One Big Beautiful Bill Act (OBBBA) 2025: What Changed for Tax Planning

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 as Public Law 119-21, is the largest overhaul of the federal tax code since the Tax Cuts and Jobs Act of 2017. For Bay Area clients, the stakes are high across every profile: founders holding qualified small business stock, tech employees with equity compensation, business owners running pass-throughs, and high-net-worth families who had been watching the 2025 sunset provisions approach with growing concern. Most of the major TCJA provisions that were set to expire did not expire. Several were expanded. A few were tightened. And California, predictably, did not follow most of them.

This post walks through the provisions that matter most to our clients, what changed relative to prior law, and what planning actions each change triggers. Treasury and IRS continue to issue guidance on implementation details as of mid-2026. Where significant ambiguity remains, we flag it. The statutory text controls; coordinate with your tax advisor before acting on any specific provision.

QSBS Expansion: §1202 Raised to $15M, New Tiered Holding Periods

For Bay Area founders, the §1202 QSBS changes are the most consequential provision in OBBBA. Under prior law, a qualified small business stock holder could exclude from federal income tax the greater of $10 million or 10 times the taxpayer's adjusted basis in the stock, provided the stock was held for more than five years and the issuing C corporation's aggregate gross assets did not exceed $50 million at the time of issuance. The exclusion rate was 100% for stock acquired after September 27, 2010.

OBBBA makes three changes:

• Exclusion cap raised to $15 million. The flat dollar cap on excluded gain increases from $10 million to $15 million per taxpayer per issuer. The 10x-basis alternative cap also increases proportionally. For a founder who invested $500,000 at issuance, the 10x cap is now $5 million. For a founder who invested $2 million, the 10x cap is $20 million (still exceeds $15M, so the flat cap controls unless further basis is available).
• New tiered holding periods: 5/4/3 year exclusion schedule. OBBBA introduces reduced exclusion percentages for stock held between three and five years. Stock held at least five years retains the 100% federal exclusion. Stock held between four and five years receives a 75% exclusion. Stock held between three and four years receives a 50% exclusion. Stock held less than three years remains fully ineligible. This is a significant change for founders approaching a liquidity event before the five-year mark.
• Gross assets ceiling raised to $75 million. The corporation's aggregate gross assets at the time of issuance (and immediately after) must not exceed $75 million, up from $50 million. This expansion qualifies more growth-stage companies that crossed the old $50 million threshold before a founder's investment.

The 100% exclusion at five years, when combined with the $15 million cap, means a qualifying founder can exclude up to $15 million in federal capital gain at a single C-corp exit. For spouses holding separately acquired shares, each may claim up to $15 million. For founders with multiple rounds of qualifying stock purchases from the same issuer at different times, the caps apply per lot.

California position: California does not conform to §1202 QSBS exclusions. Gain excluded at the federal level remains fully taxable in California at the 13.3% top marginal rate. California QSBS planning requires separate layering, including careful evaluation of domicile and sourcing rules before a liquidity event. See our dedicated QSBS tax planning page for the full California overlay.

Planning action: If you are a founder holding QSBS or anticipating a qualified issuance, the $75 million gross assets ceiling expansion may bring previously ineligible round participants back into qualifying territory. Audit every prior investment date, lot, and basis now. For founders approaching year three or four of holding, the new tiered exclusion schedule changes the calculus on timing a secondary or primary exit. Document the corporation's aggregate gross assets at each issuance date. The IRS has not yet issued final regulations on the new tiering mechanics under §1202(b)(1)(C) as added by OBBBA; watch for guidance before finalizing a transaction timeline.

§199A QBI Deduction: Made Permanent, W-2 Wage Limitation Tightened

The §199A qualified business income deduction, which allowed pass-through owners to deduct up to 20% of QBI from their federal taxable income, was scheduled to expire at the end of 2025 under the TCJA sunset. OBBBA made §199A permanent, removing the expiration date entirely.

Permanent status matters enormously for planning horizons. Under the old law, no one could confidently build multi-year tax projections around §199A because the deduction's shelf life was uncertain. That uncertainty is gone. Pass-through owners, S-corp shareholders, and partners in qualifying businesses can now treat the 20% deduction as a permanent structural feature of their tax planning, with the same W-2 wage and unadjusted basis limitations that applied under TCJA.

