Alert

Major Changes to Individual and Estate Tax Law

Nathan Wright, Principal, Private Clients Practice
Lucy Ni, Managing Director, Private Clients Practice

July 23, 2025

One of the most significant overhauls to the tax code since 2017 became law when President Trump signed a tax and spending legislation, commonly referred to as the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) on July 4, 2025. Below, we highlight key provisions affecting individual taxpayers and estate and gift planning, along with tax planning considerations.

Key Individual Income Tax Provisions

While the new law makes permanent many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that previously were due to expire, it also includes some notable changes.

Income Tax Rates Made Permanent

Under the new legislation, the TCJA’s seven tax brackets—10%, 12%, 22%, 24%, 32%, 35%, 37%—are now permanent beyond 2025. Inflation indexing continues, with minor technical adjustments for top brackets.

Tips and Overtime Income

Tip income is temporarily deductible—only for tax years 2025 through 2028—for individuals in traditionally and customarily tipped industries. The deduction is limited to $25,000 of reported tips. Tip income is still reported on the taxpayer’s tax return and potentially taxable at the state and local level. The tip income is still subject to payroll taxes including Social Security and Medicare and the deduction phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly).

Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly) also limited to tax years 2025 through 2028. As with tips, this is a deduction, not an exclusion and has similar phaseouts as tip income. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break.

Standard Deduction Expanded

The new law permanently increases the standard deduction to $15,750 for single and married filing separately (MFS) taxpayers, $23,625 for head of household (HoH), and $31,500 for married filing jointly (MFJ) taxpayers, indexed for inflation.

State and Local Tax Cap Raised Temporarily

The state and local tax (SALT) cap has been increased to $40,000 for 2025 and $40,400 for 2026, with phaseouts starting at modified adjusted gross income (MAGI) of $500,000. Reverts to $10,000 cap in 2030. Notably, the final legislation does not include a limitation on the deduction for state and local taxes paid at the entity level by a pass-through entity and does not hinder the taxpayer’s ability to participate in pass-through entity tax (PTET) elections.

Pease Limitation Repealed and Replaced

The so-called Pease limitation was an overall limitation on itemized deductions for taxpayers with adjusted gross income (AGI) over certain thresholds. Under the TCJA, the Pease limitation was temporarily suspended through 2025 and there was no overall limit on itemized deductions. Under OBBBA, the Pease limitation is permanently eliminated and in its place, high earners in the top 37% tax bracket are now limited to a $0.35 tax benefit per $1 of itemized deductions, including SALT. This new limitation goes into effect starting in 2026.

Alternative Minimum Tax Changes

The increased alternative minimum tax (AMT) exemption amounts from TCJA are permanently extended, and the phaseout exemption amount is increased from 25% to 50% after 2025, thereby increasing exposure for upper-income filers.

Charitable Giving Changes

For non-itemizers, there is a permanent above-the-line charitable deduction of $1,000 (single) / $2,000 (MFJ) for tax years after December 31, 2025. For itemizers, this deduction will now be further limited. The OBBBA establishes a 0.5% minimum threshold (based on modified AGI), for charitable deductions, similar to how medical deductions are currently limited. OBBBA also made the increased 60% of AGI contribution limitation for cash gifts to qualified charities permanent. Under these new rules, taxpayers may want to front-load charitable gifts in 2025 or consider the use of a donor-advised funds (DAF) in 2025 to preserve a higher deduction.

Senior Bonus Deduction

Taxpayers 65+ get a $6,000 bonus standard deduction for tax years 2025 through 2028. This deduction is phased out at higher incomes.

Other Notable Deductions and Credits

Child tax credit. Increased to $2,200 (partially refundable), with stricter social security number (SSN) requirements. The child tax credit will also now be annually adjusted for inflation, but still subject to phaseouts based on modified adjusted gross income.
Auto loan interest. Deductible up to $10,000 for new U.S.-assembled vehicles for tax years 2025 through 2028. The deduction is subject to phaseouts for individuals with income above $100,000 (single) or $200,000 (MFJ).
Student loan discharge. Forgiveness due to death/disability remains tax-free permanently.

