05 Sep Time-Sensitive Tax Planning Under the New 2025 Law (OBBBA)

 The 2025 reconciliation bill signed into law on July 4, 2025 (commonly referred to as the “One Big Beautiful Bill Act” or “OBBBA”), brings sweeping changes, including higher SALT caps, new charitable limits, and the early expiration of popular energy credits. In addition, the IRS has released new guidance on research expenses, and major international tax changes are set to take effect in 2026. These developments create both opportunities and new limits, and some require action before year-end. Below are several time-sensitive provisions that may impact your 2025 tax planning: 

1) Charitable Giving: Actions to Take Before Year-End 

• Charitable deductions made after December 31, 2025 will be subject to new limitations. Accelerating or frontloading contributions before year-end may preserve tax benefits, especially through a donor-advised fund (DAF) or your own private foundation. Donating long-term appreciated stock avoids capital gains tax and gives a deduction at fair market value. However, if your tax rate is expected to be higher in future years, deferring may provide a larger long-term benefit. 
• Beginning in 2026, a 0.5% AGI floor will apply before any charitable deduction made by individuals is allowed. The portion disallowed under this new floor is permanently lost, unless the same contribution is also limited under the existing 20/30/60% AGI caps, in which case the carryforward rules apply. Note that this limitation does not apply to trusts, which provides a potential planning opportunity to make contributions through a non-grantor trust, assuming the trust allows for it. 

• Also beginning in 2026, itemized deductions will be reduced by 2/37 of the lesser of total itemized deductions or the amount by which your taxable income exceeds the start of the 37 percent bracket ($626,350 single / $751,600 joint in 2025). Itemized deductions generally include medical expenses above 7.5% of AGI, state and local taxes, mortgage interest, investment interest expense, and charitable contributions. 

• One way to avoid these new charitable limits is through Qualified Charitable Distributions (QCDs) from IRAs, which remain available for those age 70½ and older. QCDs allow up to $108,000 per individual per year (2025 limit, adjusted annually for inflation) to be transferred directly to charity. These distributions are excluded from income and not treated as an itemized deduction, so they do not increase your AGI and avoid the new charitable limits taking effect in 2026. In addition, QCDs count toward satisfying your required minimum distribution (RMD) for the year and may help reduce Medicare premiums and other AGI-based phase-outs. 
• The larger standard deduction amounts are now permanent ($31,500 joint / $23,625 head of household / $15,750 single or married filing separately in 2025). Taxpayers near these thresholds may want to bunch itemized deductions into certain years. 
• Starting in 2027, contributions to qualified scholarship-granting organizations may provide a federal credit of up to $1,700 per taxpayer per year, subject to IRS guidance. Unlike a deduction, this credit reduces your tax liability dollar-for-dollar, is available whether or not you itemize, and is not subject to the new charitable or overall itemized deduction limits.
  
  2) SALT and PTET 
• The state and local tax (SALT) deduction cap rises from $10,000 to $40,000 for tax years 2025 through 2029, but phases back down to $10,000 with modified adjusted gross income (MAGI) between $500,000 and $600,000*. The cap reverts to $10,000 in 2030. Note that the deductible amount may also potentially be subject to the overall limitation on itemized deductions discussed above. 

• • *For those who are married filing separately, the cap is $20,000 and phases down to $5,000 at MAGI between $250,000 and $300,000. 

• The Pass-Through Entity Tax (PTET) remains a valuable workaround for owners of passthrough entities, since taxes paid at the entity level are not subject to the SALT cap. While many states have adopted their own PTET regimes, the details vary significantly. For example:  

• • California – The PTET has been extended through 2030 (previously set to expire after 2025). The election itself is made on the timely filed tax return, but a June 15th prepayment (greater of 50% of the prior year PTET or $1,000) is required to preserve eligibility. For tax years 2024 and 2025, failure to make the required June 15th payment (or to pay enough) means the entity cannot elect in at all. Beginning in 2026, the election will still be available even if the June 15th installment is short or missed, but each owner’s PTET credit will be reduced by 12.5% of the shortfall.  

