Listen to this articleThe basics:
- OBBBA extends enhanced estate and gift tax exemptions and removes TCJA sunset provisions
- New charitable deduction rules take effect in 2026 for both itemizers and non-itemizers
- SALT cap rises to $40,000 in 2025, but phases out for high-income taxpayers
- Experts urge strategic gifting and charitable planning before year-end 2025
With 2025 drawing to a close, the tax landscape looks very different from where we stood just 12 months ago. The passage of the One Big Beautiful Bill Act (OBBBA) has rewritten several key components of federal estate, gift and income tax planning. These changes affect high-net-worth families, business owners, and anyone seeking to make tax-efficient gifts or charitable transfers. While many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) were scheduled to sunset at the end of 2025, Congress passed new legislation – the One Big Beautiful Bill Act – to create a new regime for exemption levels, charitable deductions, and state and local tax (SALT) deductibility.
Below is a summary of what changed, what remains uncertain and the planning steps worth considering before year-end.
Annual Gift Tax Exclusion for 2026. Although OBBBA primarily focused on larger structural tax issues, the annual exclusion for gifts will continue to be adjusted for inflation. For 2025, the exclusion is $19,000, and the Internal Revenue Service (IRS) recently announced that there will be no adjustment for 2026.
Taxpayers may continue to make annual exclusion gifts to children, grandchildren and other beneficiaries without the need to file gift tax returns. Married couples may continue to split gifts, effectively doubling their transfer capacity each year.
Lifetime Estate and Gift Tax Exemption Under OBBBA. One of the most anticipated questions in 2025 was whether Congress would allow the TCJA’s estate and gift tax exemption increase to expire, effectively reducing the available exemption by 50%. OBBBA resolved this, at least for now.
OBBBA extended the enhanced exemptions from TCJA, continued indexing of future exemptions and repealed the sunset provisions that were in TCJA.
For 2025, the exemption remains $13.99 million. Under OBBBA, the 2026 exemption will be $15 million. This means that for a married couple, there will be $30 million of exemption to work with. Further, since the sunset provisions of TCJA have been repealed, the exemption will remain in place (with adjustments for indexing) unless and until the law is changed.
Finally, there is a greater level of certainty. As a result, trusts and estates attorneys and CPAs will avoid the need to pull all-nighters during the fourth quarter of 2025.
Charitable Deduction Reform Under OBBBA. OBBBA introduced the most substantial rewrite of charitable deduction rules since the Pension Protection Act of 2006.
OBBBA increased the standard deduction for taxpayers in 2025 and forward, resulting in a greater likelihood that most people will not itemize deductions. Pre-OBBBA, non-itemizing taxpayers were generally unable to claim a deduction for charitable contributions. It is likely that more people will claim the standard deduction going forward.
Non-itemizer deduction: Starting in 2026, non-itemizers will be able to claim a $1,000 above the-line charitable deduction.
Itemizers: Significant changes include the introduction of a floor. Starting in 2026, an amount of charitable gifts equal to the first 0.5% of the taxpayer’s adjusted gross income will be nondeductible.
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“The One, Big, Beautiful Bill Act significantly affects federal taxes, credits and deductions,” according to the IRS. Read more here.
TCJA limitations were extended. OBBBA makes permanent the limitations on cash gifts to 60% of adjusted gross income and to 50% for noncash gifts.
Itemized deductions are reduced for high earners. Starting in 2026, the value of charitable deductions is limited to the 37% tax bracket. This means that for taxpayers who are otherwise in the 39% tax bracket, they must reduce their itemized deduction by 2/37 of the lesser of either their total itemized deductions or the portion of income that exceeds the 37% bracket.
There are significant benefits to front-loading charitable gifts into a donor-advised fund (DAF) in 2025, with subsequent distributions from the DAF to satisfy future gifting goals.
State and Local Tax Deduction Treatment Under OBBBA. One of the headline features of OBBBA is its treatment of the long-controversial SALT deduction cap.
OBBBA did not repeal the SALT cap outright; instead, it increased it from $10,000 to $40,000 starting in 2025, and it increases at 1% per year thereafter.
However, high earners will find themselves unable to take advantage of the additional $30,000 deduction. Under OBBBA, the enhanced SALT deduction phases out where modified adjusted gross income exceeds $500,000 and is fully eliminated at $600,000 of modified adjusted gross income. For those high earners, the $10,000 cap will still apply.
For owners of pass-through entities (PTE), OBBBA continues to allow for state-level PTE workaround elections, now expressly recognized under federal law. This allows owners of PTEs in New Jersey to receive the benefit of a much more robust deduction.
The One Big Beautiful Bill Act represents Congress’s attempt to create stability amid the scheduled expiration of the TCJA’s transfer-tax provisions. While the act enhances the estate and gift tax exemption and eliminates the sunset that was to occur at the end of 2025, it also clarifies charitable deduction rules and provides updated SALT deduction relief. For many families, 2025 offers a narrow window to make strategic lifetime gifts, solidify charitable plans, and prepare for a new tax environment that will take hold in 2026.
Proactive planning now will help ensure you and your family are well positioned for the next decade of federal tax policy.
Gary R. Botwinick is co-managing partner and co-chair, Trusts & Estates and Taxation Practice Groups at Einhorn, Barbarito, Frost, Botwinick, Nunn & Musmanno PC.
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