Understanding the One Big Beautiful Bill Act (OBBBA) and Planning Opportunities

As we head toward the end of the year and everyone starts reviewing their finances and taxes more closely, quite a few clients have been asking how they can benefit from the One Big Beautiful Bill Act (OBBBA). Below is a summary of some of the key provisions and potential planning opportunities that may be relevant to our clients personally and/or for their businesses.

Please note: (1) this article does not cover all provisions of the OBBBA -only those that might be relevant to the types of clients Global Wealth Harbor typically work with; and (2) this article is for general educational purposes only and should not be considered financial, tax, or legal advice. I encourage you to consult your CPA before making any tax-related decisions.

So, let’s dive in:

For Individuals:

Alternative Minimum Tax (AMT) Thresholds Raised while Phaseout Rate Increased

• Impact

  • Beginning in 2026, the AMT exemption will increase significantly, meaning most middle- and upper-middle-income taxpayers will no longer need to worry about the AMT.

  • In some cases, it may be beneficial for taxpayers to accelerate income into 2025, before the new AMT rules take effect. Starting in 2026, more high-income taxpayers may fall under the AMT due to the steeper phaseout of the exemption once income exceeds the new threshold.

• Planning Opportunity

  • Evaluate tax-timing strategies if you expect substantial AMT-triggering income in 2025 or 2026. Proper timing can help minimize total tax liability across both years.

  • For example, individuals with incentive stock options (ISOs) may consider exercising in 2025 if they expect a significantly larger bargain element in 2026—the difference between the exercise price and the fair market value.

  • In other situations, it may be advantageous to wait until 2026, since OBBBA substantially increases the AMT exemption threshold, even though the phaseout becomes steeper once the threshold is exceeded.

State And Local Tax Deduction (SALT) Deduction Expansion and New Income Phaseout Rules

• Impact

  • From 2025 through 2029, the SALT deduction limit increases to $40,000, subject to a new MAGI-based phaseout-a major increase from the previous $10,000 cap.Many taxpayers may now benefit more from itemizing rather than taking the standard deduction.

  • However, claiming higher SALT deductions may increase the likelihood of being subject to the Alternative Minimum Tax (AMT), since SALT deductions are added back when calculating AMTI. As income rises, the value of the increased deduction becomes more limited due to AMTI rules.

  • Taxpayers in high-tax states may benefit the most from this expanded deduction.

• Planning Opportunities

  • Look for ways to exceed the standard deduction so you can fully benefit from itemizing. This may include coordinating the timing of mortgage interest, medical expenses, and other deductible items.

  • Consider bunching property taxes or other assessed tax payments (if allowed in your state) and using a donor-advised fund to group charitable contributions into a single year.

  • This strategy can be especially helpful in 2029 or any year when you need a larger deduction. For example, you might make your fourth-quarter estimated state tax payment before December 31 instead of waiting until January 15 so it counts toward the current tax year.

Expanded And Indexed Estate & Gift Tax Exemptions

• Impact

  • Without OBBBA, the federal estate and gift tax exemption would have dropped back to roughly $7 million per person (and $14 million per couple) in 2026, pulling many more high-net-worth households into the estate tax system. With the new rules, individuals with $15 million or less and couples with $30 million or less in net worth will remain exempt from federal estate and gift taxes.

    • Taxpayers living in states with their own estate or inheritance taxes should still consider state-specific limits, which may be much lower than federal thresholds.

  • The shift in the inflation-indexing base year from 1996 to 1997 will slightly increase the pace at which the federal exemption and annual gift exclusion grow each year.

• Planning Opportunities

  • High-net-worth individuals and couples now have more room to use gifting and wealth-transfer strategies without the concern that exemptions will drop sharply after 2025.

  • Higher limits-and continued inflation adjustments-create added capacity for lifetime gifts, funding legacy trusts, generation-skipping trusts, irrevocable life insurance trusts, and other multi-generational planning tools.

  • Because exemptions could be reduced by future legislation, families planning to transfer appreciable assets may want to act sooner rather than later to take advantage of today's higher limits.

