Last year, we circulated a client alert discussing the enactment of the One Big Beautiful Bill Act (“OBBBA”) and several planning opportunities arising from the legislation. Since then, additional guidance has been released on various provisions of the bill, while several other noteworthy federal, state, and local tax developments unrelated to OBBBA have also emerged.

This newsletter highlights several developments and planning considerations that may warrant attention during the second half of 2026. For a more detailed discussion of the tax bill’s broader implications, please see our prior client alert.

As always, tax planning is most effective when undertaken proactively. If any of the topics discussed below may apply to your situation, we encourage you to contact us to discuss potential planning opportunities.

Trump Account Contributions and Gift Tax Reporting

The IRS recently released Revenue Procedure 2026-25, which provides relief from gift tax return filing requirements for certain contributions to Trump accounts. When Trump accounts were initially enacted, it was unclear whether contributions would qualify for the annual gift tax exclusion because the beneficiary generally cannot access the funds until reaching age 18. This created uncertainty because the annual gift tax exclusion typically applies only to gifts that provide the recipient with an immediate right to use or enjoy the transferred property.

The new guidance establishes a safe harbor under which qualifying contributions to Trump accounts are eligible for the annual gift tax exclusion and generally do not require the filing of a Form 709 gift tax return. The safe harbor applies only if the donor’s total gifts to the beneficiary for the year, including Trump account contributions, do not exceed the annual gift tax exclusion amount ($19,000 for 2026) and the donor makes no other gifts during the year that independently require gift tax reporting.

These limitations can create traps for unwary donors. Contributions to a Trump account count toward the donor’s total gifts to the same beneficiary for purposes of the annual gift tax exclusion. For example, a donor who contributes $5,000 to a child’s Trump account would generally have only $14,000 of annual exclusion remaining available for other gifts to that child during 2026. Importantly, exceeding the annual exclusion amount for that beneficiary would cause the entire Trump account contribution, rather than just the excess, to become reportable. In addition, eligibility for the safe harbor is not determined solely by gifts made to the Trump account beneficiary. Even a gift made during the same year to a different recipient that independently requires the filing of a gift tax return will cause the safe harbor to become unavailable.

Planning Note: The guidance provides welcome administrative relief for parents, grandparents, and other family members seeking to fund Trump accounts for children. However, contributions to a Trump account should be coordinated with a family’s overall gifting strategy. Individuals who regularly make annual gifts up to the annual gift tax exclusion amount should account for Trump account contributions when determining how much more may be gifted to the same beneficiary during theyear. Similarly, if you previously made a large contribution to a 529 plan and elected to spread
that contribution over five years for gift tax purposes, the amount(s) allocated to the current year should be considered when evaluating additional gifts to that same beneficiary. Because eligibility for the safe harbor can also be affected by reportable gifts made to other recipients, families should reviewtheir overall gifting activity for the year before relying on the safe harbor.

Qualified Opportunity Fund (QOF) Gain Recognition Deadline Approaching

Investors in Qualified Opportunity Funds (“QOFs”) face mandatory deferred gain recognition on December 31, 2026. However, investors should not assume that the amount of gain to be recognized in 2026 will necessarily equal the amount originally deferred less any applicable basis step-ups. If the value of the investment has declined since it was acquired, the amount of gain ultimately recognized may belower than originally expected.

Specifically, the amount recognized generally will be the lesser of (i) the original deferred gain or (ii) the fair market value (FMV) of the QOF investment, reduced by the investor’s adjusted basis. Investors who satisfied the applicable 5-year or 7-year holding period requirements before the December 31, 2026 inclusion date may also benefit from a 10% or 15% basis step-up earned under the original QOF rules.

Determining the FMV of a QOF investment can be challenging, particularly where the fund holds real estate, private businesses, or other illiquid assets that are not readily valued. Because a reduced gain position must be supported by credible valuation evidence, obtaining a qualified appraisal may be an important step for investors seeking to substantiate a lower investment value.

Planning Note: Given the potential time, cost, and complexity involved in valuing QOF investments, investors should consider evaluating fund performance well before the December 31, 2026 gain recognition date. Early planning may help identify situations where a qualified appraisal could support a lower valuation, potentially reducing the amount of gain ultimately recognized.

California PTET Update for 2026: Missed June 15 Payment No Longer Disqualifies Election

Many California pass-through entity owners are familiar with the strict PTET prepayment rules thatapplied in prior years. Under those rules, failure to make the required June 15 payment generally meant the entity lost the ability to make the PTET election for that year.

California recently extended its PTET regime through 2030 and modified the PTET election rules for tax years beginning on or after January 1, 2026. Under the new rules, the PTET election remains available even if the required June 15 payment is missed or underpaid. However, the election comes at a cost: theCalifornia PTET credit passed through to owners is reduced by 12.5% of the June 15 payment shortfall.

