August 2025 Newsletter - The One Big Beautiful Bill Act (OBBBA)

Dear Clients and Friends,

Since our last update, the equity markets have surged ahead, overcoming early-year challenges (tariff uncertainty, geopolitical concerns, GDP slowdown, etc...) to reach new all time highs. Simultaneously the One Big Beautiful Bill Act (OBBBA) was signed into law bringing some certainty to the tax landscape for the foreseeable future.

The bill extends many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which was set to expire at the end of the year, while also introducing new updates and modifications.

This month's newsletter highlights the most relevant insights for individuals and businesses alike, finishing with a focused planning spotlight that will hopefully be of interest to you all.

OBBBA Overview for Individuals

Tax Rates

The OBBBA makes the tax rate cuts established under the 2017 TCJA permanent (or until legislatively changed in the future), preserving the brackets at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for each bracket will continue to be adjusted annually for inflation.

Making these brackets permanent provides clarity and stability for taxpayers who otherwise faced an automatic increase of at least 2% with the TCJA’s scheduled expiration in 2025. Unlike the TCJA, the OBBBA ensures these reduced rates are no longer subject to future sunset provisions.

Standard and Itemized Deductions

The standard deduction will receive a slight increase starting this year in 2025. The original 2025 levels under TCJA will rise from $15,000 to $15,750 for single filers; $22,500 to $23,625 for heads of household; and $30,000 to $31,500 for joint filers. These amounts, adjusted for inflation, will also be permanent going forward.

The OBBBA makes most of the TCJA changes to itemized deductions permanent with modifications, but includes one big change to the State and Local Tax (SALT) deduction and a new deduction for seniors. We will highlight these since it will likely have an impact to our Colorado filers and other state filers with a state income tax.

Under the TCJA, the federal deduction for state and local taxes (SALT) was limited to $10,000.

The OBBBA raises this cap to $40,000 for tax year 2025. However, this increase is not permanent. The cap will grow by 1% annually through 2029 before reverting to $10,000 in 2030.

The expanded deduction begins to phase out for individuals with modified adjusted gross income (MAGI) over $500,000. Additionally, the final version of the OBBBA allows specified service trades or businesses (SSTBs) to continue deducting state and local income taxes. This keeps alive the usefulness of state passthrough entity taxes (PTETs), which are a common workaround to the SALT limit for individuals who live in states with higher income taxes.

New Senior Deduction

A temporary $6,000 deduction for seniors aged 65+ (2025–2028, phasing out above $75,000/$150,000 MAGI for single/joint filers) could help reduce taxation of social security and other income.

Estate Taxes

We have had many planning discussions around estate taxes and the big changes that would have occurred had TCJA expired at the end of 2025. 

OBBBA avoids this sunset and maintains the current exemption of $13.99 million per individual ($27.98 million per couple). Under the OBBBA, this limit will rise to $15 million per individual ($30 million per couple) and will be indexed for inflation annually beginning after 2025. This is also permanent until legislatively changed with no sunset provision and will significantly influence estate planning strategies.

Other Notable Items

While we don't see the need to go into great detail here, some other notable items that were included are No Tax on Tips, No Tax on Overtime, Car Loan Interest for American-made vehicles, QBI deduction, Charitable Contribution Deductions for non-itemizers, expansion of 529 Education Approved Expenses.

If you want to know more about any of these items please reach out to our team or click the hyperlink related to the item of interest. 

OBBBA Overview for Businesses and Investment

Bonus Depreciation

A major win for small businesses under the OBBBA is the reinstatement of full 100% bonus depreciation. Beginning after January 19, 2025, any qualifying property placed in service will be eligible for a 100% deduction in the year of purchase. This provision reverses the phase-out schedule that began in 2023 and was originally set to eliminate the deduction entirely after 2026.

Section 179 Deduction

The OBBBA also increases the maximum allowable Section 179 depreciation deduction to $2.5 million, with the phase-out threshold at $4 million.