Permanent Deductibility of Mortgage Interest and Private Mortgage Insurance (PMI)

• Impact

  • Private Mortgage Insurance (PMI) will become deductible for tax years beginning after December 31, 2025.

    • How PMI deductions will be handled for prior years may still depend on future IRS guidance.

• Planning Opportunity

  • PMI will become a key planning opportunity for those that are not putting 20% down on their home purchase.

    • This change does not apply to taxpayers who do not itemize deductions.

Enhanced And Extended Child Tax Credit

• Impact

  • The legislation removes the uncertainty around child and dependent tax credits that was scheduled for after 2025. Families will see modest increases to the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC) for the 2025 tax year, providing extra cash flow in early 2026.

  • Inflation indexing will now apply to both credits, making future increases more predictable and easier to plan around.

• Planning Opportunities

  • Families with eligible dependents can expect a slight boost in cash flow next year as the enhanced credits take effect.

  • Because future credit amounts can now be projected more reliably, households near the income thresholds may want to consider the timing of discretionary income to remain eligible for the credit.

  • Refundable portions of the child tax credit may be used to help fund a Roth IRA-if eligible-which can be a valuable way to support long-term retirement savings goals.

Expanded Qualified Expenses For 529 Distributions

• Impact

  • Families using 529 plan funds will now have more flexibility to cover a broader range of education-related expenses without triggering taxes or penalties. This reflects the growing importance of digital tools and alternative learning formats.

  • 529 plans can now be used tax-free for a wider array of career and vocational programs-not just traditional K-12 or college tuition. This is especially helpful for students pursuing certificate programs or adults making mid-career transitions.

• Planning Opportunity

  • Review your 529 plan distribution strategy to make sure expenses qualify under the expanded rules. With more technology purchases now eligible, families may want to shift more savings into 529 plans to maximize tax benefits. This is especially helpful for students attending schools that expect them to supply their own devices.

  • Consider updating your long-term education planning. Parents can feel more confident that 529 funds will still be useful even if educational paths change or unexpected financial aid is received. Adults returning to school may also benefit from the expanded list of eligible programs, supporting more flexible career-reentry planning.

Enhanced Dependent Care Assistance Program

• Impact

  • Starting in 2026, employees may contribute $7,500 to dependent care flexible spending accounts (FSAs), an increase from $5,000. This change makes it easier for working parents to pay for qualified dependent-care expenses (such as day care and after-school programs) using pre-tax dollars, which lowers their taxable income and increases take-home pay.

• Planning Opportunity

  • Review your benefit elections each year during open enrollment to make sure you're taking full advantage of the Dependent Care Assistance Program (DCAP) based on your income, child-care needs, and overall tax situation.

  • Dual-income households with higher child-care costs may benefit more from contributing to a DCAP than relying solely on the Child and Dependent Care Tax Credit.

    • Remember you cannot claim the same dependent-care expenses for both the DCAP and the tax credit, so coordinating which expenses go where can help you maximize tax savings.

Termination Of Clean Energy Tax Credits

• Impact

  • The expiration of various clean energy tax credits may lead to higher taxes for individuals or businesses that were planning to use them. It's important to be aware of the upcoming deadlines:

    • personal and commercial vehicle credits expire on September 30, 2025

    • residential home improvement and clean energy credits expire on December 31, 2025

    • residential new energy-efficient home credits expire on June 30, 2026

    • energy-efficient commercial building credits expire on June 30, 2026

  • One key clarification: the Inflation Reduction Act of 2022 based eligibility on when a project was "placed in service," not when it was acquired or purchased. This means that for both residential and commercial clean energy projects, the credit applies only if the project or new home is fully placed in service by the deadlines above. Simply buying the equipment or signing a contract before the deadline is not enough if the installation isn't completed in time

• Planning Opportunity

  • If you were planning to use clean-energy credits that expire in 2025, it's a good idea to revisit your financial plan now. This may include reviewing your cash flow and debt to prepare for the higher out-of-pocket costs, reassessing your goals if priorities shift, and updating parts of your plan as needed.

