By Chris Woehrle
On the 4th of July, President Trump signed the OBBBA into law, “permanently” extending the expiring provisions of 2017’s Tax Cuts and Jobs Act. Of course, tax law is only permanent until a future Congress and Presidential administration agree on the need to raise taxes and/or reduce spending. For now, most individual taxpayers avoided substantial income tax increases.
A look at rates and deductions
- The top rate on ordinary income is and will continue to be 37% and 20% for long-term capital gains and qualified dividend income. Zero percent capital gains planning remains viable, as a married couple filing jointly could pay zero capital gains taxes so long as the sum of their income and capital gain income is less than $96,700.
- The 2025 standard deduction for single and joint filers was retroactively increased from $15,000 to $15,750 and $30,000 to $31,500.
- For tax years 2025–2028, the OBBBA provides a senior deduction of $6,000 for taxpayers 65 and older. The senior deduction is subject to phaseout, being reduced 6% of modified adjusted gross income (MAGI) over $75,000 (single taxpayers) and $150,000 (married filing jointly).
Charitable provisions
While the traditional vehicles of charitable giving, such as appreciated securities and life-income arrangements like charitable gift annuities and charitable remainder trusts remain viable, the tax efficiency of charitable giving has been modestly reduced. 2025, therefore, would be the most advantageous for those contemplating making a special or “gift of a lifetime.”
- A floor. The OBBBA imposes a 0.5% floor of the charitable contribution base (AGI). The provision will be effective for tax years after Dec. 31, 2025. This year will be the last year charitable contributions will not be reduced by a floor.
- A ceiling. While the Pease limitation on itemized deductions (including charitable contributions) has been repealed, a new limitation will be effective for tax years after Dec. 31, 2025. The OBBBA introduces a new itemized deduction limitation specifically targeting taxpayers in the 37% ordinary income bracket. The limitation ensures that itemized deductions provide no more than 35 cents on the dollar of tax benefit for top-bracket taxpayers. Specifically, itemized deductions are reduced by 2/37 the of the amount of income in the 37% bracket.
- An above-the-line deduction. For tax years beginning after Dec. 31, 2025, non-itemizers taking the standard deduction will be eligible for an above-the-line deduction for contributions with a limit of $1,000 for single taxpayers and $2,000 for married taxpayers. However, contributions to donor advised funds are ineligible.
2025 planning strategies
- Bunching. Both individuals and corporations may benefit from “bunching” contributions into larger amounts in fewer years to exceed the new floors and maximize deductions.
- Donor advised funds (DAFs). For donors utilizing a bunching strategy, DAFs can provide the benefit of a tax deduction in the year the contribution is made to the DAF, while allowing the donor to distribute the funds to charities later.
Impact on estate planning
Only the wealthiest of the wealthy need worry about incurring a federal estate, gift or generation-skipping transfer tax as the new law eliminates the sunsetting of the generous exemption. Beginning in 2026, the exemption will be $15 million per person, with future adjustments for inflation. A married couple can effectively shelter $30 million from federal estate tax.
For most taxpayers, the most relevant issue in estate planning is income tax planning; namely, assuring inclusion into the estate for generating a stepped-up basis in assets held at death. ■
Chris Woehrle, JD, LLM is a magna cum laude graduate of Cornell University. Chris earned his JD and LLM (Taxation) from the Widger School of Law at Villanova University, where he is a member of the Graduate Tax Program Advisory Board. He also teaches charitable gift planning and principles of wealth management in the LLM taxation program.
