2025 Tax Law Changes (OB3 Act) – What High-Income Earners Need to Know
The One Big Beautiful Bill Act (OB3 Act) of 2025 ushers in sweeping tax changes that permanently extend key Tax Cuts and Jobs Act provisions and introduce new breaks targeted at families, workers, and businesses. Many stand to benefit from continued lower tax rates and larger deductions, but there are also new rules to navigate. Below, we summarize the major individual and business tax changes affecting taxpayers and outline strategies to maximize their benefits in 2025 and beyond.
Key Individual Tax Changes in 2025
Income Tax Rates Stay Low:
The anticipated 2026 rate hikes are averted. The current seven-bracket structure (10% to 37% top rate) is extended to 2029, preventing the top rate from rising back to 39.6%. All taxpayers avoid a 3% automatic federal tax increase – for example, a married couple’s top bracket remains 37%, not reverting to the pre-2018 39.6% rate.
Higher Standard Deduction:
The doubled standard deduction from TCJA remains in place permanently, with a temporary boost for 2025–2028. In 2025, the standard deduction is roughly $31,500 for joint filers (~$15,750 single) – thousands more than pre-TCJA levels. This sizable deduction continues to benefit high-income taxpayers with simpler returns (no income phase-out applies). (Senior taxpayers get an extra $6,000 each from 2025–2028, but this phases out at high incomes.)
State and Local Tax (SALT) Relief:
The $10,000 SALT deduction cap has been quadrupled to $40,000 per return for 2025. This four-year relief (2025–2028) restores significant deductions for those in high-tax states. Important: For extremely high incomes >$500K, the $40K cap is gradually reduced – $0.30 of cap lost per $1 over $500K, but never below $10K. In short, couples earning up to $500K get the full $40K SALT write-off, while high earners see a partial limit (e.g. at $600K income, SALT cap phases down to $10K). This change especially helps upper-middle-income homeowners, although absent new legislation, the cap snaps back to $10K in 2030.
Mortgage & Other Deductions:
Mortgage interest deductions remain capped at loans up to $750K (the cap was set to revert to $1M in 2026, but it’s now permanently fixed at $750K). Also, personal casualty/theft losses remain only deductible for federally-declared disasters (the loss rules that would have returned in 2026 are permanently nixed). Likewise, miscellaneous itemized deductions (unreimbursed job expenses, investment fees, etc.) continue to be disallowed permanently, rather than coming back in 2026. The tax code will keep its simplified, standard-deduction-focused system.
Child & Family Credits:
Families won’t see the Child Tax Credit drop as previously scheduled from $2,000 to $1,000. Instead, the credit is increased to $2,200 per child for 2025–2028. More importantly for higher earners, the TCJA’s higher phase-out thresholds ($200K single / $400K joint) are made permanent. This means a couple earning $300K–$400K can continue to qualify for child credits in 2026 and beyond, whereas under prior law, they’d have lost eligibility when thresholds were set to plunge to ~$110K. (The $500 credit for other dependents is also made permanent.) Note: High-income families (>$400K joint) remain above the phase-out, so no change for them.
NEW Trump Accounts:
Beginning January 1, 2025, families may open a “Trump Account” — a new tax-preferred savings vehicle — for any child under age 8. These accounts are designed to promote long-term wealth building for future generations and are seeded by the federal government for children born between 2025 and 2028.
Eligibility requirements:
The child must be a U.S. citizen.
At least one parent must provide a work-eligible Social Security number (SSN) to open an account.
For the $1,000 federal contribution, both parents must provide SSNs, and the child must be born between January 1, 2025, and December 31, 2028
If parents do not open the account, the Treasury will open one automatically upon filing a return claiming the child (with opt-out available)
Contribution rules:
Taxable entities (parents, family, employers) may contribute up to $5,000/year (after-tax)
This limit is indexed for inflation.
Tax-exempt entities (e.g., nonprofits, foundations) may contribute unlimited amounts, but only to broad, non-selective groups (e.g. all children in a state or school district)
No contributions are allowed after the child turns 18
Funds must be invested in a diversified index fund of U.S. equities, as approved by the Treasury.
Distribution rules:
No withdrawals before age 18.
Ages 18–24: Up to 50% of the account may be used only for qualified purposes (higher education, starting a small business, or first-home purchase).
Age 25: The full account balance may be accessed — but only for qualified purposes; taxed at long-term capital gains rates.
Age 31: The account terminates, and any remaining funds are distributed for any purpose, taxed as ordinary income, and may incur penalties for unqualified distributions if distributed under age 31.
Planning Considerations
The $1,000 federal seed phases out at higher incomes, but families can still use Trump Accounts for wealth-building and legacy planning.
Employers could view these as optional employee‑family benefits.
Further IRS guidance is expected to clarify investment rules, penalties, and compliance.
