Insights on the One Big Beautiful Bill Act

by | Aug 6, 2025 | Annuity, Estate Planning, Financial Advisor, Life Insurance, Long Term Care, Retirement, Taxes | 0 comments

 

Read Time: 10 min

Taken from: Russell E. Towers, JD, CLU, ChFC VP, Business & Estate

 

The U.S. House (218-214) and the U.S. Senate (50-50 +1 VP Vance tie breaker) have passed the One Big Beautiful Bill Act. President Trump signed the bill into law on July 4, 2025. Permanent extensions of many provisions of the Tax Cuts and Jobs Act of 2017 related to personal income taxes, business income taxes, and estate taxes will go into effect for tax years 2025 or 2026.

Here is a summary of the tax changes and extensions that will impact individuals and businesses. Many of the individual income tax, business income tax, and estate tax extensions are permanent and will not “sunset” in the future. The intent of the Act is to help American businesses, workers, and families thrive economically.

Personal Income Taxes

    • The permanent tax brackets for taxable income remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37% for tax year 2026.
    • Indexing of the brackets will continue going forward.
    • Keeps a 0% capital gains tax rate for those in the 10% and 12% brackets; a 15% capital gains rate for those in the 22%,
    • 24%, 32%, and 35% brackets; and a 20% capital gains rate for those in the 37% bracket
    • The permanent standard deduction for tax year 2025 is set at $15,750 (single) and
    • $31,500 (married). Indexing of the standard deduction will continue going forward.
    • The state income tax and local property tax deductions for tax year 2025 are limited to a combined amount of $40,000. The combined tax amounts above $40,000 will not be deductible. The amount of the deduction starts to phase out for taxpayers with more than $500,000 of adjusted gross income (AGI). This will impact taxpayers in states with high state income taxes and local property taxes. The $40,000 limit is scheduled to “sunset” back to the 2024 limit of $10,000 for tax year 2030.
    • Keeps the annual limit for the charitable income tax deduction at 60% of adjusted gross income (AGI) for cash contributions.
    • Keeps the medical expense deduction for out-of-pocket medical expenses in excess of 10% of adjusted gross income (AGI).
    • Keeps the 3.8% passive income add-on tax from the Affordable Care Act of 2010 for interest, dividends, and capital gains of high earners. This increases the top 37% marginal rate on ordinary income up to 40.8% for certain taxpayers. It increases the top 20% marginal rate on capital gains and qualified dividends up to 23.8% for certain taxpayers. The AGI threshold of $200,000 (single) and $250,000 (married) is not indexed.
    • Keeps the .9% add-on Hospital Insurance (HI) FICA tax from the Affordable Care Act of 2010 for high earners. This increases the 1.45% HI tax up to 2.35% for certain taxpayers. The AGI threshold of $200,000 (single) and $250,000 (married) is not indexed.

New Personal Income Tax Deductions

    • There will be no tax on certain “qualified tips” for tax year 2025. The deduction is limited to $25,000 and “sunsets” back to $0 for tax year 2029
    • There will be no tax on certain “qualified overtime” for tax year 2025. The deduction is limited to $12,500 (single) and $25,000 (married) for tax year 2025 and “sunsets” back to $0 for tax year 2029.
    • There will be no tax on certain “qualified car loan interest” on vehicles purchased and financed after 12/31/2024 which are assembled in the U.S. The deduction is limited to $10,000 and “sunsets” back to $0 for tax year 2029.
    • Provides a $6,000 deduction (single) and $12,000 deduction (married) for seniors receiving Social Security retirement benefits for tax year 2025. The $6,000 or $12,000 deduction shall be reduced by 6% of the taxpayer’s Adjusted Gross Income (AGI) that exceeds $75,000 (single) and $150,000 (married).This extra deduction “sunsets” back to $0 for tax year 2029