OBBBA also narrowed the specified service trade or business (SSTB) carve-outs modestly, removing certain ambiguous "consulting adjacent" categories from the safe-harbor definitions. For clients in law, financial services, and consulting who had been arguing their activities fell outside the SSTB bucket, the revised definitions tighten the analysis. Review your business's classification against the updated SSTB definitions, particularly if you derive income from advisory or professional services.

California position: California conforms to §199A and has allowed the deduction for qualifying pass-through income. Permanent extension at the federal level does not require additional California legislation for conformity on this provision.

Planning action: For S-corp and partnership owners who deferred entity restructuring because of §199A's uncertain future, that uncertainty is resolved. Reasonable compensation analysis, basis allocation, and aggregation elections can now be optimized on a permanent footing. See our business tax consulting page for the S-corp and pass-through planning workflow.

SALT Cap: Raised to $40,000 with High-Income Phaseout

The TCJA capped the state and local tax deduction at $10,000 per year per return ($5,000 for married filing separately). For Bay Area homeowners paying $20,000 to $50,000 or more in California income and property taxes, the $10,000 SALT cap was one of the most painful TCJA provisions. OBBBA raises the cap substantially but introduces a phaseout that limits the benefit for the highest-income taxpayers.

Under OBBBA, the SALT cap increases to $40,000 for joint filers and individuals. For married filing separately, the cap is $20,000. The cap is indexed for inflation beginning in 2026. However, for taxpayers with modified adjusted gross income (MAGI) above $500,000 (joint), the cap phases out at a rate of $200 for every $1,000 of MAGI above the threshold. A joint filer with $700,000 MAGI would see the cap reduced by $40,000 (($700K - $500K) / $1,000 x $200), effectively phasing the deduction back toward zero by approximately $800,000 MAGI.

For most SVT clients with household income below the $500,000 phaseout floor, this is a meaningful expansion. A client paying $30,000 in California income and property taxes recovers a deduction for $20,000 more than they could claim under TCJA. At a 37% marginal rate, that is approximately $7,400 in federal tax savings annually.

California position: California's own income tax system does not have a SALT deduction (you cannot deduct California income taxes on a California return). The federal SALT expansion does not change California tax liability.

Planning action: If you are a high-income Bay Area taxpayer near or above the $500,000 phaseout floor, the expanded SALT deduction still provides partial benefit. The phaseout math should be modeled in your quarterly estimate planning. If you have been taking the standard deduction because the $10,000 SALT cap made itemizing unattractive, rerun the itemized vs. standard comparison for 2025 and forward years.

Bonus Depreciation: 100% Restored Through 2029

TCJA introduced 100% bonus depreciation for qualified property placed in service after September 27, 2017, but the provision was designed to phase out: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and zero thereafter. By the time OBBBA passed, most business owners were already dealing with 40% and then 20% bonus depreciation, which eliminated much of the incentive to accelerate equipment purchases.

OBBBA restores 100% bonus depreciation for qualified property placed in service after January 19, 2025 (the date of the OBBBA's committee introduction), through December 31, 2029. After 2029, the rate phases down again unless extended by future legislation. For business owners who deferred major capital purchases because bonus depreciation had partially disappeared, the window is now open again.

Qualified property includes most depreciable property with a recovery period of 20 years or less, computer software, and qualified film/television/theatrical productions. Real property does not qualify for bonus depreciation (it has a 27.5 or 39-year recovery period). Qualified improvement property (interior improvements to nonresidential real property) continues to qualify at 100% as it did under the TCJA technical correction.

California position: California does not conform to federal bonus depreciation. California businesses must track two separate depreciation schedules: the accelerated federal schedule and the California schedule using slower MACRS lives without the bonus election. This creates a significant California-federal book-to-tax difference that must be managed carefully.

Planning action: Business owners with planned equipment purchases in 2025 through 2029 should confirm the 100% bonus election applies to their specific property class before purchase timing decisions. Section 179 expensing limitations also interact with bonus depreciation; the ordering rules matter. Contact us through our business tax consulting practice before a large capital acquisition.

R&D §174 Capitalization: Immediate Expensing Restored

OBBBA restored immediate deductibility for domestic research and development expenses under new §174A, reversing the TCJA requirement that forced businesses to capitalize and amortize R&D costs over five years (domestic) or fifteen years (foreign). This provision is covered in depth in our companion article on the R&D tax credit and §174, including the retroactive amended-return mechanism for small businesses that paid tax on phantom income from 2022 through 2024 R&D capitalization.

