:
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Employers can contribute up to $2,500 annually to a child’s Trump Account, excluded from the employee’s gross income.
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For children born between 2025 and 2028, the government will add $1,000 to these accounts.
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Contributions are capped at $5,000 per year (adjusted for inflation), and withdrawals are tax-advantaged for expenses such as college tuition or first-time home purchases once the child turns 18.
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There are provisions for rolling over to an ABLE account if the child has disabilities.
Conclusion: OBBBA’s Impact on Tax Planning
The One Big Beautiful Bill Act represents significant shifts in federal tax policies, with permanent increases to essential exemptions and strategic opportunities for families and small businesses. As the OBBBA unfolds, it is crucial for individuals to engage with their tax advisors to navigate these changes effectively and make the most of their financial strategies.
If you have any further inquiries or require more nuanced information, feel free to contact your tax professional or reach out to the legal experts at Arnold & Porter.
Note: This article is a general overview of the law; please consult with legal professionals for tailored advice.