Although OBBBA temporarily increased the federal SALT deduction cap, many higher-income taxpayersmay receive little or no benefit from the higher limitation due to the applicable phaseout rules. As a result, PTET elections may continue to provide meaningful tax savings.

Planning Note: For tax years 2026 through 2030, if your entity missed or underpaid the June 15 PTET installment for a particular tax year, the PTET election remains available. This flexibility may beparticularly valuable where an entity’s income exceeds expectations.

For example, an entity that opted not to make the June 15, 2026 payment for the 2026 tax year because the expected PTET benefit appeared limited may still be able to make the election if taxable income increases significantly, whether due to improved business performance, a sale, a liquidity event, or other changes not previously projected.

Rather than assuming the opportunity has been lost, consider whether the revised rules create an additional planning opportunity. We can help evaluate whether the projected PTET benefits outweigh the reduction in credits resulting from a missed or underpaid installment.

California Expands Sales Tax to SaaS and Digital Software

California recently enacted legislation that significantly expands the application of sales and use tax to digital products beginning January 1, 2027. Most notably, the new rules generally apply to transactions involving prewritten software regardless of whether it is delivered electronically, installed locally, licensed, or accessed remotely as software-as-a-service (SaaS), whereas many of these arrangement historically were not subject to California sales tax. As a result, many businesses and individuals subject to California sales and use tax may experience a meaningful increase in the cost of software subscriptions and other digital products beginning in 2027. Depending on the applicable sales tax rate, the additional cost may approach or exceed 10% of annual subscription fees, which could be significant for businesses with substantial software and technology spending.

Examples of products potentially affected by the new rules include many commonly used cloud-based software subscriptions, such as productivity, collaboration, accounting, customer relationship management (CRM), and design platforms. While custom software generally remains exempt, a broad range of subscription-based software products may become subject to California sales tax. Additional guidance is expected as the California Department of Tax and Fee Administration (CDTFA) works through implementation of the new rules.

Planning Note: Businesses and individuals with significant software, SaaS, or technology subscription costs should consider reviewing existing agreements before year-end. It may also be worthwhile to contact vendors to determine how they expect to implement California’s new sales tax rules and to assess whether any planning strategies may be available before the January 1, 2027 effective date. Depending on the terms of a particular arrangement, opportunities may exist to renegotiate renewal terms, extend contract periods, accelerate certain purchases, or otherwise reduce future
exposure to the new tax. While additional CDTFA guidance is expected, evaluating significant software and SaaS contracts now may help identify planning opportunities and minimize the impact of the new tax beginning in 2027.

Businesses that provide software, SaaS, or other digital products should also be aware that the new rules may create additional California sales tax collection and compliance obligations beginning in 2027 and may wish to consult with their sales tax advisors regarding implementation.

Qualified Small Business Stock (QSBS): Growing State Nonconformity

Recent changes to the federal Qualified Small Business Stock (“QSBS”) rules under OBBBA have renewed attention on the value and scope of the federal QSBS exclusion. As discussed in our prior client alert, OBBBA made several favorable changes for QSBS issued on or after July 5, 2025, including:

• A 50% exclusion for QSBS held for at least three years and a 75% exclusion for QSBS held for at
        least four years.
• The per-issuer exclusion cap increased from $10 million to $15 million.
• The gross asset threshold for a Qualified Small Business increased from
        $50 million to $75 million.

While OBBBA expanded the federal QSBS exclusion, several states have recently moved in the opposite direction by limiting or eliminating conformity with the federal rules. As a result, taxpayers who qualify for federal QSBS benefits may still face meaningful state income tax liabilities.

California has long been a nonconforming state and does not provide a QSBS exclusion for California income tax purposes. Most recently, Illinois and Oregon joined the growing list of nonconforming jurisdictions. Beginning with the 2026 tax year, both states will require federally excluded QSBS gain to be included in state taxable income. As state-level treatment becomes increasingly divergent from federal treatment, a taxpayer’s state of residence may play a significant role in determining the ultimate tax result.

Planning Note: With a number of states considering similar proposals, founders and investors contemplating a sale, liquidity event, or other disposition of QSBS should begin evaluating potential state tax consequences well before a transaction occurs. Depending on the circumstances, state residency, existing trust structures, and transaction timing may have a significant impact on the amount of state tax ultimately due.

Charitable Giving Under OBBBA: Reminders for 2026 and Beyond

As discussed in our prior OBBBA client alert, charitable contributions made by individuals beginning in 2026 are subject to a new 0.5% adjusted gross income (AGI) floor before any deduction is allowed. As a result, charitable contributions generally are deductible only to the extent they exceed 0.5% of AGI. Amounts disallowed by the new floor are permanently lost, unless the same contribution is also limited under the existing 20%, 30%, 50%, or 60% AGI limitations, in which case the normal carry forward rules may apply.

