The One Big Beautiful Bill Act: What It Means For You

Key 2025 Planning Insights

• Charitable giving strategy: A new floor on deductions begins in 2026. There is a compelling case for front-loading contributions before year-end 2025.
• Estate tax: Higher exemptions are confirmed, but gifting before year-end 2025 may still be beneficial, especially in high-tax states.
• AMT adjustments: Higher exemption and threshold amounts preserved, but with some key changes. ISO holders might consider 2025 as a planning window.
• QSBS: For stock acquired post-July 2025, gain exclusions phase in over time, and the per-issuer cap increases to $15M. Timing and ownership structure are now more critical.
  

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) is an overhaul of tax policies, with implications for individuals, businesses, and many sectors of the U.S. economy. For some, the impact of the bill may be substantial, while others may see minimal changes from recent years. Below is a summary of the most impactful provisions relevant to estate and wealth planning.

Potential Planning Opportunities For 2025

Charitable Donations in 2025 – A new charitable deduction floor of 0.5%, combined with the existing 35% ceiling for those in the highest bracket, makes a persuasive case for front-loading charitable contributions before the end of 2025. This may be particularly compelling for high-income individuals. See Table 1 for more details.

Alternative Minimum Tax (AMT) – While the higher phaseout thresholds from TCJA were preserved, they reset to 2018 values in 2026. In other words, the inflationary increases of the last eight years are lost. A rise in the number of people subject to AMT is expected. As this is a complex parallel tax, it is important that you work with your CPA or tax advisor to understand the implications for your personal situation. If you hold ISOs (incentive stock options), this is especially relevant. There may be an opportunity to exercise ISOs in 2025.

Estate Tax Exemption – Making gifts before year-end 2025 can remove appreciating assets from your taxable estate. Additional gifts can be made in 2026 when the exemption increases. For clients in states with “clawback” rules (e.g., New York), gifts made within three years of death may be subject to estate tax. Early gifting could be beneficial.

Potential Pitfalls

As economist Thomas Sowell noted: “There are no solutions. There are only trade-offs.” This is an important observation to keep in mind as you navigate the second half of 2025 and plan for 2026 and beyond. Many of the opportunities and planning strategies that we have focused on in recent years remain relevant but may require adjustment. For example, partial Roth IRA conversions or pulling forward income between retirement and required minimum distributions (RMDs) may need to be reassessed. High-income earners in high-tax states should consider managing their taxable income to stay below the state and local tax (SALT) deduction phaseouts.

We encourage you to consult with your First Manhattan team and your CPA or tax advisor to evaluate the impact of these changes.

Estate and Gift Tax Provisions

OBBBA permanently increases the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15M per individual ($30M per couple), indexed annually beginning in 2026.

Under prior law, these exemptions—originally expanded under TCJA—were scheduled to sunset at the end of 2025, reverting to approximately half their current levels. The enactment of OBBBA not only avoids that sunset but confirms these higher exemption amounts will remain intact. This presents a valuable opportunity to transfer significant wealth (outright or in trust), including future appreciation, without triggering gift tax. Annual exclusion gifts (currently $19K per recipient) remain unchanged.

When evaluating lifetime gifting strategies, it is important to also consider income tax implications, particularly the future capital gains exposure on appreciated assets transferred during life. Retaining assets until death (to benefit from a stepped-up basis) may be more tax efficient.

Keep in mind that while the federal exemption has increased, many states continue to impose significantly lower estate tax thresholds. A change in tax law is a good motivator to review existing estate planning documents, especially where formula clauses in Wills or trusts might result in unintended outcomes under the new law.

Business Tax Provisions

Internal Revenue Code (IRC) Section 199A Deduction for Qualified Business Income (QBI): Previously scheduled to sunset in 2026, the 20% QBI deduction under TCJA is now made permanent under OBBBA. This applies to qualifying business owners of pass-through entities, including LLCs, partnerships, and S-corps. The legislation also expands eligibility and clarifies deduction rules.

Bonus Depreciation: OBBBA permanently extends bonus depreciation, allowing businesses to immediately deduct 100% of the cost of eligible property acquired or placed in service after January 19, 2025. It also expands eligibility to include manufacturing, production, and refining property.

Qualified Small Business Stock (QSBS) Exclusion: OBBBA enhances the exclusion of gain on the sale or exchange of QSBS under IRC Section 1202, significantly expanding the tax benefits available to investors in early-stage companies.

• Under existing law, a taxpayer may exclude from gross income a portion of the gain realized on the sale or exchange of QSBS if certain requirements are met⁵.
• OBBBA expands this by increasing the cap from $10M to $15M (indexed for inflation beginning in 2026) or 10x the taxpayer’s adjusted basis in the QSBS, whichever is greater.
• The Act also allows for phased exclusions based on holding periods.
• The definition of a “qualified small business” is expanded to include corporations with aggregate gross assets of up to $75M at the time of issuance (indexed for inflation).

