2025 Tax Law Changes (OB3 Act) – What High-Income Earners Need to Know

Updated October 2026 to reflect the final law and the latest IRS guidance.

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 made permanent, preventing the top rate from rising back to 39.6%. 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 is made permanent and indexed for inflation. In 2025, the standard deduction is $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 higher incomes.)

State and Local Tax (SALT) Relief:

• The $10,000 SALT deduction cap has been quadrupled to $40,000 per return for 2025, and it rises 1% each year through 2029 ($40,400 in 2026). This relief restores significant deductions for those in high-tax states. Important: For incomes >$500K (a threshold that also rises 1% per year), the cap is gradually reduced – $0.30 of cap lost per $1 over the threshold, but never below $10K. In short, couples earning up to $500K get the full SALT write-off, while high earners see a partial limit (e.g. at $600K income in 2025, the SALT cap phases down to $10K). 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 permanently increased to $2,200 per child starting in 2025 and indexed for inflation. 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:

A “Trump Account” is a new tax-deferred savings account for children under 18. Accounts began accepting contributions on July 4, 2026. (Updated October 2026 based on IRS Notice 2025-68.)

• Eligibility:

• Any child under 18 who is a U.S. citizen with a valid Social Security number.

• Children born between January 1, 2025, and December 31, 2028 can receive a one-time $1,000 deposit from the U.S. Treasury (elected on Form 4547).

• Contribution rules:

• Parents, family, and others may contribute up to $5,000/year combined (after-tax, no deduction), indexed for inflation after 2027.

• Employers may contribute up to $2,500/year per employee, tax-free to the employee (this counts toward the $5,000 limit).

• Government and certain charitable contributions made to broad groups of children (e.g. all children in a state) don’t count toward the limit.

• These special contribution rules end in the year the child turns 18.

• Funds must be invested in a low-cost index fund of U.S. stocks (fees of 0.1% or less).

• How it’s taxed:

• Growth is tax-deferred – no tax while the money stays in the account.

• No withdrawals until the year the child turns 18.

• After that, the account follows traditional IRA rules: earnings (and any tax-free employer or Treasury money) are taxed as ordinary income when withdrawn, with a 10% penalty before age 59½ unless an exception applies (e.g. higher education or a first-time home purchase).

• Your after-tax contributions come back out tax-free.

• Planning Considerations

  • Ask your employer whether they offer Trump Account contributions as a benefit – it’s free, tax-free money for your kids.

  • If you have a child born 2025–2028, make sure to claim the $1,000 Treasury deposit.

• My Key Takeaway

• For most families, there are better savings vehicles than Trump Accounts.

• Contributions are after-tax with no deduction.

• Growth is taxed as ordinary income when withdrawn – not tax-free like a Roth IRA or a 529 used for education.

• 529 plans and Roth IRAs generally provide better tax treatment. The exception: free money from your employer or the Treasury – always take it.

Tax Comparison: 529 vs. Trump Account vs. UTMA/UGMA

Here’s how the three most common kids’ accounts compare from a tax perspective (Maryland residents):

For UTMA/UGMA accounts, taxes are paid on growth each year along the way, so nothing extra is owed when the money is spent. The kiddie tax threshold shown is the 2025 figure and adjusts annually. This comparison covers tax treatment only and is not investment advice.

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 had started phasing down to 40% bonus, but OB3 Act reversed that. For property acquired 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, and the phase-out threshold rises to $4M. More purchases can be written off right away under 179, giving businesses additional flexibility (especially for assets that may not qualify for bonus depreciation).

• 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 domestic research & development costs over 5 years (which began in 2022) is repealed. Beginning 2025, businesses can once more deduct domestic R&D costs in the year incurred (foreign R&D must still be amortized over 15 years). 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.

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: Starting in 2026, 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”: Starting in 2026, corporations can only deduct charitable gifts above 1% of their taxable income, and individuals who itemize only above 0.5% of AGI. Small donations effectively aren’t deductible until you exceed that floor. 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. The popular Electric Vehicle credit (up to $7,500) ended for vehicles acquired after Sept 30, 2025, and the residential clean energy (solar) and energy-efficient home improvement credits ended after December 31, 2025.

  ---

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:

1. 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 higher 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 permanently 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 state 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.

2. 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 to capitalize on 100% expensing. Buying that equipment or a heavy SUV (over 6,000 lbs) 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.

3. 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 will 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).

4. Plan Charitable Giving:

   Starting in 2026, 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.

5. Capitalize on Current Credits and Rules:

   Several clean-energy credits have now ended, including the EV credit and the residential solar and energy-efficiency credits, so factor that into any planned purchases. Also take note of OB3 Act’s unique new programs – for instance, Trump Accounts let families contribute up to $5K/year to a tax-deferred account for each child, and employers can add up to $2,500/year tax-free. If your employer offers this benefit, take advantage of it.

   ---

   Conclusion:

   The 2025 OB3 tax changes largely favor 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 benefit fully, 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 and chart a tax-efficient course for 2025 and beyond.

   Ready to maximize these opportunities?

   Our expert tax advisors at Spark Tax Services can design a personalized strategy to minimize your liability, protect your wealth, and keep you ahead of the curve.

   Schedule your Tax Assessment today and turn potential tax savings into real results.

   ---

   

References:

U.S. Congress. (2025). H.R.1 – One Big Beautiful Bill Act. https://www.congress.gov/bill/119th-congress/house-bill/1/text

Internal Revenue Service. (2025). Notice 2025-68: Trump Accounts. https://www.irs.gov/pub/irs-drop/n-25-68.pdf

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