Significant changes to federal estate and income tax laws were enacted with the passage of the One Big Beautiful Bill Act (“OBBBA”). The following is a summary of the key items to be aware of.
Federal Estate and Gift Tax Exemption Increased
The OBBBA “permanently” extends the estate tax provisions of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. Effective January 1, 2026, the federal exemption for estate and gift tax will increase to $15,000,000 per person ($30,000,000 per married couple), with inflation indexing to take effect in the future.
This increase presents a planning opportunity for individuals whose estates will be subject to estate tax to reduce future tax liability. For individuals who have already utilized their current exemption of $13,990,000, the increased exemption amount allows them to transfer an additional $1,010,000 free of federal transfer taxes on or after January 1, 2026.
Despite the increase, careful planning is still needed to utilize this exemption fully. Individuals now have the opportunity to revisit their gifting strategy and wealth transfer plans with less urgency and explore various planning strategies available to them.
Changes to Charitable Giving Rules
The OBBBA introduces new benefits and limitations for charitable giving.
Cash gifts to qualified charities will continue to be deductible for up to 60% of the individual’s adjusted gross income, instead of falling to 50% as scheduled under the Tax Cuts and Jobs Act (TCJA).
Starting on January 1, 2026, individuals who take the standard deduction can claim a charitable deduction of up to $1,000 ($2,000 if married filing jointly).
Also, starting on January 1, 2026, individuals who itemize their deductions can deduct charitable donations to the extent they exceed 0.5% of their adjusted gross income. We await further guidance on whether the disallowed portion will be eligible for carryover to the following year. The new 0.5% floor encourages consolidating charitable donations in a single year to maximize deductibility. This may be the perfect opportunity for individuals to fund a donor-advised fund or private foundation significantly.
Temporary Increase in the State and Local Tax Deduction
Under the Tax Cuts and Jobs Act, the federal deduction for state and local taxes (“SALT”) was limited to $10,000 per individual. SALT includes property, sales, or income taxes that individuals have already paid to state and local governments. Under the TCJA, individuals in states with high income and property taxes were disproportionately affected by this limit.
For tax years 2025 through 2029, the OBBBA raises the itemized deduction cap for SALT from $10,000 to $40,000, with an annual 1% increase in the cap. It is important to note that the $40,000 cap is reduced by 20% of the amount an individual’s modified adjusted gross income exceeds $500,000, eventually phasing the deduction back to $10,000 for individuals with modified adjusted gross income in excess of $600,000. In 2030, the federal SALT deduction cap reverts to $10,000 per individual.
There are planning strategies that can be considered to maximize the federal SALT deduction and reduce the phaseout consequences, which will be covered in an upcoming blog post.
Broader Uses for 529 Plan Funds
A 529 plan is a tax-advantaged savings account designed to help families invest for future education expenses. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses. While initially focused on higher education, recent changes have significantly expanded eligible uses.
Since 2017, 529 plan beneficiaries have been able to use up to $10,000 per year for tuition at private elementary and secondary schools. As of January 1, 2026, that annual limit will increase to $20,000.
In addition to tuition, qualified K-12 expenses will include the following:
- Curriculum and instructional materials
- Private tutoring
- Fees for advanced placement or college admissions tests
- Educational therapies for students with disabilities
529 plans can now be used for a broader range of postsecondary and career-focused programs, including the following, which reflect the growing demand for skilled workers in high-demand trades and professional fields that don’t require a traditional four-year degree.
- State-approved workforce development programs
- Federally approved apprenticeships
- Licensing or certification programs
- Graduate school admissions test preparation, continuing education courses, and learning materials
These changes may offer greater flexibility and earlier access to 529 plan funds. If you are helping to support your children’s or grandchildren’s education, it may be time to revisit how your education savings strategy fits into your larger financial picture.
In Summary
The OBBBA presents both complexity and opportunity. While the list of items in this post is by no means exhaustive, it reflects what we believe to be the most impactful provisions of the OBBBA for our clients. We are here to help you assess how these changes may affect your planning goals and work with you to determine your next steps.