• • New York – The PTET program has no expiration date, but the election must be made online through the NY Business Online Services portal by March 15th of the tax year. Estimated tax payments are due quarterly, and the annual PTET return is due the following March 15th. A six-month extension to file is available, but it must be submitted separately via the same online portal and is not covered by the entity’s regular New York tax return extension. For New York City residents, New York City additionally offers its own PTET program that mirrors New York State’s program. 

Planning Note: Even with the temporary $40,000 SALT cap, PTET elections may still be valuable because these deductions generally reduce federal AGI, which can lower exposure to the net investment income tax and other AGI-based limitations. 

3) Expiring Energy Credits: Key 2025 Deadlines 

Clients considering energy improvements or EV purchases should act quickly to capture these benefits before they expire, since most provisions terminate earlier than previously scheduled. 

• If you are considering installing solar panels, battery storage, or other clean energy systems for your personal residence, the credit (30% of the project cost including installation) expires for property not placed in service by December 31, 2025. Prepayment alone does not preserve eligibility. 

• Energy-efficient upgrades such as windows, doors, HVAC, water heaters, and insulation on your personal residence also qualify only if placed in service by December 31, 2025. These carry an annual maximum credit of $3,200, with specific individual category limits. Additions generally must be Energy Star certified to qualify.  

• Solar panels installed on residential rental or commercial buildings may qualify for the business energy credit, but only if placed in service by December 31, 2025. In addition, the Section 179D commercial building energy-efficient deduction (covering HVAC, lighting, and building envelope upgrades) expires for projects that begin construction after June 30, 2026.  

• To qualify for the EV credit, new or used vehicles must be purchased or leased by September 30, 2025. Unlike the other energy credits above, the EV credit is subject to income limits: it phases out above $150,000 (single) and $300,000 (joint) for new vehicles, and $75,000 (single) or $150,000 (joint) for used vehicles.

   

4) Depreciation and Expensing for Real Estate & Business Assets 

• The law restores 100% bonus depreciation for qualifying property acquired and placed in service on or after January 19, 2025. If you purchased or plan to purchase real estate this year, consider a cost segregation study to maximize deductions, including bonus depreciation. Manufacturers also benefit from a special provision for qualified production property, which ensures immediate expensing treatment for new or expanded facilities. 

• Beginning in 2025, Section 179 expensing limits increase to $2.5 million of qualifying property, with a phase-out beginning at $4 million. This includes tangible personal property as well as certain nonresidential real estate improvements such as roofs, HVAC, fire protection, and security systems. 

• Keep in mind that passive activity loss rules and/or the excess business loss limitation (permanent beginning in 2026) may defer some deductions. While unused amounts carry forward, these rules can reduce the immediate cash-flow benefit.

   

5) Estate and Gift Planning 

• The higher estate, gift, and GST exemptions were permanently extended under the new law. For 2025, the exemption is $13.99 million per person, and beginning in 2026 it will increase to $15 million per person, adjusted annually for inflation. The step-up in basis at death remains unchanged, which often eliminates built-in capital gains for heirs. 

• With fewer families facing estate tax directly, planning will increasingly focus on income tax and basis management strategies, including the use of non-grantor trusts to reduce state income taxes. Families with existing trusts may want to review whether swapping assets or modifying trust structures could help maximize step-up opportunities. 

   

6) Research & Experimental (R&E) Expenses – New Rules 

The new law rolled back the 2017 rule requiring capitalization of domestic research expenses. Beginning in 2025, domestic R&E costs may generally be deducted in the year incurred, while foreign R&E must still be amortized over 15 years. Per recently released IRS guidance, we now have clarity on how to handle the transition and prior-year amounts:  

• Businesses with unamortized research costs from 2022–2024 will have the opportunity to address them on their 2025 return, either deducting the full balance in 2025 or spreading it over two years. 