The short version: if your company has been building software or conducting research with domestic W-2 employees since 2022, there may be significant federal refunds available through amended returns, and your ongoing deductibility is restored for 2025 and forward.

§1031 Like-Kind Exchange: Boundaries Clarified, Core Rule Preserved

Section 1031 like-kind exchange treatment was not eliminated by OBBBA, but the legislation imposed clarifications on replacement property identification and qualified intermediary requirements that close several planning structures that had operated in a gray zone.

The 45-day identification window and the 180-day exchange period remain unchanged. OBBBA adds a new intermediary registration requirement: qualified intermediaries must register with the IRS and meet minimum capitalization requirements. As of July 2025, the IRS has published proposed regulations on intermediary registration under Notice 2025-42; final regulations are pending. Taxpayers using unregistered intermediaries after the effective date of final regulations risk disqualification of the exchange.

Reverse and improvement exchanges remain available under Revenue Procedure 2000-37 procedures, which OBBBA did not disturb. The elimination of §1031 for personal property (other than real property) that occurred under TCJA remains in place; OBBBA did not restore personal property exchanges.

California position: California conforms to §1031 for real property exchanges. The California FTB has its own clawback rule (Rev. & Tax. Code §18031) for exchanges where the replacement property is located outside California; this rule continues to apply.

Planning action: Real estate investors with pending or near-term exchanges should verify their qualified intermediary's registration status once the IRS finalizes the registration framework. Timing a relinquished property closing around the effective date matters.

Estate and Gift Tax: Elevated Exemption Made Permanent

TCJA doubled the federal estate and gift tax basic exclusion amount from approximately $5.49 million (2017, indexed) to $11.18 million per person, indexed for inflation. By 2025, the TCJA exclusion had grown to approximately $13.99 million per person ($27.98 million per married couple with portability). Under TCJA's sunset provisions, the exclusion was set to drop back to pre-TCJA levels (approximately $7 million per person) on January 1, 2026. For high-net-worth clients, this sunset was the most urgent planning item of 2024 and early 2025.

OBBBA eliminated the 2026 sunset entirely. The elevated exclusion amount is now permanent, indexed for inflation going forward. For 2026 and beyond, the exclusion remains at the OBBBA-adjusted level (projected to be approximately $14.3 million per person). There is no longer a planning cliff requiring accelerated gifting before a specific date.

OBBBA also made the annual gift tax exclusion ($18,000 per donor per recipient in 2025) permanent and indexed it for inflation in $1,000 increments.

California position: California has no estate tax and no gift tax. Federal estate planning changes do not affect California state liability, though they affect the federal return, which in turn affects the California income tax deduction for estate administration expenses in some cases.

Planning action: Clients who accelerated large lifetime gifts in 2024 to use the TCJA exclusion before the anticipated 2026 sunset should confirm that the anti-clawback regulations under Treas. Reg. §20.2010-1(c) still protect those gifts (they do; IRS confirmed the clawback protection survives OBBBA). Clients who held back because of the sunset uncertainty can now take a longer view on estate planning strategies: GRATs, SLATs, IDGTs, and family limited partnerships can be structured without the sunset deadline driving the timeline.

Roth Conversion Windows: IRA and Retirement Account Changes

OBBBA did not change the fundamental rules governing Roth IRA conversions, but it modified several provisions that interact with the Roth conversion calculus for high-income taxpayers.

The SECURE 2.0 Act provisions that eliminated required minimum distributions for Roth accounts in employer plans (effective 2024) were preserved and expanded by OBBBA to cover additional plan types. Catch-up contribution limits for taxpayers age 60 to 63 were increased further from the SECURE 2.0 amounts. OBBBA also clarified the 10-year rule for inherited IRAs, resolving the ambiguity created by the SECURE Act of 2019 regarding annual distribution requirements during the 10-year window: annual RMDs are required during years 1 through 9 for most non-eligible designated beneficiaries inheriting from a decedent who had already reached their required beginning date.

For high-income clients in the Bay Area who are evaluating the Roth conversion decision: the permanent §199A deduction and the elevated estate tax exemption both interact with the conversion analysis. A conversion that pushes income above the §199A phaseout threshold ($383,900 for joint filers in 2025) reduces the pass-through deduction. Conversions that reduce the taxable estate reduce the future estate tax base but also reduce the step-up in basis available at death. These trade-offs require a multi-year projection, not a single-year tax calculation.