Also beginning in 2026, itemized deductions are subject to a new overall limitation. As a practical matter, taxpayers in the highest federal income tax bracket generally receive a maximum tax benefit of approximately 35 cents per dollar of applicable itemized deductions, including charitable contributions.

Notably, the new 0.5% AGI floor does not apply to trusts, which may create planning opportunities for charitable giving through a non-grantor trust, assuming the trust permits charitable distributions.

Planning Note: Qualified Charitable Distributions (QCDs) from IRAs remain an attractive planning tool for charitably inclined individuals age 70½ and older. QCDs allow up to $111,000 per individual per year, or $222,000 per married couple for 2026, to be transferred directly from an IRA to charity. Because QCDs are excluded from income rather than claimed as an itemized deduction, they are not subject to the new charitable deduction limitations, including the 0.5% AGI floor and the overall itemized deduction limitation. In addition, QCDs count toward satisfying required minimum distributions (RMDs) and may help reduce Medicare premiums and other AGI-based phaseouts.

Beyond QCDs, the new 0.5% AGI floor also makes the timing and structure of charitable contributions more important than under prior law. Individuals who make regular charitable contributions may wish
to evaluate whether bunching contributions into fewer years could reduce the impact of the new floor and increase overall tax benefits. Those considering significant charitable contributions should also evaluate whether gifts of long-term appreciated securities may provide greater tax benefits than cash contributions by generating a charitable deduction while avoiding recognition of built-in capital gains. New York City’s New Pied-à-Terre Tax Surcharge

New York City recently enacted a new annual tax surcharge on certain high-value residential propertiesin the city that are not used as a primary residence. Effective for fiscal years beginning July 1, 2026, and currently scheduled to remain in effect through June 30, 2031, the surcharge applies in addition to existing New York City property taxes and may significantly increase the carrying costs of certain second homes, condominiums, and cooperative apartments.

The surcharge generally applies to high-value New York City homes, condominiums, and cooperative apartments that do not qualify for an available exemption. Unfortunately, ownership through an LLC,
partnership, corporation, or trust generally will not avoid the surcharge. The rules look through many common ownership structures and, in most cases, apply based on the beneficial owner or occupant rather than the nominal titleholder.

For the initial implementation period, the surcharge applies to one- to three-family residences (“Class 1properties”) valued at $5 million or more and to condominiums and cooperative apartments (“Class 2
properties”) valued at $1 million or more. Rates range from 0.8% to 1.3% for covered Class 1 propertiesand from 4.0% to 6.5% for covered Class 2 properties. Importantly, the value of a condominium or
cooperative apartment generally is determined using New York City’s property tax valuation methodology, which may differ substantially from the property’s market value. As a result, some
properties with market values exceeding $1 million may fall below the applicable threshold, while others with lower market values may nevertheless be subject to the surcharge.

Beginning July 1, 2028, the separate thresholds, valuation rules, and higher rates applicable to Class 2properties will be eliminated. Condominiums and cooperative apartments will instead be subject to the
same thresholds and rates as Class 1 properties and valued under a methodology intended to more closely reflect market value by considering sales of comparable properties.

Several important exemptions apply. A property generally is exempt if it serves as the primary residence of the owner or certain family members, including a spouse, child, sibling, parent, grandparent, or grandchild. A property also may qualify for an exemption if it is leased to an unrelated individual under a bona fide arm’s-length lease of at least one year and is used as that individual’s primary residence.Short-term rentals and leases of less than one year do not qualify.

Whether a property qualifies as a primary residence generally will be determined based on how theproperty was used at the beginning of the year. For the first fiscal year, the New York City Department of
Finance (“DOF”) will evaluate residency status based on a property’s use as of January 5, 2026, even though the surcharge did not take effect until July 1, 2026. As a result, planning opportunities for the
initial year are extremely limited. The DOF will send notices no later than August 30, 2026 to owners of properties it preliminarily determines may be subject to the surcharge. Owners receiving a notice will have an opportunity to provide documentation supporting a primary residence or other available exemption.

Planning Note: Owners of second homes or investment residences in New York City should evaluate whether the new surcharge may apply beginning with the 2027 fiscal year. Those relying on a primary
residence or leasing exception should consider whether sufficient documentation exists to support theclaimed exemption. For affected properties, the retroactive nature of residency determination
unfortunately precludes any planning for the initial year. However, for future years, it may beworthwhile to weigh the expected cost of the surcharge against other alternatives, such as converting the property to a primary residence, entering into a qualifying long-term lease arrangement, or makingchanges to long-term ownership plans.

Any tax advice in this communication is not intended or written by Navolio & Tallman LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer, or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this newsletter, Navolio & Tallman LLP is not rendering any specific advice to the reader.