My Key Takeaway
There are better alternatives for saving vehicles than Trump Accounts
Contributions are after-tax with no deduction.
Qualified earnings are only taxed at capital gain rates—not fully tax-free like a Roth or 529.
Remaining funds taxed at ordinary rates at termination (age 31).
Roth IRAs and 529 plans generally provide superior tax treatment and flexibility.
It is certain more guidance will be released over the next year on how these accounts will function and be distributed. Stay tuned!
Estate Tax Exemption Stays High
A significant win for the wealthy, the doubled estate and gift tax exemption from TCJA will not have a steep drop in 2026. OB3 Act makes the higher exemption permanent and even indexes it up to $15M per person in 2026 or $30M if married. High-net-worth individuals can continue estate planning with a very generous exclusion, avoiding a reversion to ~$5M per person. (This change is outside income taxes, but crucial for affluent families’ legacy planning.)
Key Business Tax Changes in 2025 (Pass-Throughs & Corporations)
20% Pass-Through Deduction Made Permanent:
Owners of S corporations, partnerships, and sole proprietorships can breathe a sigh of relief – the valuable 20% Qualified Business Income (QBI) deduction under Section 199A is now permanent beyond 2025. The deduction remains at 20%, effectively keeping top marginal rates on pass-through income ~29.6% instead of 37%. Furthermore, the law expands the income range before phase-outs hit. The thresholds for high-income service businesses to lose the deduction are widened by an extra $25K (single) / $50K (joint). This means a bit more “breathing room” – e.g., a consultant or doctor with $400K+ joint income may still get a partial QBI deduction, where previously the benefit would phase out completely at that level. Bottom line: millions of business owners avoid a 2026 tax hike, and more upper–middle-income professionals can claim some or all of the 20% write-off going forward. Huge win for my business owners!
100% Bonus Depreciation is Back, Forever:
A huge perk for business investment – the ability to immediately deduct 100% of qualifying asset purchases is restored in 2025 and made permanent. TCJA’s full expensing started phasing down to 40% bonus this year, but OB3 Act reversed that. Starting after January 19, 2025, companies can once again write off equipment, machinery, computers, and other eligible property in the year of purchase, rather than depreciating over years. This dramatically lowers the after-tax cost of new capital investments. High-income business owners should consider accelerating planned purchases to take advantage of immediate expensing.
The biggest caveat to this is the asset must be both purchased AND placed into service AFTER January 19, 2025. You still can opt to utilize 40% bonus depreciation for 2025. Just because you can utilize bonus depreciation fully doesn't mean you always should. Consult with your tax professional for the most optimal tax plan.
Higher Section 179 Expensing Cap:
For small/midsize businesses, the Section 179 immediate expensing limit jumps from $1M to $2.5M annually. More purchases can be written off right away under 179, giving businesses additional flexibility (especially for assets that may not qualify for bonus depreciation). The phase-out thresholds for 179 are likely increased accordingly, allowing even larger investments before the deduction phases out.
Interest Deduction Eased:
The limitation on business interest write-offs (Section 163(j)) is relaxed. Going forward, the deductible limit returns to 30% of EBITDA instead of 30% of EBIT. In practice, this means depreciation and amortization are added back in the calc, letting companies deduct more interest expense each year. Capital-intensive businesses or real estate investors with significant leverage will benefit from this change starting in 2025.
R&D Expenses Fully Deductible:
A recent painful change is undone – the requirement to amortize research & development costs over 5+ years (which began in 2022) is repealed. Beginning 2025, businesses can once more deduct R&D costs in the year incurred. The law even provides a mechanism to catch up on 2022–2024 R&D costs that had to be amortized. This is a major relief for companies investing in innovation, effectively restoring the pre-2022 status quo of immediate R&D expensing.
Miscellaneous Business Tweaks:
Several other pro-business provisions are included:
Excess Loss Limitation: The TCJA’s rule disallowing excess business losses for noncorporate taxpayers is made permanent. In other words, individuals can’t use huge business losses to offset other income beyond the set limit – that temporary cap will now continue indefinitely (instead of expiring in 2026). Plan accordingly if you expect large pass-through losses. For 2025, this limit is $313K single or $626K married.
REITs: The allowable ownership of REIT subsidiaries rises from 20% to 25%. This technical change may facilitate slightly more flexible REIT structures for real estate investors.
Charitable Deduction “Floor”: A new quirk for philanthropic giving – corporations can only deduct charitable gifts above 1% of their income, and individuals only above 0.5% of AGI. Small donations effectively aren’t deductible until you exceed that floor. This aims to prevent outsized write-offs (or require at least some taxable income base). High-income individuals who give modest amounts may lose deductions; consider bunching donations or using donor-advised funds to make larger gifts less frequently to ensure deductibility.