Planning action: Model Roth conversions across a five-to-ten year horizon, taking into account the now-permanent §199A structure, the elevated estate exemption, and California's conformity to Roth account rules. California taxes Roth conversion income in the year of conversion at California rates; there is no California equivalent of the federal Roth tax shelter, making the conversion break-even analysis more demanding for California residents than for clients in no-income-tax states.

California (Non)Conformity: The Persistent Gap

California's conformity to federal tax law has always been selective. OBBBA did not change that pattern. Here is a consolidated summary of California's position on each major OBBBA provision:

• QSBS §1202: California does not conform. Full California tax applies to excluded federal gain.
• §199A QBI: California conforms. The deduction is available at the California level.
• SALT cap: Not applicable to California returns (California income taxes are not deductible on a California return).
• Bonus depreciation: California does not conform. Separate California depreciation schedules required.
• §174 immediate expensing: California's conformity to OBBBA's §174A restoration is under review by the FTB as of mid-2026. Do not assume California allows immediate expensing until the FTB issues guidance.
• §1031 like-kind exchange: California conforms to real property exchanges but retains its own clawback on out-of-state replacement property.
• Estate tax: California has no estate tax; federal changes do not affect California tax liability directly.
• Retirement accounts: California generally conforms to federal retirement account rules, with specific exceptions around Roth conversions and inherited IRAs that require case-by-case analysis.

The takeaway: for every OBBBA provision that benefits a California taxpayer federally, run the California analysis separately. The federal savings are real. The California override is also real. The net position requires both.

What This Means For You

Different client profiles face different OBBBA priority lists. Here is how the provisions stack up by persona.

Tech Employee with Equity Compensation

Your most important OBBBA item is the SALT cap expansion. If you are a W-2 employee in San Jose or Palo Alto with a mortgage, California income tax, and property tax pushing your state and local taxes past $10,000, the move to a $40,000 cap restores real deductibility. Run the itemized vs. standard deduction comparison for the first time in years. If your employer granted you ISO stock, the QSBS provisions do not apply (ISOs are not QSBS); but if you have been investing personally in early-stage startups, the $15 million cap and new holding-period tiers matter to you as an angel investor. See our equity compensation tax planning practice for the full ISO, RSU, and ESPP overlay.

Startup Founder

The QSBS expansion is your headline change. If you incorporated as a C-corp, issued qualifying stock, and the company's gross assets were below $50 million at issuance, confirm whether the $75 million ceiling under OBBBA retroactively expands the pool of qualifying shareholders for subsequent rounds. The tiered exclusion schedule matters if an exit is on a three-to-five year horizon. The §174 immediate expensing restoration is also relevant if your company has domestic engineering payroll. Combine the R&D tax credit analysis with the §174 write-off for the full benefit. The permanent §199A deduction affects founder pass-through income only if the entity is structured as a pass-through rather than a C-corp; QSBS founders in C-corps do not receive a §199A deduction from that entity. See the QSBS planning page for the full founder stack.

Retiree or Near-Retiree

The estate tax permanence is your highest-priority item. If your estate plan was built around the anticipated 2026 sunset and you already made large lifetime gifts to absorb the elevated exemption before it dropped, those gifts are protected. If you held back, the urgency has eased: you can now execute estate-reduction strategies at a deliberate pace rather than a deadline-driven one. The inherited IRA annual distribution clarification also affects the planning you do with beneficiaries. Review your beneficiary designations and distribution elections in light of the 10-year rule clarification under OBBBA.

Business Owner with Pass-Through Entity

The combination of permanent §199A and restored 100% bonus depreciation is your core planning toolkit. Both provisions together allow you to deduct up to 20% of QBI while simultaneously front-loading large capital asset purchases in 2025 through 2029. For S-corp owners, the SALT cap expansion may also restore benefit if you have been paying significant state income tax through composite returns or personal estimated payments. The §174 restoration for domestic R&D applies if your business has any qualifying research and development activity. See our business tax consulting page for the full pass-through stack, including how bonus depreciation interacts with California's separate depreciation rules.

FAQ

Did the OBBBA permanently extend all TCJA provisions?

Not all of them. The major provisions made permanent include §199A, the elevated estate and gift tax exclusion, and the individual rate structure. Bonus depreciation was restored through 2029 but not made permanent beyond that date. The SALT cap was increased and indexed but is technically subject to future legislative modification like any other statutory provision. The child tax credit was also extended and modified under OBBBA but falls outside the scope of this article. For any specific TCJA provision not discussed here, the operative question is whether OBBBA included an explicit extension or permanency provision, which requires looking at the statutory text.

