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The OBBBA: Planning Around Still High Exemptions, Higher Federal SALT Deduction, QSBS, and QOZ

July 16, 2025

The One Big Beautiful Bill Act (OBBBA) will have a significant impact on certain provisions of the Internal Revenue Code. Four major areas of change include the increase of the estate/gift/GST tax exemption, the state and local tax (SALT) deductions, and the qualified small business stock and qualified opportunity zone regimes.

Federal Estate/Gift/GST Tax Exemption

Under the 2017 Tax Cuts and Jobs Act (TCJA), the current estate/gift/GST tax exemption of $13.99 million per U.S. person was scheduled to sunset by the end of this year and drop to approximately $7 million per U.S. person on January 1, 2026. With the passing of OBBBA, the estate/gift/GST exemption is “permanently” increased to $15 million per U.S. person starting January 1, 2026, with inflation adjustments each year.

From a planning perspective, this will not change much for those with large taxable estates. The “permanent” increase simply means there is no scheduled date in the current legislation for the estate/gift/GST tax exemption to drop back down to pre-TCJA levels or lower. However, changes in the law can occur at any time depending on the makeup of Congress and the administration in charge in the future. So, those with large taxable estates should continue to engage in wealth transfer planning, such as using their remaining lifetime exemptions to gift to multigenerational dynasty trusts.

Upstream planning may also be a valuable income tax planning tool to minimize capital gains tax by utilizing the remaining estate exemption of a senior generation member with a non-taxable estate. Upstream planning is a strategy in which highly appreciated assets are included in a senior generation member’s estate for estate tax purposes, either by gift or more commonly through the grant of a general power of appointment, to obtain a basis step-up in those assets (up to the senior generation member’s remaining estate exemption) at their passing. The senior generation member must have a non-taxable estate so that the upstream planning strategy does not cause estate tax to be owed at the senior member’s passing. You can learn more about upstream planning here or reach out to your advisor to discuss further.

State and Local Tax (SALT) Deduction

Under TCJA, the federal deduction that could be taken for SALT was limited to $10,000 per taxpayer. SALT includes property, sales, or income taxes taxpayers have already paid to state and local governments. Under TCJA, taxpayers in high income and property tax states like California and New York were disproportionately harmed by this limit.

The OBBBA temporarily increases the federal SALT deduction to $40,000 per taxpayer until the end of 2029. However, if your modified adjusted gross income (MAGI) is over $500,000, the federal SALT deduction is reduced by 30% of the amount that your MAGI exceeds $500,000, but the deduction cannot be reduced by more than $30,000. If your MAGI reaches $600,000 or more, your federal SALT deduction is reduced by $30,000, dropping from $40,000 to $10,000. Starting in 2030, the federal SALT deduction will drop back down to $10,000 per taxpayer.

This phaseout of the federal SALT deduction for taxpayers with MAGI over $500,000 results in an increase in taxable income that is greater than the amount the MAGI exceeds the $500,000 threshold and could potentially push a married filing jointly taxpayer’s marginal tax bracket from 32% to 35%.

There are planning strategies that can be considered to maximize the federal SALT deduction and reduce the phaseout consequences. If your MAGI is above $500,000 with a substantial portion of that income generated from assets such as business interests, real properties, or marketable securities, you can gift some of those income generating assets to a non-grantor trust for your children, or better yet, separate non-grantor trusts for each child. Since each taxpayer is entitled to its own federal SALT deduction, you and the non-grantor trusts that you set up for each child could receive the benefit of separate $40,000 federal SALT deductions on separate tax returns for you and the non-grantor trusts. So, if you gift income generating assets to three non-grantor trusts, one for the benefit of each of your three children, you collectively could claim federal SALT deductions totaling up to $40,000 x 4, or $160,000. Since this increase in the federal SALT deduction is only temporary and drops back to $10,000 per taxpayer in 2030, it makes sense to build in flexibility to allow the non-grantor trusts to convert to grantor trusts. This way, when the income tax benefit of the higher federal SALT deduction expires in 2030, the trusts can still be utilized for efficient wealth transfer strategies that are better implemented with grantor trusts.

