New Tax Legislation on the Horizon: What You Need to Know

By Richard Lowry, Managing Director, Wealth Strategy

On the morning of May 22, the U.S. House of Representatives passed the sweeping One Big Beautiful Bill Act (OBBBA), the Republican party’s long-anticipated taxation and spending package. Positioned as a centerpiece of the current administration’s economic agenda, the legislation seeks to extend key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) while introducing a new wave of incentives designed to benefit families, small businesses, and rural communities.

With provisions ranging from expanded deductions and revamped opportunity zone rules to enhanced child tax credits and increased estate tax exemptions, OBBBA represents one of the most ambitious efforts to modernize the U.S. tax code in recent memory. As the bill advances through the Senate, taxpayers, financial advisors, and policy experts are keeping a close watch on its evolution and the potential implications for millions of Americans.

In the sections that follow, we outline key takeaways and planning considerations based on the House-approved version of the bill. A detailed summary of the major provisions is also included. While the legislation is expected to evolve as it moves through the Senate, its current form offers a valuable preview of what may ultimately become law.

TCJA Individual Tax Provisions Made Permanent

As expected, OBBBA codifies and permanently extends several key provisions of the 2017 TCJA, making them lasting elements of the U.S. tax code. This includes maintaining current individual income tax rates and brackets, extending higher alternative minimum tax (AMT) exemption thresholds, and preserving limits on deductions for mortgage interest, gambling losses, moving expenses, and personal casualty losses. The bill also upholds the TCJA’s elimination of miscellaneous itemized deductions and the personal exemption. Notably, it retains the near doubling of the standard deduction introduced by the TCJA, with temporary increases from 2025 to 2029 and continued inflation adjustments thereafter.

Increased Estate, Gift, and GST Exemptions Starting in 2026

The bill permanently raises the unified federal exemption for estate, gift, and generation-skipping transfer (GST) taxes to $15 million per individual (or $30 million per married couple) beginning in 2026, with inflation adjustments starting in 2027.

This substantial increase provides affluent families with greater certainty and flexibility in long-term wealth transfer planning. By eliminating the risk of a sharp exemption drop, it allows for more strategic, multi-generational planning without the pressure of year-end deadlines or rushed gifting decisions.

Renewed and Expanded Incentives for Businesses and Owners

The proposed legislation offers significant tax relief to corporate taxpayers by reinstating several key provisions from the TCJA that had previously expired. Most notably, it revives the immediate expensing of certain research and development (R&D) costs and extends bonus depreciation for qualified capital investments made between 2026 and 2030; two measures designed to stimulate innovation and encourage long-term capital investment. For small business owners and pass-through entities, the bill extends the qualified business income (QBI) deduction under Section 199A and increases the deduction rate from 20% to 23%, offering a more substantial tax benefit. It also broadens the definition of QBI to include certain dividends received by owners of business development corporations (BDCs), aligning their treatment with other forms of pass-through income.

If enacted, the bill would present several strategic planning opportunities. Businesses should consider accelerating R&D expenditures to take advantage of renewed expensing rules and timing their capital investments to align with the extended bonus depreciation window. Employers may also want to evaluate or expand benefit offerings, such as paid leave and childcare services, to leverage the enhanced credits contained in the bill. Pass-through entities should reassess their income structures to optimize the increased QBI deduction, while BDC investors may benefit from reviewing dividend strategies to ensure they qualify under the expanded QBI definition. Taking proactive steps now can help businesses position themselves to fully capitalize on these potential tax advantages if the bill becomes law.

SALT Cap Expansion and PTET Deduction Elimination

The House-passed version of OBBBA proposes a temporary increase in the state and local tax (SALT) deduction cap, from $10,000 to $40,000, starting in tax year 2025. However, the expanded deduction phases out for individuals earning over $250,000 (or $500,000 for joint filers), limiting its benefit for higher-income taxpayers. The SALT deduction remains one of the bill’s most contentious elements and is expected to be a central point of negotiation before the legislation is finalized.

