What Changed on January 1: Check Out These Opportunities Created by the New Tax Law

While the One Big Beautiful Bill Act (OBBBA) has been widely covered, the headline changes do not create many meaningful planning opportunities.

The primary goal of the OBBBA was to make permanent certain provisions that were scheduled to expire in 2026.

However, a more analytical read reveals a limited number of changes to explore as the year kicks off that do present some opportunities.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Charitable deductions now have a 0.5% adjusted gross income (AGI) haircut

Prior to 2026, taxpayers received the full benefit of charitable donations made. Not only is there a haircut now, but the size of the haircut is directly tied to a taxpayer's AGI for the year.

As a result, the timing of charitable deductions becomes more important than ever — and in a way that is somewhat counterintuitive. Historically, it was always beneficial to make increased charitable contributions in big-income years to ensure maximum tax benefit.

Under the new rules, however, higher-income years produce a larger 0.5% AGI haircut, which can make it more tax-efficient to concentrate charitable deductions in lower-income years.

That said, the analysis is not linear, as deductions taken in years where income is too low may still generate a lower overall tax benefit than deductions taken in higher-income years.

It may also be advantageous to bunch charitable contributions because once the 0.5% AGI haircut is exceeded, each incremental charitable dollar will be free of the haircut.

With all of these variables on timing, it becomes increasingly important to use a charitable giving vehicle that allows taxpayers to separate the timing of deductions from the timing of distributions to charity.

The best charitable vehicles for this are private foundations and donor-advised funds (DAFs). DAFs are often the simplest option, as they are administered by large brokerage firms that handle the administration burden — allowing donors to focus solely on what charities to donate to and when.

Best practice would be to maintain a fully funded DAF that could be used for ongoing charitable giving, while funding the DAF only periodically, working with your tax adviser to identify the best year to do so.

State and local tax (SALT) deductions did not return

The Tax Cuts and Jobs Act of 2017 made a significant change in the deductibility of SALT by capping the amount that could be deducted to only $10,000.

This change was supposed to be relatively temporary, with the cap scheduled to expire in 2026, when SALT was set to be fully deductible again.

OBBBA made the cap permanent, though some relief was provided with the increase of the cap from $10,000 to $40,000. For high-income earners, this relief hardly makes an impact.

However, a few state-tax mitigation strategies have emerged over the years, but with the SALT cap meant to be temporary, these strategies received limited attention. Now that the cap is permanent, these strategies should be freshly considered.

The first, and more powerful, strategy to consider is the use of out-of-state non-grantor trusts. If a trust is created in a no-tax jurisdiction, such as South Dakota or Nevada, and income-producing assets are transferred to the trust, then state tax can be completely avoided on that income, effectively neutralizing the SALT cap on that income.

This strategy is not always available to all types of income, especially earned income; plus, having assets in a trust does create some barriers between you and your wealth.

In instances where an out-of-state non-grantor trust isn't an option, the next best strategy to consider is utilizing a pass-through entity to make an election to pay state taxes at the entity level.

Although pass-through structures are typically designed to avoid entity-level taxation, many high-tax states now offer elections that allow state taxes to be paid at the entity level with a corresponding credit, effectively restoring full deductibility of those taxes.

Each of these strategies introduces additional complexities, but for high-income earners in states with high tax rates, these complications could result in significant tax savings, making them worth consideration.

The estate tax exemption was not cut in half, as it was set to do on January 1, 2026

Instead, it rose to $15 million per person, which is an increase of more than $1 million from 2025 levels — these amounts are doubled for married taxpayers.

The federal estate tax itself was unchanged and remains at a steep 40%. As a result, estate planning is more important than ever for taxpayers whose estates exceed the exemption amount.

The above changes are likely to have the greatest impacts, but there are several other provisions that may be significant for affected taxpayers.

For example:

• For taxpayers in the highest 37% tax bracket, all of their itemized deductions are capped at 35%, watering down the benefit of their itemized deductions. This may shift the focus toward tax-aware investing strategies designed to reduce taxable income, mitigating the impact of the deduction cap.
• For entrepreneurs and investors in early-stage companies, the qualified small business stock (QSBS) tax benefits have increased, allowing a higher capital gain exclusion of $15 million, vs $10 million, as well as allowing larger businesses to qualify, including businesses valued at up to $75 million, vs $50 million.
• For business owners, full 100% bonus depreciation is back, allowing a full write-off for tangible assets used in a business that have a life of less than 20 years.
• For real estate investors, qualified opportunity zone (QOZ) benefits are currently in a gap year. Gains deferred in the initial QOZ regime will be taxable as of December 31, 2026. While new gain deferral is not available this year, a revised QOZ regime is scheduled to begin in 2027, featuring new rolling five-year deferral periods with no stated expiration date.

While headline changes from the OBBBA do not create extensive planning opportunities, taxpayers with a detailed understanding of their tax profile, and the OBBBA, may still find opportunities in 2026 and beyond that could have a meaningful impact and are worth the consideration and review.

Related Content

• 3 Major Changes to the Charitable Deduction for 2026
• A Retirement Triple Play: These 3 Tax Breaks Could Lower Your 2026 Bill
• IRS Updates 2026 Tax Deduction for People Age 65 and Older
• Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026
• Law Reversal Looming? Trump Eyes 2026 Gambling Winnings Tax Change