Sweeping Tax and Benefits Reform: What to Know About the “One Big Beautiful Bill Act”

Introduction

The legislation permanently extends or enhances several individual and business tax provisions, significantly raises the federal estate and gift tax exemption, and imposes new requirements affecting Medicaid eligibility and planning.

While some changes are designed to deliver short-term economic relief to working- and middle-class Americans, others—particularly those affecting estate tax thresholds and income deductions—have far-reaching implications for high-net-worth individuals, business owners, and families relying on Medicaid planning strategies. This article outlines some of the most critical changes and what they may mean for our clients’ tax exposure, estate plans, and long-term care arrangements.

Personal Income Tax Changes

By Matthew R. Joyce

The OBBBA imparts clarity, making permanent many temporary changes implemented by the 2017 Tax Cuts and Jobs Act (“TCJA”) prior to the scheduled December 31, 2025, sunset. The OBBBA’s personal income tax changes reach a wide swathe of taxpayers. Selected highlights of these changes are discussed below:

• The temporary reduced ordinary income tax rates enacted by the TCJA are permanently extended. For individuals, the tax rates and brackets remain 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• The TCJA’s temporary $10,000 limit on the individual state and local income tax deduction is increased to $40,000 for tax year 2025. The increased limit phases out for taxpayers with modified adjusted gross income greater than $500,000 in 2025. The deduction and income cap increase by 1% per year through 2029 and the limit reverts to $10,000 in 2030.
• The TCJA’s temporary increase in the standard deduction is made permanent. The inflation-adjusted standard deduction for 2025 is $15,000 for single and married filing separate filers, and $30,000 for joint filers, increasing to $15,750 and $31,500 in 2026, respectively.
• The OBBBA permanently increases alternative minimum tax exemption amounts and the applicable phaseout, decreasing the number of taxpayers subject to the AMT in 2025 and later years.
• The OBBBA implements a new, temporary tax deduction for interest on car loans for tax years 2025-2028. Individuals with modified adjusted gross income of up to $100,000 for single filers and $200,000 for joint filers can deduct up to $10,000 of car loan interest per year provided the subject vehicle has a final assembly point in the United States. The deduction phases out for higher income taxpayers.
• The OBBBA creates a new, temporary deduction for tipped income of up to $25,000 per taxpayer for single taxpayers earning up to $150,000 per year in modified gross income (or $300,000 for joint filers). The deduction phases out for incomes over these limits and sunsets entirely on December 31, 2028.
• The OBBBA creates a new, temporary deduction for overtime income of up to $12,500 per taxpayer for single taxpayers earning up to $150,000 per year in modified gross income (or $300,000 for joint filers). The deduction phases out for incomes over these limits and sunsets entirely on December 31, 2028.
• The OBBBA creates new tax-deferred accounts for children named “Trump Accounts”. These accounts can be funded with up to $5,000 per year in after tax dollars, continuing until the child reaches age 18. For children born between January 1, 2025 and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account.

Business-Related Changes

By Matthew R. Joyce

The OBBBA’s business changes are intended to incentivize domestic investment with a focus on cost recovery. Selected changes are discussed below:

• The OBBBA makes permanent so-called “bonus” depreciation or “full expensing” for qualified property acquired after January 19, 2025. No changes to the definition of “qualified property” were made.
• The OBBBA permanently increases the 179 expensing limits from $1,000,000 per year to $2,500,000 and includes a new phasedown threshold at $4,000,000 per year.
• The OBBBA introduces a new 100% depreciation election for real property used to produce tangible personal property. New Code Sec. 168(n) allows a taxpayer to elect a 100% depreciation deduction for “qualified production property” in the year it is placed in service. To qualify, the nonresidential real property must be located in the United States, used in a qualified production activity, and placed in service prior to December 31, 2029, among other requirements.
• The OBBBA amends the Code Sec. 1202 Qualified Small Business Stock exclusion to increase the maximum excludible amount of gain to $15,000,000 for certain taxpayers acquiring eligible stock. Other changes are made to the eligibility requirements, but these changes should not impact taxpayers acquiring Qualified Small Business Stock prior to 2025, who remain eligible for a maximum $10,000,000 exemption.
• The OBBBA grants the IRS broad authority to recharacterize so-called disguised sale transactions between partners and partnerships. Under prior law, non-taxable transfers of assets and services between partners and partnerships could be recharacterized under IRS regulations as taxable transactions between partnerships and outsiders. The OBBBA eliminates the regulation requirement, enabling IRS to make recharacterization determinations at the audit or administrative level.
• The OBBBA terminates numerous “clean” or alternative energy related credits and deductions including the Code Sec. 45X advanced manufacturing credit for wind energy components produced and sold after December 31, 2027. The energy efficient commercial building deduction under Code Section 179D is eliminated for construction beginning after June 30, 2026. The personal (Code Section 30D) and commercial (Code Section 45W) clean vehicle credits are terminated for vehicles acquired after September 30, 2025.

Estate and Gift Tax Changes

By Victoria Calcagno

The OBBBA permanently increases the current federal estate and gift tax exemption amounts. Selected changes are discussed below:

• The current federal estate and gift tax exclusion and the generation-skipping transfer (GST) tax exemption (in 2025) is $13.99 Million per person.
• The OBBB permanently increases the federal estate tax exemption amount to $15 Million per person beginning January 1, 2026.
• This means that in 2026, a single person can transfer $15 Million free of any federal estate, gift, or GST taxes either during their lifetime or at death. For married couples, this figure will increase from $27.98 Million in 2025 to $30 Million in 2026.
• For estates valued over the exclusion amount, the current tax rate is forty percent (40%), and this will not change under the OBBB.
• Like the current law, the exclusion and exemption amounts will be adjusted for inflation annually.
• Unlike the current law, the increased exclusion and exemption amounts do not have a set expiration date. If the OBBB had not been passed, the exclusion and exemption amounts would have been reduced to approximately $7 Million on January 1, 2026.

Medicaid Changes

By Amy McIntyre

The OBBBA imposes changes to eligibility and reporting requirements of Medicaid members. Medicaid is a federally regulated health coverage program administered on a voluntary basis at the state level requiring states to comply with the federal regulations. Implementation and interpretations of the federal regulations may differ from state to state. Consequently, implementation, as noted, may not be immediate and it’s best to consult with local legal counsel as to eligibility is advised. Selected changes imposed by the OBBBA are discussed below:

• Individual states have through January 1, 2027, to implement shorter retroactive coverage periods for applicants from the date of application. Retroactive coverage will be shortened from three months to one month for members obtaining coverage under the Affordable Care Act expansion. And, retroactive coverage obtained based on age or disability status will be shortened from three months to two months.
• Individual states have through January 1, 2027, to implement bi-annual eligibility reviews for members receiving benefits under the Affordable Care Act expansion. Implementation of such will likely be tied to the state’s establishment of the employment and exemption status verification systems which is also required under the OBBBA by the same date.
• Individual states have through January 1, 2027, to implement an increased working requirement, from 40 hours per month to 80 hours per month, for members/applicants who are between the ages of 19-64 years of age and subject to working requirements.
• Individual states have through October 1, 2026, to restrict eligibility for undocumented immigrants.
• Automated eligibility renewals for low-income seniors enrolled in Medicare cost savings programs are prohibited.
• Individual states will have through October 1, 2028, to implement co-pays for Medicaid recipients who have income over the federal poverty level up to $35 per co-pay per service.