The bill also proposes eliminating the federal deduction for elective pass-through entity taxes (PTET) paid by certain partnerships and S-corporations, beginning in tax year 2026. This change would effectively dismantle a widely used workaround that enables pass-through business owners in high-tax states to bypass the SALT deduction cap. By disallowing the federal deductibility of PTET payments, the proposal could significantly increase the federal tax burden for affected owners and diminish the effectiveness of PTET elections as a state tax planning strategy.

Given the proposed changes, pass-through entities should proactively reassess their structure and their tax planning strategies. For some, converting to a C-corporation may yield more favorable outcomes, particularly for specified service trades or businesses (SSTBs) facing both the loss of the PTET deduction and limitations under Section 199A. Additionally, businesses should consider accelerating elective PTET payments into 2025 to take advantage of current deductibility rules before the new restrictions take effect in 2026. Early action could help mitigate future tax exposure and preserve valuable deductions while they remain available.

Opportunity Zones Reset, Not Extended

The OBBBA includes provisions related to qualified opportunity zones (QOZs); however, these provisions represent a significant departure from the current framework and do not extend the life of existing QOZ funds. Under the House version of the bill, all qualified opportunity funds (QOFs) established before Jan. 1, 2027, must recognize their deferred gains by Dec. 31, 2026, effectively terminating their QOZ status on that date. As a result, any QOZ investments made in 2025 or 2026 would have their deferred gains recognized at the end of 2026.

Moreover, the bill does not address whether gains recognized in 2026 can be reinvested into newly formed QOFs in 2027, leaving that question to future IRS guidance. This creates the possibility that pre-2027 deferred gains may be subject to recognition without any further deferral opportunity.

Given these limitations, it may be more advantageous for most investors to delay new investments into Qualified Opportunity Funds (QOFs) until 2027. Waiting offers several benefits: greater certainty around deferral, with gains potentially deferred until Dec. 31, 2033; access to new tax incentives, such as a 10% basis step-up after five years; and a more streamlined investment timeline that avoids the need to dissolve and reestablish funds under the revised rules.

Notably, the House bill also proposes a shift in QOZ designation criteria, moving away from an urban-centric model toward one that emphasizes rural development. This change could significantly influence the types of eligible investments and the potential returns for future QOFs.

Expanded Taxation of Private Foundations and Universities

The proposed legislation significantly increases the tax burden on large private foundations by introducing a tiered rate structure for net investment income. While the current 1.39% rate remains in place for foundations with less than $50 million in assets, the rate escalates for larger organizations: 2.78% for those with $50 million to $250 million, 5% for those with $250 million to $5 billion, and 10% for foundations exceeding $5 billion in assets. In addition, the bill expands the excise tax on highly compensated employees, potentially affecting a broader range of nonprofit executives. The legislation also imposes a graduated tax on private university endowment income and reclassifies royalties from licensing a university’s name, image, or logo as unrelated business taxable income (UBTI), subjecting them to additional taxation.

If the proposed legislation is enacted, private foundations should proactively monitor their asset levels, especially if they are nearing one of the new tax thresholds. Moving into a higher tier could significantly affect long-term financial planning and grantmaking capacity. Foundations may also need to reassess their investment strategies to preserve net returns after taxes. Additionally, with the potential expansion of the excise tax on executive compensation, it is important to review existing compensation structures to manage exposure and ensure compliance with the potential new rules.

Final Thoughts: Preparing for a New Tax Landscape

The  OBBA [AP1] marks a sweeping transformation of the U.S. tax landscape, with wide-ranging implications for individuals, business owners, nonprofits, and educational institutions. By permanently enshrining key elements of the TCJA, expanding business incentives, and significantly reshaping the tax treatment of charitable entities and pass-through structures, the legislation reshapes both near- and long-term tax planning priorities.

