One Big Beautiful Bill: What You Need to Know

On July 4^th, President Trump signed into law the One Big Beautiful Bill Act (OBBB).  The Senate approved the Bill on July 1^st with minor adjustments, and the House approved it as written by a four-vote majority after spirited debate on July 3^rd. There are some important aspects of the OBBB that clients should be aware of and consider in their estate, business and tax planning.  Emily Taylor wrote an article on the House’s original passage of the bill last month, see her article for where we started: https://rappandkrock.com/one-big-beautiful-bill-a-first-step/, I’ll address how the final version of the OBB handles those issues in addition to other important changes.

Estate, Gift and Generation Skipping Tax (GST)

As many predicted, the final version of the OBBB kept the proposed $15,000,000 Estate and Gift Tax exemption increase, as well as a matching increase for the GST exemption, which will start in 2026 with inflation adjustments thereafter. The current $13,990,000 exemption was to sunset at the end of this year and revert to approximately $7,000,000. The exemption amount is the value you can gift during your lifetime or pass at your death without paying gift or estate tax, and as each individual has an exemption, a married couple will be able to pass (with properly planning) up to $30,000,000.  The GST tax is a second tax which applies when people gift or leave property to a beneficiary more than one generation or 40 years removed from the donor, so essentially a second estate tax.  This is great news for estate planning clients as it minimizes the role of estate taxes for most taxpayers.

Medicaid and the Elderly

The OBBB made several of the changes described in Emily’s article.  Generally, OBBB reduces funding to Medicaid and did not directly affect Social Security.  However, the OBBB provides a “bonus” standard deduction of $6,000 for individual taxpayers and $12,000 for married couples over age 65 with phase outs starting at $75,000 of annual income for individuals and $150,000 for couples. This deduction is called a bonus because it is in addition to the existing extra deduction for seniors, which varies from about $1,600 to $3,200 based upon marital, household and disability status. It is also an addition to the existing standard deduction.

The OBBB also reduces SNAP funding and changes work requirements for adults without disabilities and with children under age 14 by requiring work up to age 65.  There are similar work rules for Medicaid for enrollees ages 19 through 64 without a disability, more frequent Medicaid recertifications and reductions on provider taxes which will require greater state contributions to the program.

SALT Cap

Much of the OBBB debate focused on the SALT cap, which is the state and local tax deduction applied against federal income taxes.  The final version of the OBBB set the SALT cap at $40,000 with a 1% annual adjustment for taxpayers making less than $500,000 with a phase out for taxpayers with higher income.  This deduction increase will sunset in 2030 and return to $10,000.

QBI

As proposed in prior versions of the Bill, the final version of the OBBB set the Qualified Business Income (QBI or 199a deduction) permanently to 23%. The prior law set the deduction at 20% and was going to sunset at the end of the year.  This maintains the original law’s benefit of helping owners of sole proprietorships, partnerships and S corporations increase tax savings in line with the prior corporate tax cuts, as well as providing additional minimal deductions.

R&D

The OBBB gives taxpayers the choice between immediately deducting domestic R & D costs in the year they are incurred, or alternatively capitalizing and amortizing the costs over the useful life of the domestic R & D, but not for less than five years. The Act did not change foreign R & D deductions. Small businesses may even be able to make retroactive allocations to tax years starting in 2022.

Additional Business-Related Provisions

There are several tax provisions for businesses in the OBBB. Among them, the Act approved the increase in the Section 179 deduction cap addressing deductions of business equipment from $1,000,000 to $2,500,000 with phaseouts beginning at $4,000,000.

The Qualified Opportunity Zone continues with the modified eligibility requirements focused on identifying eligible communities and requiring new information returns.

The OBBB makes the Section 45S credit for employers permanent. This section offered a tax credit to eligible employers based upon a percentage of the amount the employer paid for an employee’s family or medical leave.

The Act also extends the statute of limitations on claim assessments for Employee Retention Credits, institutes new reporting requirements and extends the penalties for excessive refunds.

The business interest deduction also changed. It is now calculated separately from the depreciation and amortization deductions, which generally will result in higher deductions.

Aside from the estate and business-focused changes, the OBBB made several other legal changes.

Student Loan Caps

The OBBB eliminates Graduate Plus loans and caps unsubsidized student loans at $20,500 per year and $100,000 lifetime for graduate students, although caps for some professional fees are set at $50,000 per year and $200,000 lifetime. The OBBB also sets a federal loan lifetime cap at $257,500.

“Trump Accounts”

The OBBB also creates a new type of savings account for U.S. citizen children born in 2025 through 2028. The “Trump account” is a tax advantageous savings plan in which the government makes a $1,000 deposit to an account for the benefit of the child.   Parents may also contribute up to $5,000 a year and employers may contribute up to $2,500 per year, which will not be considered income. The investments will grow tax deferred and once 18 the child may make qualified withdraws which will be taxed as long-term capital gain rates, otherwise at ordinary income rates with a 10% penalty.

 Other Tax Adjustments

The OBBB generally retains or extends many Tax Cuts and Jobs Act of 2017 tax provisions which were to sunset in 2026. Here are a few highlights:

• The standard deduction increases from $15,000 individual/$30,000 married couple to $15,750/$31,500.
• Seniors get an additional bonus deduction of $6,000 per individual (see above).
• A temporary income tax deduction of up to $25,000 per year on qualified tip income.
• A temporary income tax deduction of up to $12,500 per individual/$25,000 per couple of overtime pay.
• Limited car loan deduction on new loans from 2025 through 2028 depending on taxpayer’s income.
• An above-the-line charitable deduction of $1,000 for individuals, $2,000 for a married couple.
• Elimination of the electronic vehicle deductions and home energy efficiency incentives.
• Extended qualified residence mortgage interest deductions for the first $750,000 of home mortgage value.

These are only highlights of the One Big Beautiful Bill Act focused on the issues most relevant to our clients. If you would like to discuss how these changes may impact you, please reach out to us.

You may also see here for the full text of the Bill:  https://www.congress.gov/bill/119th-congress/house-bill/1/text