Business Income Taxes

    • The C Corp tax rate remains a flat 21% as a permanent feature carried over from the Tax Cuts and Jobs Act of 2017.
    • S Corps, LLCs, partnerships, and sole proprietorships with pass-through “Qualified Business Income”, with certain adjustments, remain eligible for a 20% K-1 pass-through deduction (i.e. 37% bracket = 29.6% net marginal tax rate). This deduction under IRC Section 199A for “pass-through” entities is now a permanent feature of the tax law.
    • Generally, “Specified Service Businesses” are NOT eligible for the 20% K-1 pass-through deduction. Some of these service types of businesses are those in medical practice, legal practice, accounting practice, financial services, and brokerage services which are listed in existing IRC Section 1202(e)(3)(A).However, the 20% deduction would be available to the owners of these “Specified Service Businesses” where their entire 2025 taxable income (including K-1 pass-through profits) are less than $197,300 (single) or $394,800 (married). This tax benefit is completely phased out when taxable income exceeds $247,300 (single) or $494,600 (married). These phase-in and phase-out levels remain indexed going forward into 2026 and beyond.
    • Provides 100% deductible expensing for certain depreciable business assets (fixtures, equipment, buildings) acquired after 1/19/2025. This provision is a permanent feature of the new tax law.

Estate and Gift Taxes

    • Keeps the unified estate and gift tax system in place. This unified system was first enacted way back in the Tax Reform Act of 1976. The estate tax rate remains at 40% on taxable estates in excess of the exemption amount.
    • Permanently sets the 2026 estate tax, gift tax, and generation skipping tax exemptions at $15,000,000 for an individual and $30,000,000 for a married couple. The estate, gift, and generation skipping exemptions will continue to be indexed for inflation. This permanent continuation of the estate tax exemption will eliminate all but the very largest estates from any estate taxation at death. However, estate tax reduction strategies involving gifting will still be important for very large estates above the exemption amount.
    • Keeps stepped-up cost basis for capital assets owned at death. Generally, capital assets are real estate, stocks purchased on a stock exchange, mutual funds, and shares of a closely held business entity like a Corporation or LLC.
    • Keeps carry-over cost basis for capital assets irrevocably gifted in lifetime.Generally, capital assets are real estate, stocks purchased on a stock exchange, mutual funds, and shares of a closely held business entity like a Corporation or LLC.
    • Keeps the 2025 gift tax annual exclusion at $19,000 per donee for individuals and
    • $38,000 per donee for split-gifts of a married couple and remains indexed going forward. In 2025, there are 17 states that still levy state estate or inheritance taxes with a variety of state exemption amounts. 33 states currently have no state estate or inheritance taxes.

Life Insurance, Annuities, and Long-Term Care (LTC) Contracts

It should be noted that the permanent extension of the tax law makes no changes to the taxation of life insurance, annuity, and LTC contracts. Individual and business taxpayers can place any increased after-tax income resulting from the permanently extended tax laws into these products to fund any estate, business, and retirement planning needs.

    • Life insurance retains its tax-favored status. Cash value continues to grow tax deferred, FIFO withdrawals up to cost basis and loans are tax free for non-MEC contracts, and death benefits are income tax free. Death benefits can also be estate tax free if an Irrevocable Life Insurance Trust (ILIT) is utilized. ILITs remain the most favored technique to offset federal and state estate taxes.
    • Non-qualified annuities retain tax deferred status along with the usual LIFO taxation on withdrawal of gains in excess of cost basis
    • Qualified LTC benefit claim payments remain income tax free up to a maximum of $420 per day in 2025 and continue to be indexed going forward.
    • The existing contribution limits for 401(k) plans, 403(b) plans, 457(b) plans, SEP plans, IRAs, and Roth IRAs remain in effect and continue to be indexed going forward.

Let’s Talk About What This Means for You! Connect with Cortney to explore planning opportunities created by the One Big Beautiful Bill Act.

 

 

*The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. 

 

 

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