I held QSBS stock for four years and six months. Does the new 75% exclusion apply to my gain?

Yes, if the stock otherwise qualifies under §1202 and the sale occurs after OBBBA's effective date. Under the tiered schedule, stock held at least four years but less than five years qualifies for a 75% federal exclusion. The gain subject to the 25% non-excluded portion is taxed at capital gain rates (with the net investment income tax potentially applying as well). California taxes the full excluded gain regardless of holding period. The effective date and transition rules for the tiered schedule are still being clarified by IRS guidance; coordinate with your tax advisor before closing a transaction that relies on the 75% tier.

Will the expanded SALT deduction help me if my income is above $500,000?

Partially. The phaseout reduces the available cap by $200 for every $1,000 of MAGI above $500,000 for joint filers. At $600,000 MAGI, you retain $20,000 of SALT deduction ($40,000 minus $20,000 phaseout reduction). At approximately $700,000 MAGI and above, the phaseout eliminates most or all of the expanded cap. If your income is above $700,000, the practical impact of the SALT expansion is limited. For married couples with one high-earning spouse, the filing status and income-splitting options are worth modeling, though the marriage penalty built into the phaseout structure limits the benefit of separate returns in most high-income scenarios.

We made large gifts in 2024 to use the TCJA exclusion before the 2026 sunset. Were those gifts wasted?

Not wasted, and not subject to clawback. The IRS issued Treas. Reg. §20.2010-1(c), the anti-clawback regulation, which protects gifts made during the elevated-exclusion period from being subject to estate tax if the exclusion is lower at death. OBBBA's permanent extension makes the clawback concern moot going forward, but the gifts made in 2024 at the higher exclusion amount are fully protected in any case. The question of whether those gifts were the optimal strategy depends on the specific assets transferred, the expected appreciation, and the step-up-in-basis trade-off. In many cases, assets that would have appreciated substantially are better transferred now (excluding future appreciation from the estate) rather than held until death (when a step-up in basis would have eliminated capital gain tax). That analysis is asset-specific.

My company does R&D with both domestic engineers and offshore contractors. How does OBBBA treat that split?

OBBBA's §174A immediate expensing restoration applies only to domestic R&D expenditures. Research conducted by foreign entities or through foreign contractual arrangements continues to be capitalized over 15 years under §174 as amended by TCJA. For the §41 R&D credit, only domestic research generates qualified research expenses. If your company has a split domestic and offshore engineering model, the tax treatment diverges: domestic R&D gets immediate expensing and credit eligibility; foreign R&D gets neither. The economic argument for onshoring qualifying research has increased under OBBBA. See our dedicated R&D tax credit article for the full domestic vs. foreign split analysis.

When should I review my estate plan in light of OBBBA?

Now, regardless of whether you made 2024 gifts in anticipation of the sunset. The removal of the sunset deadline changes the planning environment in ways that may affect strategy choices made under time pressure. Irrevocable trusts established to absorb exemption quickly may now be reviewed to determine whether the structure still serves the intended purpose at a measured pace. Clients who planned on formula clauses tied to the sunset date should revisit those clauses with counsel. More broadly, any estate plan that was last reviewed before OBBBA's passage in July 2025 should be updated. The substantive rules have changed materially.

The Next Step

OBBBA is a planning opportunity in every client category we serve: founders with QSBS stock, tech employees with concentrated equity positions, business owners running pass-throughs, and high-net-worth families navigating estate planning. In each category, the planning action is specific to the client's numbers. A general awareness of what changed is the starting point, not the plan itself.

At Silicon Valley Tax, our team works through this fact pattern constantly with Bay Area founders, tech professionals, and business owners. Alfonso Nuñez, CPA/JD, leads our business tax and pass-through planning engagements. Our equity compensation practice covers the full RSU, ISO, ESPP, and QSBS equity tax planning stack. For founders at the intersection of R&D activity and QSBS structuring, these two planning threads run together and the interaction between them affects optimal outcomes.

The IRS continues to issue guidance on OBBBA implementation. We track each guidance release and update client plans accordingly. If you have not had a planning conversation since OBBBA passed, you are almost certainly leaving something on the table.

Schedule Now