If enacted, taxpayers at all levels will need to reassess their financial and estate plans, charitable giving strategies, and business structures to align with the new rules. Individuals and families with significant wealth surpluses should take note of the increased estate and gift tax exemptions, while business owners must evaluate the impact of renewed deductions and the elimination of PTET benefits. Meanwhile, private foundations and universities facing increased tax burdens and compliance requirements will need to adjust their investment and compensation strategies accordingly.

Given the breadth and complexity of these proposed changes, early and thoughtful engagement with tax and financial advisors is critical. Proactive planning now can help mitigate risks, preserve valuable opportunities, and ensure taxpayers are well-positioned to navigate and benefit from this landmark legislation.

Summary of Key Individual and Business Tax Provisions

Individual Income Tax Provisions

• Permanent Lower Tax Rates & Brackets: Makes permanent the individual income tax rates and brackets established by the TCJA, including lower marginal rates and the expanded standard deduction.
• Estate & Gift Tax Exemption: Permanently increases the exemption to $15 million per individual ($30 million for married couples) starting in 2026, indexed for inflation.
• Qualified Business Income Deduction (Section 199A): The 20% deduction for pass-through income is made permanent and increased to 23% for tax years after 2025.
• Standard Deduction: The nearly doubled standard deduction, $15,000 for individuals, $30,000 for joint filers, is made permanent, with additional inflation adjustments and a temporary increase of $1,000 to $2,000 for 2025 through 2028.
• Enhanced Deduction for Seniors: A new $4,000 deduction for seniors (65+) with income under $75,000 ($150,000 for joint filers) is available from 2025 through 2028.
• SALT Deduction Cap: Raises the cap to $40,000 per household, with an income cap of $500,000.
• Child Tax Credit: Increases the credit from $2,000 to $2,500 per child, with temporary enhancements from 2025 through 2028.
• Pass-Through Entity Tax (PTET) Elections: Disallows certain service partnerships and S-corporations from deducting elective PTET taxes beginning in 2026.
• Charitable Deduction for Non-Itemizers: Reinstates an above-the-line charitable deduction for 2025 through 2028: $150 for individuals, $300 for joint filers.
• Car Loan Interest Deduction: Allows a deduction of up to $10,000 in interest on loans for U.S.-assembled passenger vehicles from 2025 through 2029 , subject to income phaseouts.
• Moving Expense Deduction: Permanently repealed, except for members of the Armed Forces.
• No Tax on Tips & Overtime: Creates above-the-line deductions for qualified tips and overtime premium pay from 2025 through 2028 , subject to income and occupation limits.
• Other Deductions & Credits: Enhances or makes permanent several provisions, including the adoption credit, employer-provided childcare credit, paid family and medical leave credit, and education-related benefits.

Business Tax Provisions

• Bonus Depreciation: Restores 100% expensing for qualified property placed in service from Jan. 19, 2025, through Dec. 31, 2029.
• Section 179 Expensing: Increases the expensing limit to $2.5 million, with a phaseout threshold of $4 million, both indexed for inflation after 2025.
• Opportunity Zones: Launches a new round of QOZs for 2027 through 2033, with updated eligibility criteria and incentives, including a focus on rural areas.
• R&D Expensing: Allows full expensing of domestic research and experimental expenditures from 2025 through 2029; amortization resumes in 2030.
• Business Interest Deduction: For 2025 through2029, the limitation is based on earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than earnings before interest and taxes (EBIT), allowing greater deductibility.
• Low-Income Housing Tax Credit:Expands the 9% credit allocation from 2026 through 2029 , lowers the bond-financing threshold for the 4% credit, and designates Indian and rural areas as “difficult development areas.”
• Clean Energy & IRS Credits: Phases out or terminates several clean energy tax credits introduced under the Inflation Reduction Act (IRA).

Contact Cresset today to explore how the proposed changes in the OBBA may impact your financial strategy.