• Posted on

The One Big Beautiful Bill Act was signed into law on July 4, 2024. While the name may sound lean, the depth & nuances of these tax changes in the 870 page-bill is quite substantive. The law introduces a combination of permanent tax relief, strategic planning windows, and a few areas that differ from headlines you may have read. One main theme of this new tax bill is that it extends many of the taxpayer-friendly provisions of the Tax Cuts and Jobs Act (TCJA), which was passed in 2017 and was set to expire at the end of 2025. 

In this post, I want to highlight some of the changes that affect a majority of the clients I serve and then share a few planning opportunities that may apply to your situation.

Lower Individual Tax Rates Extended

The historically low tax rates from TCJA are here to stay. In addition to the top bracket staying at 37% (vs. reverting back to 39.6%), the top end of income ranges for the lower brackets received a bump, which provides tax relief for taxpayers across the income spectrum.

Standard Deduction Increased (Retroactive for 2025 tax returns)

  • $15,750 for Single
  • $23,625 for Head of Household
  • $31,500 for Married Filing Jointly

Itemized Deductions – Changes for High Earners

  • Home Mortgage Interest – Deduction is limited to the first $750,000 of qualified mortgage acquisition debt (this was made permanent).
  • Charitable Contributions – For taxpayers who do not itemize their deductions, you are now allowed to deduct some charitable contributions ($1,000 single, $2,000 joint) as an “above the line” deduction. Simply put, you receive a tax benefit for this amount of donations even if you take the Standard Deduction. 
    • Note: There is a new 0.5% of Adjusted Gross Income floor on charitable contributions, which reduces the overall benefit of itemized deductions for high earners.
  • State and Local Tax (SALT) Cap Raised – The deduction cap for state, local, & real estate taxes has been raised to $40,000 beginning in 2025. There’s some limitations to this though…
      • The change is temporary (reverting back to $10,000 in 2030)
      • It phases out (reduced) for high earners above $500,000.
  • The “Pease” limitation is back – This limits the value of itemized deductions to $0.35 on the dollar for taxpayers in the 37% federal tax bracket.

Alternative Minimum Tax

  • Increased AMT exemptions were made permanent ($88,100 single, $137,000 joint for 2025).
  • Phaseouts have been reduced – $500,000 for single filers, $1,000,000 for couples.
    • Translation – High earners will lose their AMT exemption faster than before, so the “AMT-free” threshold for those exercising ISOs is now lower than prior years.

Qualified Small Business Stock 

  • Shorter Holding Period + Partial Benefit (previous it was “all or nothing” after 5 years)
      • 3 years → 50% capital gain exclusion
      • 4 years → 75% capital gain exclusion
      • 5 years → 100% capital gain exclusion
  • Higher Asset Threshold 
      • Gross assets (i.e. cash raised / held on the balance sheet) increased from $50M to $75M, indexed for inflation. This expands the universe of eligible shareholders at scaling startups who can benefit from this favorable tax treatment.
  • Tax-Free Cap Increased
    • The gain exclusion jumps from $10M to $15M per individual.

Note: This only applies for stock issued after July 4, 2025. Any stock acquired before the new tax law went into effect will be subject to the old rules.

For those with Kids

  • Expanded use of 529 accounts – Increased from $10,000 to $20,000 of annual expenses, per child can now be used for K-12 “qualified expenses”. In addition to tuition, this now includes tutoring and standardized test prep classes & materials.
  • Dependent Care Flexible Spending Accounts – Starting in 2026, the annual contribution limit for FSAs will be increased to $7,500 (up from $5,000) for joint filers. 
  • Child Tax Credit – Slightly increased from $2,000 to $2,200 per child. 
  • Trump Accounts – A new type of custodial IRA for children under age 18. 
    • For children born between 2025 – 2028, the government will contribute $1,000 to these accounts and parents are eligible to make non-deductible contributions up to $5,000 annually until the child reaches age 18.

Legacy & Gifting 

The bill increases the Federal exemption amount for gift, estate, and generation-skipping transfer tax to $15 million per individual ($30 million for a married couple).

This was previously set to be reduced to ~$7.2 million per individual, beginning in 2026.

As you can see, there are numerous changes included within this most recent tax bill. Knowing the facts is the first step to identifying how we can plan around the new tax law. Next week, I’ll share another post on practical planning opportunities under the new tax law.