Section 1202

OBBBA permanently extends and enhances the gain exclusion for qualified small business stock (QSBS) under Section 1202. 

Qualified Small Business Stock (QSBS) – Section 70431: Increases the maximum 1202 capital gain exclusion from $10 million to $15 million for QSBS acquired after July 4, 2025.

This section also partially excludes gain from QSBS acquired after July 4, 2025:
-50% exclusion if held between 3 and 4 years
-75% if held between 4 and 5 years
-100% if held for 5 years or more

This can provide significant tax savings for private equity, venture capital, or angel investing if the company meets the QSBS qualifications.

Opportunity Zones

Opportunity Zones, originally created under the TCJA, are made permanent under the OBBBA. 

Under TCJA these funds allowed investors to pool capital into Qualified Opportunity Zones (QOZs), which are low-income geographic areas designated by state governments.

QOFs under TCJA offered the potential for significant tax benefits, particularly for high-income investors. Individuals could sell appreciated investment property (e.g., stocks, funds, or real estate) and reinvest the gains into a QOF. That gain would then be deferred until the earlier of December 31, 2026, or the date the QOF was sold or exchanged. This effectively allowed for up to eight years of gain deferral for QOFs created in 2018 with additional incentives for investors with longer holding periods.

Under OBBBA, QOF investors who hold a QOF for at least five years will receive a 10% basis step-up on the deferred gain. However, investments in a QOF that invests at least 90% of its assets in rural QOZ property will receive a 30% step-up.

In contrast to the original QOZ program, there is no additional 5% step-up for QOFs held for more than seven years. Any gains attributable to the original deferred gain will be excluded from taxation if the QOF is held for more than 10 years – though any further gains after 30 years would become taxable.

These can provide compelling investment opportunities with significant tax advantages. Our research team and investment committee will be active in finding opportunities in this area.

Planning Spotlight

One of the more unique provisions of OBBBA is the introduction of Trump Accounts. These will serve as a new retirement savings vehicle for minors and solves many of the challenges with the current IRA for minor rules, specifically avoiding the requirement of the minor to have earned income before a contribution could be made. 

These tax-deferred accounts are intended to benefit individuals under the age of 18 and must be formally designated as Trump Accounts at the time of establishment. These accounts will be classified as a type of Individual Retirement Account (IRA).

Each child born between January 1, 2025, and December 31, 2028, will receive a $1,000 government funded contribution into the Trump Account. Additional contributions may be made until the beneficiary turns 18 with no earned income requirement, after which the beneficiary is permitted to make distributions up to age 25. Aggregate distributions are limited to 50% of the account value as of the beneficiary’s 18th birthday. If used for qualified expenses, growth on distributions will be taxed at long-term capital gains rates.

Qualified expenses include higher education costs, postsecondary credentialing, small business expenses funded by small business or farm loans, and first-time home purchases for a principal residence. Contributions are capped at $5,000 per year, indexed annually for inflation. Charitable organizations or employers may also contribute to Trump Accounts without being subject to the same limits as parents, and employer contributions are excluded from the employee’s taxable income.

While the $1,000 seed funding offers an immediate benefit to qualifying newborns, the long-term value of these accounts become magnified if held until retirement. For college savings, 529 plans still offer more favorable tax treatment due to tax-free qualified withdrawals.

From our view, Trump Accounts introduce flexibility (similar to UTMAs) by supporting entrepreneurial or homeownership goals in lieu of traditional education pathways. Certain administrative and operational details remain open while the Treasury Department is tasked with finalizing the rules prior to the accounts taking effect, which is scheduled for 12 months following the OBBBA’s enactment.

We will continue to communicate on all of these items and understand this is a lot of information to digest. 

Thank you for your continued trust in us as your wealth management partner and we look forward to finding creative planning opportunities for each of your unique situations. 

Warm regards,

The Bauer Heitzmann Team