Many taxpayers, particularly founders and early investors, hold QSBS that exceed the exclusion caps. The enhancements to IRC Section 1202 under OBBBA present significant tax planning opportunities for taxpayers seeking to maximize QSBS exclusions across multiple individuals and entities.

When QSBS is transferred by gift or at death, the recipient steps into the donor’s holding period and retains eligibility for QSBS treatment. This enables multiple IRC Section 1202 exclusions. By gifting QSBS to multiple individuals—including children, trusts, or other family members—a taxpayer may multiply the gain exclusion, with each recipient potentially eligible for the full $15M (or 10x basis) exclusion. Thoughtful planning strategies have the potential to enhance capital gain tax exclusion benefits.

Trump Accounts

Trump accounts appear to be a hybrid of different accounts already in existence. In some ways they resemble traditional IRAs, and in other ways, Roth IRAs. Trump accounts will be available for U.S. citizens born between 2025 and 2028. The federal government has committed to contribute $1K to each Trump account. An election must be made to claim the credit.

The following represents our best understanding of the initial guidance. Additional guidance is expected.

• Beginning in July 2026, parents or other relatives can make “direct” after-tax contributions of $5K annually (indexed for inflation) to the child’s Trump account⁶.
• Additional contributions can be made by federal or state governments or by charitable organizations. These contributions do not count towards the $5K annual cap and are excluded from income.
• This is important because the taxation of distributions depends on the character of the contribution. After-tax contributions will be paid out as a return of principal. The growth on the “direct” contributions will be taxable as ordinary income, and the growth on the “excluded” contributions will also be taxable as ordinary income.

Distributions cannot be made until the beneficiary turns 18. With the exception of after-tax contributions, early withdrawals (before age 59½) are subject to ordinary income tax and a 10% penalty. However, numerous exceptions apply. It is our understanding that Trump accounts will follow the same “exceptions to tax on early distributions” that apply to IRAs, including an unlimited amount for college tuition and up to $10K for a first-time home purchase.

Many questions remain unanswered with respect to the mechanics of Trump accounts. It will be important to have a better understanding of these provisions prior to moving forward with meaningful contributions. Trade-offs will likely exist between traditional IRAs, Roth IRAs, UTMA/UGMA accounts, 529 plans, and Trump accounts. Individual circumstances will dictate which account or combination of accounts will be right for each family.

Mortgage Interest Deduction Recap

OBBBA made permanent the $750K cap on mortgage interest deductibility introduced by TCJA. As a reminder, taxpayers can deduct interest on up to $750K of principal ($375K for married filing separately) on their primary or secondary residence. Mortgage interest is only deductible if the mortgage proceeds were used for the purchase, construction, or improvement of the home. Of note, in most instances, mortgages secured prior to TCJA in 2017 remain grandfathered into pre-TCJA rules.

Additional Provisions

OBBBA is approximately 900 pages and contains many additional provisions not addressed in this summary. We encourage you to engage with your CPA or tax advisor to better understand how it may affect your individual situation. As always, we welcome conversations with your broader financial planning team to ensure a thoughtful, coordinated approach.

Conclusion

For those who were previously unsure about gifting, OBBBA provides greater clarity on the estate and gift tax exemption. Making gifts in the near term will ensure that any appreciation on the gifted assets occurs outside the donor’s estate. For individuals and families not significantly impacted by federal estate or gift tax, planning attention may shift towards income tax optimization.

In high-tax states, commonly used strategies may need to be revisited in light of OBBBA. Additionally, we expect to see increased attention on charitable giving before the end of 2025, as individuals look to take advantage of the current deduction framework. As the rules shift, thoughtful planning remains essential, and now is the right moment to align strategy with opportunity.

We will keep you informed of any meaningful developments or as further guidance becomes available. As always, please do not hesitate to reach out to your First Manhattan team for a personalized discussion.

¹While these provisions have been “permanently” written into law, future administrations may introduce new legislation.

²newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025

³https://www.irs.gov/taxtopics/tc409

⁴ Note that this only applies to itemizers.

⁵One Big Beautiful Bill Act (OBBBA)

⁶Employer contributions to Trump accounts can be up to $2.5K/year, but are included in the $5K annual contribution cap.

All content is for informational purposes only and should not be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents where First Manhattan is not appropriately registered, excluded, or exempted from registration or where otherwise legally permitted. It is also not intended to provide any tax or legal advice. Nor is it intended to be a projection of current or future performance or an indication of future results. Moreover, this material has been derived from sources believed to be reliable, but it is not guaranteed as to accuracy and completeness and it does not purport to be a complete analysis of the materials discussed. An investor must carefully consider objectives, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.