Posted by Joe Falbo and Melissa Krause
The recent passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has brought significant changes to the tax landscape and impacts various aspects of tax planning for high-net-worth individuals. In particular, five key provisions are set to reshape tax strategies, including adjustments to state and local tax deductions, charitable contribution rules, itemized deduction limitations, alternative minimum tax thresholds, and estate and gift tax exclusions. As taxpayers navigate these changes, understanding the implications of the OBBBA is extremely important for an optimal tax position.
The state and local tax deduction for tax years 2025 through 2029 has been increased to $40,000. There is a threshold of $500,000, as measured by a taxpayer’s modified adjusted gross income (MAGI). Once this threshold is met, the deduction will be reduced by 30% of the excess of the MAGI over $500,000. When the taxpayer’s MAGI approaches $600,000, the phaseout terminates, as the deduction will not be reduced below 10,000.
>> Our Take: The introduction of this threshold allows high-earning individuals to determine if it would be more beneficial to pay their fourth quarterly estimated payment in the related tax year or delay payment to January of the subsequent year.
There are two important changes to the charitable contribution deduction that may impact future tax years beginning with 2026.
>> Our Take: Individuals who receive qualified retirement distributions (if complying with certain requirements) may direct up to $108,000 of their qualified distribution (for example IRA\401(k)) to charitable organizations. This qualified charitable contribution (QCD) allows a taxpayer to bypass the itemized deduction phaseout and the charitable contribution floor, protecting 100% of their retirement distribution from taxation.
The itemized deduction limitation, previously referred to as the Pease Limitation, has been permanently repealed. It’s been replaced with an overall limitation that will be applied to future tax years beginning with tax year 2026. This impacts taxpayers in the 37% bracket and limits the tax benefit of their itemized deductions to 35%.
Note: The qualified business income deduction will continue to be computed without regard to the itemized deduction limitation phaseout.
Below summarizes key itemized deductions from 2025 to 2026:
| Itemized Deduction | 2025 | 2026 |
|---|---|---|
| Medical | No change | No change |
| State and Local Tax | • Up to $500,000 AGI = $40,000 deduction • $500,000 - $600,000 = 30% phaseout • Over $600,000 = $10,000 deduction |
• Up to $500,000 AGI = $40,400 deduction • $505,000 - $606,333 = 30% phaseout • Over $606,333 = $10,000 deduction |
| Mortgage Interest | Same mortgage interest limitation and mortgage insurance premiums now deductible | No change |
| Charitable Contributions | Same rule as before the OBBBA, with no floor | 0.5% on AGI floor |
| 2% Miscellaneous Itemized Deductions | Repeal made permanent | No change |
| Overall Itemized Deduction Limitation | None | The tax benefit of itemized deductions is capped at a 35% maximum |
>> Our Take: There are various timing and planning strategies for itemized deductions, including charitable donations, estimated tax payment, medical expenses, etc. to discuss with your tax adviser. For example, consider bunching charitable donations before 2026, when the 0.5% floor kicks in. Even if your contributions are limited in 2025 to 60% of your AGI, the excess carries over to 2026 and is not subject to the 0.5% floor.
The alternative minimum tax (AMT) income exemption phaseout threshold for 2025 for those married filing jointly or are surviving spouses is $1,252,700. For tax years beginning in 2026, this amount will be reset to the pre-Tax Cuts and Jobs Act (TCJA) limit of $1 million. There are no changes to income thresholds for other filing statuses. The exemption phaseout percentage has been changed from 25% to 50%.
For individuals who are taxed under the AMT regime and file as married filing jointly or as a surviving spouse, this means their income subject to AMT will increase. This coupled with the phaseout exemption being phased at twice the rate will increase the amount of income eligible to be taxed under AMT and will result in more income subject to the higher tax bracket of 28%.
>> Our Take: Certain character of income historically attracts AMT. For those receiving equity-based compensation awards, such as ISOs, should be acutely aware of the changes in the AMT regime. Planning strategies are available to help ensure the proper timing of AMT payments and use of AMT credit carryovers.
For tax years beginning in 2026, the estate and gift tax exclusion amount will be permanently increased to $15 million and will be adjusted for inflation beginning tax year 2027. This increase in exclusion also contains a corresponding credit amount for 2026 at $5,945,800. Prior to the passing of the OBBBA, the exclusion amount was projected to revert to $7 million.
>> Our Take: This permanent extension provides taxpayers certainty for the foreseeable future. Importantly, the elimination of ambiguity around the estate and gift tax exclusion provides all taxpayers the opportunity to revisit their estate and trust plans. Now is the time to reassess goals, for example, balancing strategies between estate tax and the benefit of basis step-up at death. In many cases, the sooner rapidly appreciating assets are moved out of one’s estate, the larger the longer-term benefit.
Read our related blogs:
>> "One Big Beautiful Bill Up Close: Tax Impact for Private Companies"
>> "One Big Beautiful Bill Up Close: Tax Impact for Real Estate"
>> "One Big Beautiful Bill Up Close: Tax Impact for Private Equity and Registered Funds"
Contact Joe Falbo, Tom Kotick or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.