Qualified Small Business Stock

Where stock in a C-corporation meets certain requirements, IRC Section 1202 provides for an exclusion from taxation upon sale of up to $10 million of capital gain or ten times the shareholder’s adjusted cost basis in that stock, whichever is greater. The OBBBA significantly expands the scope of the qualified small business stock (QSBS) benefit under IRC Section 1202. These changes will apply only to QSBS originally issued after the effective date of the OBBBA, July 4, 2025.

  • Gross assets: Previously, for stock to qualify for QSBS status, the gross assets of the corporation could not exceed $50 million either before or immediately after the stock was issued. This threshold has been increased to $75 million and will be indexed for inflation going forward.
  • Gain exclusion: The per-taxpayer gain exclusion for QSBS is increased from $10 million or ten times basis, whichever is greater, to $15 million or ten times basis, whichever is greater.
  • Holding period: The flat five-year holding period was converted into a tiered system in which benefits begin at year three.

Holding Period

Applicable Gain Exclusion Percentage

3 years

50%

4 years

75%

5 years or more

100%

A taxpayer’s holding period will be determined with reference to IRC Section 1223. This means that taxpayers will not be able to qualify for the new holding period regime by exchanging existing QSBS for new QSBS issued after the effective date of the OBBBA.

In addition to generous tax benefits, QSBS planning may present a number of potential challenges. Reach out to your advisor if you wish to explore potential capital gain management and wealth transfer opportunities with QSBS.

Qualified Opportunity Zones

TCJA created the Qualified Opportunity Zones (QOZ) program to encourage economic investment in low-income communities through a Qualified Opportunity Fund (QOF). Investment in a QOF has several potential income tax benefits. Taxpayers who invest realized capital gains in a QOF within 180 days of realization can defer recognition of that gain until December 31, 2026. Taxpayers may obtain a step-up in basis of up to 15% of the value of the invested property, assuming they meet certain holding periods. Finally, the basis of a QOF investment held for ten years or more is equal to fair market value upon the eventual sale or disposition of the asset, meaning that any appreciation that occurs after recognition of the deferred gain is tax-free, assuming the ten-year holding period is met.

The OBBBA makes several key changes to the QOZ program, most of which become effective as of January 1, 2027, upon the expiration of the current TCJA-era QOZ regime.

  • Permanent: Under the TCJA, the QOZ program was scheduled to sunset at the end of 2026. The OBBBA makes the program permanent. New QOZ candidates will be nominated every ten years by state governors and certified by the Treasury Secretary, beginning July 1, 2026. Certified QOZs will become effective as of January 1 of the year following the certification.
  • Rural Opportunity Funds: Most of the QOZs created under the TCJA-era program were located in urban and suburban areas. The OBBBA adds a new category of QOF, the Qualified Rural Opportunity Fund (QROF), to help extend the benefits of QOZ investment to rural areas. Investments in QROFs receive preferential tax treatment over and above that available to QOF investments. Instead of a 10% step-up in basis prior to the fifth anniversary, QROFs receive a 30% step-up.
  • Gain Recognition and Basis Step-Up: Now that the QOZ program is permanent, deferred gain will be recognized on the earlier to occur of (1) the date of sale or exchange and (2) the fifth anniversary of the investment in the QOF. The 10% step-up in basis (30% for investments in QROFs) will be applied immediately before the fifth anniversary. The additional 5% step-up available under the TCJA has been eliminated. Gain on a QOF held for more than ten years will still be eligible for tax-free treatment, but this benefit will be capped at thirty years. For QOF investments held for more than thirty years, the value of the basis step-up will be frozen at the fair market value of the investment as of year thirty.

Reach out to your advisor to discuss opportunities for capital gain management through the QOZ program.

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This material should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The information provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use.

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Richard Yam, J.D.
About Richard Yam, J.D.

Rich serves as Senior Vice President, Director of Wealth Strategy – Wealth & Tax Planning, and is based in our New York office.

View all posts by Richard Yam, J.D.
Elizabeth Summers, J.D.
About Elizabeth Summers, J.D.

Liz serves as Director of Wealth Strategy on our Family Office Services team.

View all posts by Elizabeth Summers, J.D.

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