With the One Big Beautiful Bill Act (OBBBA) of 2025 now fully in effect, the tax and planning framework for 2026 and beyond is clearer. For the ultra wealthy, it’s a boon. For the high wealth taxpayers, the outcome is more mixed.
The widely feared expiration of the Tax Cuts and Jobs Act did not occur: lower income tax rates and elevated estate tax exemptions were preserved. At the same time, several provisions receiving heavy media attention provide little or no benefit to higher earners. Below is a practical summary of what is meaningful and what may be less relevant.
High Estate & Gift Tax Thresholds
The most significant provision for high-net-worth families is the permanent increase in the federal estate and gift tax exemption, the amount a taxpayer can transfer to heirs at death or during lifetime without federal tax at 40%. This year, the exemption is $15 million per individual and $30 million for married couples, indexed for inflation. The annual gift exclusion remains $19,000 and will also adjust with inflation.
The urgency to make large gifts ahead of a perceived “sunset” has disappeared. With a higher and more stable exemption, estate plans drafted around an assumed future cliff should be reviewed. In some cases, trust formulas may now overfund bypass trusts or restrict access to capital unnecessarily.
SALT Deduction: Headlines vs. Reality
Although the SALT deduction cap was increased from $10,000 to $40,000, many high-income households should not expect meaningful relief. The expanded deduction phases out rapidly for households with Modified Adjusted Gross Income above $500,000, reducing the benefit by $0.30 for every dollar over that threshold. At approximately $600,000 of MAGI, the deduction fully reverts to the original $10,000 cap.
For households in high-tax states, the planning assumption remains unchanged: this is effectively still a $10,000 SALT environment. Although this dynamic may reduce the short-term appeal of Roth conversions, such strategies should still be assessed through a lifetime tax lens rather than dismissed altogether.
Charitable Giving: A New Deduction Floor
The OBBBA introduces a 0.5% AGI floor on charitable cash deductions. Contributions are deductible only to the extent they exceed this threshold. For example, with $2 million of AGI, the first $10,000 of charitable giving produces no tax benefit.
This change makes smaller, annual gifts less efficient from a tax perspective. A more effective approach is to “bundle” multiple years of charitable giving into a single contribution (such as through a Donor Advised Fund), allowing the deduction to meaningfully exceed the floor while maintaining flexibility in distributing gifts over time.
Income Taxes: Rates Preserved, Deductions Limited
The top marginal income tax rate remains at 37%, avoiding the scheduled increase to 39.6%. However, the law introduces a limitation on itemized deductions for taxpayers in the highest bracket. While deductions are not eliminated, their effective value is reduced by roughly 35%, slightly diminishing the benefit of mortgage interest and charitable deductions.
Popular Deductions That Don’t Apply to Higher Earners
Several widely discussed deductions have strict income phase-outs that exclude most higher-income households:
- Auto loan interest: fully phased out at $200,000 MAGI
- Tips and overtime income: phase-out begins at $300,000 MAGI
- Senior deduction ($6,000): phase-out begins at $150,000 MAGI, in addition to the standard senior deduction
For higher earners, these provisions are largely irrelevant and should not drive planning decisions.
In summary, the OBBBA delivers a meaningful win for very affluent families, especially on the estate planning front. However, new limitations may require subtle and thoughtful adjustments – particularly around charitable giving and itemized deductions.
Please reach out to your Wealth Manager with questions about how these changes may affect your tax plan.
