One Big Beautiful Bill Act (OBBBA)

One of the most direct ways the OBBBA benefits HNW and UHNW individuals and families is through the permanent reduction of the top federal income tax rate. The top marginal income tax rate was permanently reduced from 39.6% to 37%, a change that significantly affects high earners. No millionaire’s tax was included in the OBBBA.

Why is this important?

1. Increased after-tax income
   
   Lowering the top marginal rate may result in significant annual tax savings, especially for high earners and those with large investment income or business profits.
   
   
2. Enhanced cash flow
   
   The additional liquidity resulting from the annual tax savings can be redirected toward portfolio growth potential, reinvestment in businesses, gifting to family members, and increased charitable giving.

Benefiting owners of pass-through entities, Section 199A or qualified business income (QBI) deductions will no longer expire, maintaining the 20% deduction (subject to phase-outs).

Example: An individual earning $2.5 million in qualified income through multiple LLCs can deduct $500,000 (20%), thus lowering taxable income.

What does continuance of the QBI deduction impact?

1. Income phase-out limits are expanded, permitting more high-income earners to qualify for the deduction without complex structuring.
2. Pass-through entities and trusts may continue to be used to separate business income from personal earnings and help optimize overall tax positions.
3. Reducing the effective tax rate on businesses creates an opportunity for business owners to reinvest more profits into their businesses, philanthropy or other estate planning vehicles.

Key changes to the federal estate and gift tax exclusions

The OBBBA provides a major advantage to HNW and UHNW individuals and families by increasing the federal estate and gift tax exclusions.

This increase means that more assets can be passed on or gifted to family members and it allows for the greater use of advanced planning strategies such as charitable trust planning, grantor retained annuity trusts (GRATs), and other irrevocable trusts.

What does permanently raising the exclusion affect?

1. More assets are exempt from estate tax
   
   Estates up to $15 million per individual ($30 million per married couple) will be able to be conveyed without incurring federal estate or gift tax. The increased exclusion reduces a family’s potential estate and gift tax exposure, thus allowing for more wealth to transfer to heirs.
   
   
2. Relief is permanent
   
   Beginning in 2026, the federal estate and gift tax exclusions are permanent and will be indexed for inflation. Passing the OBBBA avoids the previously scheduled sunset of the federal estate and gift tax exclusion to roughly $7 million per individual.
   
   
3. More opportunities
   
   Just as reducing the top marginal income tax bracket has benefits, so does increasing the estate and gift tax exclusion. HNW and UHNW individuals and families may use the increase to enhance their gifting strategies and trust funding.

Federal cap on State and Local Tax (SALT) deductions raised significantly

Until now, individuals were limited to deducting a maximum of $10,000 in combined state income and property taxes on their federal return. This cap has been increased to $40,000.¹ What are some implications?

1. Improves tax efficiency: Reduces taxable income at the federal level, which is particularly helpful for those living in high income tax states such as California, Connecticut, Illinois, New Jersey and New York, as well as states with high property taxes. This provides relief in those states by narrowing the tax disadvantage compared to lower tax states such as Florida, Nevada, Tennessee and Texas.
2. Supports real estate ownership: Makes high-priced homes and vacation properties more tax-efficient by allowing larger tax deductions.
3. Strategic tax planning: Consider reevaluating residency, domicile and real estate holdings since SALT deductions can materially affect federal tax liability.

¹ Phaseouts of this cap amount will occur for certain higher income taxpayers.

Further encouraging investment in startups, expanded benefits for QSBS acquired after July 4, 2025, include:

1. Higher gain exclusion
   
   Maximum tax-free gain per shareholder increases from $10 million to $15 million, indexed for inflation.
   
   
2. Phased holding period
   
   
   • 50% exclusion after three years
   • 75% after four years
   • 100% after five years
     (Replaces the previous five-year cliff).
     
     
3. Expanded eligibility
   
   The qualifying corporation asset cap rises from $50 million to $75 million, also inflation-adjusted.
   
   Entrepreneurs should seek advice on choice of entity as these benefits only apply to C-corporations.

The qualified opportunity zone (QOZ) program will be updated July 1, 2026, with:

1. Rolling 10-year designations
   
   State governors may nominate new zones every 10 years, with each designation lasting a decade.
   
   
2. Updated property eligibility
   
   Stricter requirements for properties to be designated as QOZs.
   
   
3. Rolling gain deferral
   
   For post-2026 investments, deferred gains are recognized five years after the date of the investment, not on a fixed date.
   
   
4. 10% basis step-up
   
   Investors receive a permanent 10% basis increase after five years; the prior 5% step-up at year seven is eliminated.
   
   
5. Rural zone incentives
   
   Enhanced benefits apply to investments in qualified rural opportunity funds; the basis step-up for qualified rural QOZ is 30% rather than 5%.

Charitable giving impacted

There are several notable modifications to the federal tax treatment of charitable contributions. These provisions may influence the timing, structure, and deductibility of philanthropic gifts for both individuals and corporations.

1. Above-the-line deduction for non-itemizers

Effective in 2026, taxpayers who claim the standard deduction will be permitted to deduct a limited amount of charitable contributions “above the line”. This does not include contributions to donor advised funds.:

• Up to $1,000 for individual filers
• Up to $2,000 for married couples filing jointly

Example: A married couple who does not itemize and contributes $1,500 to a qualified charity may deduct the full amount, subject to the $2,000 cap. A married couple who does not itemize and contributes $4,000 may only deduct $2,000 (the cap).

2. Floor for itemized charitable deductions

Beginning in 2026, itemized charitable deductions will be subject to a minimum threshold:

• 0.5% of Adjusted Gross Income (AGI) for individuals
• 1% of taxable income for corporations

Only the portion of charitable contributions exceeding these thresholds will be deductible.

Example: An individual with $600,000 in AGI would be required to exceed $3,000 in charitable giving before any deduction is allowed. Their $10,000 contribution would only result in a $7,000 deduction.²

3. Cap on deduction for high-income donors

For taxpayers in the highest federal income tax bracket (currently 37%), the value of all itemized deductions, including charitable deductions, will be capped at 35%, reducing the tax benefit of charitable giving for high-income individuals.

Example: A donor in the 37% bracket who contributes $100,000 to charity would receive a maximum tax benefit of $35,000, rather than $37,000 under prior law.

4. Permanent Extension of the 60% AGI Limit for Cash Gifts

The 60% AGI limitation for cash contributions to public charities, originally enacted under the Tax Cuts and Jobs Act of 2017 and previously set to expire, has been made permanent.

Example: A taxpayer with $500,000 in AGI who contributes $350,000 in cash to a public charity may deduct up to $300,000 (60% of AGI) in the current year. The remaining $50,000 may be carried forward for up to five years.

² The value of the deduction also would be limited to a 35% reduction in tax for those paying tax at the highest marginal rate. See no. 3.