  • For credits expiring in 2026, you may have a little more time, but keep in mind that certain actions still need to happen during the 2025 tax year. Planning ahead can help you avoid last-minute surprises.

  • If you're considering buying a personal electric vehicle or completing home energy-efficiency projects, the adjustment may be relatively simple-mainly preparing for the higher cost once credits end. However, if you own multiple properties, use leverage tied to clean-energy credits, or have commercial real estate, you may need a deeper review, coordination with tax and legal professionals, and possibly additional financing.

  • If your investment portfolio includes renewable-energy exposure, these changes may affect the underlying companies or projects. It's worth keeping an eye on your portfolio to see if any adjustments are appropriate.

For Businesses:

Expansion and Permanence of the Qualified Business Income (QBI) Deduction

• Impact

  • Beginning in 2026, specified service trades or businesses (SSTBs) will benefit the most from the updated QBI rules. The deduction will phase out more gradually at higher income levels, allowing more SSTB owners to qualify—either partially or fully.

  • Making the QBI deduction permanent and indexing it for inflation brings greater long-term certainty. Even small business owners or side-gig earners with as little as $1,000 in net business income will now receive at least a modest deduction.

• Planning Opportunities

  • Tax strategies such as retirement plan contributions, deferring income, and accelerating expenses remain effective ways to increase the QBI deduction.

  • Because more SSTB owners will qualify starting in 2026, this is a good time to review your income, timing strategies, and business deductions to ensure you are maximizing the benefit.

  • If you earn side income from freelancing or a small business, consider whether additional planning could help you capture more of the QBI deduction.

Section 179 Expensing Limit Increased

• Impact

  • The higher Section 179 deduction limit and expanded phaseout threshold dramatically increase the ability of small and mid-sized businesses to fully expense equipment and software purchases upfront rather than depreciating them over time.

• Planning Opportunities

  • If you run a capital-intensive business or are planning to upgrade equipment, consider moving purchases into 2025 or later to take advantage of the higher Section 179 limits.

  • Remember that Section 179 is limited by your taxable income. If you expect a low-income or loss year, you may need to combine strategies-such as timing expenses differently or using other expensing provisions-to maximize your benefit.

  • If you may sell or change the use of the asset in future years, compare Section 179 with bonus depreciation. Bonus depreciation may offer more flexibility and fewer recapture concerns in some situations.

Restoration Of 100% Bonus Depreciation

• Impact

  • This change allows businesses (including small businesses and sole proprietors) to fully deduct the cost of eligible equipment, machinery and qualifying property in the year it is placed into service, rather than depreciating it over time.

  • This provides flexibility to reduce taxable income and potentially improve short-term cash flow in the current year at the cost of eliminating depreciation deductions in future years.

• Planning Opportunity

  • The rule is retroactive to January 19, 2025. If you purchased qualifying property after that date, you can choose to take 100% bonus depreciation, use the prior 40% phase-down rate, or elect no bonus depreciation.

  • Choosing a lower amount may make sense if you expect higher income in future years and want to preserve deductions. It's important to coordinate with your tax professional to ensure the depreciation strategy fits your broader financial plan.

Expanded Exclusion Of Qualified Small Business Stock Gain

• Impact

  • The new tiered holding periods (3, 4, and 5 years) may encourage more investment by allowing investors to access QSBS tax benefits sooner.

  • These shorter timelines make QSBS more appealing for business owners and early-stage investors who previously needed to commit capital for a full five years.

  • The higher gain exclusion cap may allow more taxpayers to qualify and give business owners greater opportunities to reduce or defer capital gains.

• Planning Opportunity

  • If you’re considering selling your business or planning an equity exit, it’s a good idea to review QSBS eligibility and timing with your tax advisor under the updated rules.

  • Businesses currently structured as partnerships or S corporations may want to explore whether converting to a C corporation could help them take advantage of QSBS benefits—without triggering unintended tax consequences.

Hope the above helps you get a head start on exploring the tax planning opportunities created by OBBBA :)