Sunset of “Green” Incentives: The law scales back many clean-energy credits enacted in recent years. For instance, the popular Electric Vehicle credit (up to $7,500) ends after Sept 30, 2025, and residential energy-efficiency credits (solar, etc.) begin phasing out after 2025 if you were planning solar panels, EV purchases, or similar, act soon. (Keep in mind income limits on some of these credits still apply; e.g., the EV credit phases out above ~$300K joint income under 2022 law.)
Tax Planning Strategies for 2025 & Beyond
With these changes on the books, high-income individuals and business owners should adjust their tax planning. Here are key strategies to consider:
Maximize Deductions Under New Limits:
The higher SALT cap means itemizing may make sense again for many. If you expect state/local taxes well above $10K, plan to fully utilize the $40K cap each year through 2029 – pay property taxes and state estimates thoughtfully to time deductions. Those in the ~$500K+ income range should note the SALT phase-out and possibly explore alternate strategies (like Pass-Through Entity tax elections at the state level) to work around SALT limits. Also, leverage the temporarily enlarged standard deduction if you don’t itemize – virtually all high earners will take either a ~$30K+ standard deduction or itemize more than that.
For business owners who elected stated Pass Through Entity Tax (PTET), it still may be more beneficial to continue with PTET payments as you get the federal tax deduction on the business tax return and the state credit on your personal tax return.
Leverage Business Incentives:
If you’re a business owner or have pass-through income, take advantage of the extended 20% QBI deduction. Ensure your income and business structure are optimized to qualify – e.g., if near the phase-out threshold for a professional service business, manage taxable income to preserve the deduction. Additionally, make major capital investments for 2025 and beyond to capitalize on 100% expensing. Buying that equipment or a heavy SUV (over 6,000 lbs) in 2025 could yield a full write-off, boosting deductions in a high-tax year. The higher Sec. 179 limit ($2.5M) also provides more room for immediate expensing on business asset purchases. In essence, the new law rewards those who reinvest in their businesses – plan your upgrades and expansions accordingly.
Revisit Estate Plans and Gifting:
Ultra-high-net-worth families should revisit their estate strategies now that the ~$15 million per person exemption is permanent. The urgency to use it or lose it by 2025 is gone, but this also means continued opportunity – consider lifetime gifting to utilize the huge exemption (which could even grow with inflation). Wealthy individuals can transfer substantial assets tax-free, and now we know those limits won’t drop in 2026. That said, political winds can change – securing transfers sooner can provide certainty. At minimum, align your estate plan with the new rules (e.g., update any formula gifts that assumed a sunset).
Plan Charitable Giving:
The new 0.5% AGI floor for deducting personal charitable donations means high-income taxpayers should strategize their philanthropy. If your annual giving is relatively small, you might bunch donations into one year to exceed the floor and maximize deductions. For example, instead of giving $5K each year on a $1M income (where the first $5K might not be deductible), donate $10K every other year and use a donor-advised fund to distribute to charities annually. This way, you clear the ~0.5% ($5K) threshold in the gifting year and get a write-off for amounts above the charitable AGI floor. Charitable giving is still rewarded, but it may require more planning to ensure tax effectiveness.
Capitalize on Current Credits and Rules:
With certain credits expiring, make the most of them now. If you’re considering purchasing an electric vehicle and your income permits the credit, do so before Q4 2025 to claim the federal credit. Similarly, energy-efficient home improvements (solar installations, etc.) should be completed soon to lock in credits before phase-outs. Additionally, take note of OB3 Act unique new programs – for instance, the “Trump Account” child savings program gives $1,000 seed money for babies born 2025–2028. If you plan to grow your family, be aware of this benefit and the option to contribute $5K/year to a tax-free growth account for your child. While not directly for high-earners only, it’s a planning point for affluent parents to jump-start kids’ savings.
Conclusion:
The 2025 OB3 tax changes largely favors high-income and business taxpayers, extending the post-2018 tax relief and adding new opportunities. To recap, tax rates stay low, deductions get bigger, and many “tax cliffs” of 2026 are avoided.
On the business side, generous write-offs and permanent deductions encourage reinvestment and profitability. However, planning is crucial to fully benefit – especially with some breaks scheduled to sunset after a few years. High earners should consult with their tax advisor or financial planner to navigate these changes. By proactively adjusting your strategy (from salt cap planning to business purchases and estate gifts), you can capitalize on the new law andchart a tax-efficient course for 2025 and beyond.
References:
U.S. Congress. (2025). H.R.1 – Tax Relief for American Families and Workers Act of 2025. Congress.gov. https://www.congress.gov/bill/119th-congress/house-bill/1/text
U.S. Senate Committee on Finance. (2024). Section-by-section summary of Title VII: Child Tax Credit. https://www.finance.senate.gov/imo/media/doc/finance_committee_section-by-section_title_vii3.pdf