Individual Tax Planning Insights

Here are some insights for taking advantage of key provisions in the new legislation.

Income Tax Rates: Permanency Enables Multiyear Planning

The TCJA rate structure—10% to 37%—is now permanent. High-income earners in the 37% bracket benefit from continued rate certainty, including inflation-adjusted thresholds.

Planning Insight. This opens the door for multiyear income deferral, Roth conversion laddering, and timing of investment realization strategies across consistent brackets.

Itemized Deductions: Pease Repealed, New Caps Introduced

The Pease limitation has been repealed and starting in 2026 itemized deductions now yield a capped tax benefit of $0.35 per dollar for top-bracket taxpayers.

Planning Insight. High earners must reassess charitable giving, SALT payments, and deduction timing. The qualified business income (QBI) deduction is explicitly exempt from this limitation, preserving pass-through flexibility.

SALT Cap Temporarily Raised—But Watch the Sunset

The individual SALT cap is lifted to $40,000 (MFJ) for 2025, indexed modestly through 2029, then reverts to $10,000. Phaseouts begin at $500,000 AGI.

Planning Insight. High-income taxpayers in high-tax states should consider entity-level tax elections (PTET), restructuring trust distributions, and revisiting non-grantor trust strategies while the window is open.

AMT Clawback Enhanced for High-Income Filers

The OBBBA makes the higher AMT exemption amounts from the TCJA permanent. However, it resets the income thresholds at which those exemptions begin to phase out to 2018 levels, which are $500,000 for single filers and $1 million for joint filers (these will be indexed for inflation after 2025). Most importantly, the bill doubles the phase-out rate from 25% to 50%. This means for every dollar of income above the threshold, the AMT exemption is reduced by 50 cents.

Planning Insight. Strategically accelerate or defer incentive stock option (ISO) exercises and evaluate municipal bond holdings that impact AMT liability.

Charitable Giving Changes: Elevated Scrutiny and Limits

Under the new legislation itemizers are only allowed charitable deductions to the extent they exceed 0.5% of modified AGI starting in 2026.

Planning Insight. High-net-worth families should consider bunching gifts via DAFs, explore qualified charitable distributions, and front-load giving in 2025.

Estate And Gift Tax Provisions

Lifetime Exemption Increased and Made Permanent

The estate and gift tax exemption amount increases to $15 million per person starting in 2026, avoiding the sharp drop to pre-TCJA amounts around $5 million that previously were scheduled to occur after 2025.

Portability Preserved

The legislation doesn’t change portability between spouses, retaining flexibility for married couples in estate planning.

Insights for Estate and Gift Planning

Here are some key insights for thriving under several of the major estate planning provisions in the new legislation.

Unified Exemption Increased to $15 Million and Made Permanent

As stated above, the estate, gift, and generation-skipping transfer (GST) tax exemptions rise to $15 million per person in 2026—sidestepping the dramatic reduction that was scheduled post-TCJA. High-net-worth individuals should reassess lifetime gifting strategies under the new exemption. In addition, there might be the need to coordinate with state-level estate tax planning, particularly in jurisdictions that have not conformed to the federal exemption.

Planning Insight. This is a cornerstone shift. Families with estates exceeding $15M per spouse should consider revisiting grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), and intra-family transfers to optimize use of lifetime exemptions under more generous parameters.

Portability Maintained

Spouses can continue to transfer unused exemption amounts, supporting flexibility in estate plan design.

Planning Insight. Portability remains a valuable backstop—but high net worth families should still prioritize lifetime use of each spouse’s exemption when possible.

No Adjustments to Valuation Discounts or GRATs—Yet

While the law avoids direct changes to grantor trust rules or valuation discount strategies, these remain politically vulnerable.

Planning Insight. Now may be the time to complete family limited partnership (FLP) recapitalizations, sales to intentionally defective grantor trusts (IDGTs), or GRATs under current favorable rules.