• Small businesses (under $31 million average receipts, not tax shelters) may elect to apply the new rules retroactively to 2022–2024 by amending returns, filing an Administrative Adjustment Request (AAR), or making an accounting method change. This election is due by July 6, 2026, but be sure to file your 2022 refund claim before the statute of limitations closes (April 15, 2026 for most calendar-year filers and their owners). 

• • If a small business deducts R&E costs on its 2024 return, that is treated as making the retroactive election, requiring 2022 and 2023 returns to also be amended (or AARs filed) if costs were incurred in those years. By contrast, if you prefer to avoid amending prior years, a Form 3115 may be filed with the 2025 return to make a prospective method change starting in 2025.  

• 2024 returns filed under the old rules may be superseded to deduct those costs instead. Per IRS relief, any 2024 return with a tax year beginning in 2024 and ending before September 15, 2025, and with an original due date before that date, is automatically treated as if a 6-month extension had been filed.  

• • If no superseding return is filed, the costs remain capitalized and will be addressed under the 2025 transition rules.  

Planning Note: Businesses should review how R&E expenses have been tracked since 2022 and evaluate whether amending or superseding returns could provide immediate tax savings (the IRS is treating timely 2024 filings as automatically extended, so more taxpayers will have the chance to supersede than under the normal rules). For 2025 and beyond, a choice will need to be made to deduct or amortize new domestic R&E costs. 

 

7)  International Tax Changes 

The new law makes significant changes to international tax rules for tax years beginning after December 31, 2025. In particular, several provisions affecting the taxation of cross-border income will result in higher effective tax rates, though this is not a comprehensive list of all international updates. 

• Global Intangible Low-Taxed Income (GILTI) is renamed Net CFC Tested Income, and the Qualified Business Asset Investment (QBAI) exemption is eliminated. Foreign Derived Intangible Income (FDII) is renamed Foreign-Derived Deduction Eligible Income. 

• The deduction for FDII decreases from 37.5% to 33.34%, raising its effective U.S. tax rate from 13.125% to about 14%. The deduction for GILTI decreases from 50% to 40%, raising its effective U.S. tax rate from 10.5% to about 12.6%. While the corporate tax rate remains at 21%, these smaller deductions increase the net tax cost on affected income. 

Planning Note: Corporations with cross-border income should review their global structure and consider accelerating revenue or deferring deductions into 2025, when the more favorable deduction rates still apply. Early planning in 2025 is key, as these rules will apply for tax years beginning after December 31, 2025. 

8) Other Opportunities for Individuals and Families 

• Trump Accounts: Children born between 2025 and 2028 are eligible for a $1,000 government seed contribution in a newly created “Trump Account.” These accounts operate under rules similar to individual retirement accounts (IRAs) but are available for newborns and can be funded with up to $5,000 per year regardless of whether the child has earned income. The program is new and limited in scope, but it is worthwhile to open an account if your child qualifies for the free $1,000 contribution. Other savings options such as 529 plans or Roth IRAs will continue to play a larger role in long-term planning. 

• 529 Plan Expansion: Starting in 2026, qualified expenses will include certain elementary, secondary, homeschooling, and credentialing costs. Families who are considering these types of expenses may want to review whether contributing to or expanding use of a 529 plan makes sense, especially since earnings grow tax-free when used for qualified purposes. In addition, 529 plans allow for “superfunding,” where up to five years’ worth of annual exclusion gifts ($19,000 per donor, or $38,000 per married couple in 2025) can be contributed at once, frontloading the account to maximize potential tax-free growth. Keep in mind that superfunding uses up future annual exclusions for that beneficiary during the five-year period.  

• Income Tax Rates and Roth Conversions: With current income tax brackets permanently extended under the new law, rates will remain at the lower post-2018 levels instead of reverting higher after 2025. Roth conversions remain a valuable planning tool, especially for those who expect higher taxable income or higher tax rates in the future. Because the lower rates are now permanent, there is no need to accelerate income into 2025 simply to avoid higher rates, which would have been a consideration before this change.

