Significant changes to the tax code may be on the horizon for individuals. 

The House recently narrowly passed the One Big Beautiful Bill Act (OBBBA), which extends or makes permanent certain Tax Cuts and Jobs Act (TCJA) tax provisions and also makes some significant changes to the tax code. The Senate has now taken up the bill, where several modifications are expected. Understanding the key provisions that could impact individual taxpayers, business owners and estate planning strategies — and how they affect tax planning — is crucial at this stage. 

INDIVIDUAL TAX RATES TO STAY IN PLACE

One of the headline provisions in the new legislation is the move to make the current individual income tax brackets permanent. These rates, originally enacted under the 2017 TCJA and scheduled to expire after 2025, would no longer sunset. Notably, the bill excludes a proposed surtax on ultra-high earners, which had been discussed by the Administration, but ultimately did not make it into the final version.

GHJ Observation: The permanent extension of the TCJA rates removes a major source of uncertainty in long-term tax planning. While the proposed legislation would permanently extend the current individual income tax brackets, it is important to note that only the top marginal rate of 37% would be fixed. All lower tax brackets (e.g., 10%, 12%, 22%, 24%, 32%, 35%) would continue to be adjusted annually for inflation. This means that over time, more income could be taxed at lower rates, helping to reduce bracket creep for most taxpayers. However, individuals subject to the top 37% rate would not benefit from these inflation adjustments. For high earners, avoiding the proposed “millionaire tax” is a win, but planning opportunities remain important given the complexity of other proposed limitations elsewhere in the bill.

LIMITS ON ITEMIZED DEDUCTIONS FOR TOP EARNERS

Beginning in 2026, the tax savings from itemized deductions would be reduced for individuals in the top tax bracket. Instead of being able to offset income at their full tax rate, deductions would be limited to a 32% benefit on ordinary income and just 17% on capital gains. As a result, large deductions — such as charitable contributions — would provide less tax benefit for high-income taxpayers than they do today.

GHJ Observation: This change doesn't eliminate deductions but reduces their value at the top tier. However, these changes do permanently eliminate the usage of miscellaneous itemized deductions on the federal level. High earners, who typically rely on large charitable deductions or other itemizations, may start to rethink their giving strategies and timing while coordinating with their financial team, as the marginal tax benefit becomes less impactful starting in 2026.

BOOST TO THE QBI DEDUCTION AND BROADER ACCESS

The bill would increase the Qualified Business Income (QBI) deduction from 20% to 23%. Additionally, the phase-out rules that previously restricted specified service professionals, such as doctors, lawyers and consultants, from claiming the deduction would be relaxed, expanding planning opportunities for those in higher income brackets.

GHJ Observation: The increase from 20% to 23%, while relatively small, could be meaningful at scale. With the expanded access for Specified Service Trade or Businesses (SSTBs), many taxpayers may now be able to benefit from the QBI deduction for the first time.

PTET DEDUCTION NARROWED FOR CERTAIN INCOME TYPES

The Pass-Through Entity Tax (PTET) deduction has served as a workaround to the SALT deduction cap for many taxpayers. Under the proposed law, the PTET deduction would no longer apply to income from investment activity or SSTBs starting in 2026. Businesses that are not classified as SSTBs would still be able to claim the deduction moving forward.

HIGHER ESTATE AND GIFT TAX EXEMPTION MADE PERMANENT

The elevated estate and gift tax exemption would be permanently locked in at $15 million per person, indexed for inflation. 

GHJ Observation: This brings clarity for estate planning. For families who have been on the fence due to the 2026 sunset risk, this change may ease the urgency but still presents an opportunity to leverage the higher exemption with gifting and trusts before any future legislation alters the landscape again.

SALT DEDUCTION CAP EXPANDED WITH LIMITATIONS

The deduction cap for State and Local Taxes (SALT) would increase from $10,000 to $40,000. However, this expanded limit would begin to phase out for individuals earning over $500,000. For many high-income taxpayers — especially those in states with high property or income taxes — the practical benefit of this change may be limited.

GHJ Observation: At first glance, this appears to be major relief for residents in high-tax states. But the phase-out could reduce its usefulness for certain individuals. Combined with the PTET changes, high earners in states such as California and New York may see only minimal net benefit. State-specific planning will remain essential.

GHJ will continue to monitor the bill as it works its way through the Senate and provide updates as it evolves. Please consult with your GHJ advisor for any tax-related questions.