I believe in the magic that exists at this time of the year. But to me, that means spending some time thinking about tax planning as 2025 draws to a close and the New Year dawns. Some years Congress tweaks the laws more than other years, and 2025 was certainly one of those years that resulted in major changes to the tax laws. On July 4, 2025, sweeping tax legislation dubbed the “One Big Beautiful Bill Act” (“OBBBA”) was signed into law, and its passage reverberated through the Estate Planning world. No doubt, this massive bill changed the landscape of tax planning both now and in the future. In large part, OBBBA extended or made permanent many of the provisions of the Tax Cuts and Jobs Act of 2017 that were set to expire at the end of 2025. While a complete examination of the impact of OBBBA exceeds the scope of this article, I’d like to highlight some of the salient changes for Trusts and Estate practitioners and their clients as we leave 2025 and head into 2026. Of note, most of the impactful changes in OBBBA are income tax provisions, rather than estate or gift tax provisions.
Estate Tax Planning
- Applicable Exclusion rises from $13.99 million in 2025 to $15 million in 2026
- GST Exemption rises from $13.99 million in 2025 to $15 million in 2026
- Annual Exclusion for present interest gifts holds steady at $19,000 in 2026
- Annual Exclusion for gifts to a Noncitizen Spouse rises to $194,000 in 2026
Not long ago, we thought that at the end of 2025, the Applicable Exclusion and the GST Exemption would revert to $5 million, adjusted for inflation from the 2011 base year. With the passage of OBBBA, that sunset disappeared and was replaced by a new, higher base amount of $15 million, which will be adjusted annually for inflation. As has been the case for a few years, this isn’t relevant for most Americans. However, if you have over this amount, the next few years present a great opportunity to undertake some high-end Estate Planning.
Income Tax Planning
- Standard deduction amount:
- Married, filing jointly, increases from $31,500 in 2025 to $32,200 in 2026
- Single, increases from $15,750 in 2025 to $16,100 in 2026
- Head of household, increases from $23,625 in 2025 to $24,150 in 2026
- Note that OBBBA increased the expected standard deduction for 2025 taxpayers
- State and Local Tax (SALT) deduction cap rose to $40,000 with phaseouts for those with Modified Gross Income over $500,000
Additionally, OBBBA
- Permanently eliminates miscellaneous itemized deductions, except for expansion of itemized deductions for educator expenses
- Simplifies overall limitation on itemized deductions for high earners
- Permits an above-the-line charitable deduction of $1,000 ($2,000 for married taxpayers)
- Imposes a new “floor” for charitable deductions – for those who itemize, the charitable deduction is limited to the extent they exceed .5% of Adjusted Gross Income
- Permanently eliminates personal exemptions
- Temporarily allows a $6,000 “senior deduction” for qualified individuals over the age of 65 with phaseouts beginning at $75,000 AGI ($150,000) for joint filers)
- Allows for an automobile loan deduction of up to $10,000 if the car is assembled in the United States
- Expands tax-free savings accounts for minors, called Trump accounts
As you plan for 2026, it’s important to reassess deduction strategies in light of the higher standard deduction and limitations on itemized deductions. For example, the additional .5% limitation that starts in 2026 makes the idea of bunching charitable contributions more attractive because it allows the taxpayer to surpass the floor and maximize their deduction. This strategy works well when used with a Donor-Advised Fund (“DAF”). If the donor makes a large deductible contribution to the DAF in that year, it allows for an immediate income tax deduction. The funds in the DAF need not be distributed and instead can be invested and grow tax-free. The donor then makes recommendations for grants to their favorite charities in later years and thereby maintains their typical pattern of giving.
For example, if you typically give $20,000 annually, you are better off taking the standard deduction. If, instead, you bunch five (5) years of donations together and give $100,000 to a DAF, you have a large deduction in that year, but through the DAF can continue your pattern of giving $20,000 per year.
Here’s hoping that everyone has a happy, healthy, and prosperous 2026!