   

9) Other Opportunities for Businesses and Investors 

• Qualified Small Business Stock (QSBS): Expanded benefits apply to qualified small business stock acquired after July 4, 2025, which can now qualify for a 50% exclusion if sold after 3 years, a 75% exclusion after 4 years, and the full exclusion after 5 years. The per-issuer exclusion cap is permanently increased from $10 million to $15 million, and for qualified small business stock acquired after July 4, 2025, the gross-assets test is raised from $50 million to $75 million. These changes create new opportunities for founders and investors to plan around entity choice, business structuring, and exits. Potential strategies may include using multiple trusts or family members to “stack” exclusions, coordinating basis planning, and carefully timing sales or restructurings.  

• Qualified Opportunity Zones (QOZ): Gains previously deferred under the existing QOZ program will still be taxable on December 31, 2026, but a new permanent program begins in 2027. For new investments made after 2026, taxpayers can defer gain recognition for up to five years. If the investment is held the full five years, basis in the deferred gain increases by 10%, effectively reducing the taxable portion. In addition, appreciation on the QOF investment itself remains tax-free if held for at least 10 years. Planning strategies such as installment sales or charitable remainder trusts may help delay the recognition of gains to 2027 to qualify for deferral. 

• Business Interest Deduction: The business interest deduction remains limited to 30% of adjusted taxable income (ATI). For tax years beginning after December 31, 2024, the new law changes the definition of ATI to once again add back depreciation and amortization, which had phased out under prior law. Combined with the restoration of 100% bonus depreciation, businesses can now expense qualified assets while preserving a higher ATI base, allowing leveraged businesses and real estate investors to deduct more interest.  

• • For tax years beginning after December 31, 2025, the new law also provides that the amount of business interest expense allowed after applying the 30% of ATI limit is applied first to amounts that would be capitalized and only the remainder if any would be deducted. 

• • An irrevocable election out of business interest expense limitation remains available for real property trades or businesses, but it comes at the cost of slower depreciation and the loss of bonus depreciation on qualified improvement property. With ATI restored to an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, however, this election may be less attractive going forward.

Interconnected Provisions: No One-Size-Fits-All 

Many of the changes in the new law are interconnected, and their combined effect may be quite different from looking at any single provision in isolation: 

• Bonus depreciation can be limited by passive activity loss rules and excess business loss limitations. 

• PTET elections may reduce AGI, which in turn impacts income-based limitations. 

• Charitable giving strategies depend on whether you are itemizing in a given year.  

• R&E guidance may affect adjusted taxable income (ATI), which in turn impacts the business interest deduction. 

• Trust-based planning: In some cases, non-grantor trusts may be used to maximize certain benefits, such as stacking QSBS exclusions, increasing access to the SALT deduction, or avoiding the new 0.5 percent AGI floor on charitable contributions. These strategies are complex and must be carefully evaluated to ensure compliance and effectiveness. 

• State tax considerations: While this summary focuses on federal tax changes, it is important to remember that states vary in whether they conform to federal rules. As a result, the state tax impact of a strategy may differ significantly from the federal benefit, and planning must take both into account. For example:  

• • California – does not conform to bonus depreciation, QSBS gain exclusion, business interest expense limitation, or expanded qualified 529 plan expenses, and applies a much lower Section 179 deduction limit ($25,000).  

• New York – also does not conform to bonus depreciation, but does conform to the higher Section 179 deduction, QSBS gain exclusion, business interest expense limitation, and expanded qualified 529 plan expenses.

   

Next Steps 

Because every situation is unique, and the new provisions can interact in unexpected ways, the right approach depends on your specific circumstances. Some changes create opportunities this year, while others introduce new limits or affect longer-term plans. Careful, forward-looking planning will be essential to make the most of these developments — and now is the time to review your situation to determine the best course of action.  

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.