Tax Strategies Under the OBBBA

Tax Strategies Under the OBBBA

Posted On August 11, 2025 By Scott Stratton, CFP(R), CFA In Tax Strategies /  

The One Big Beautiful Bill Act of 2025 creates opportunities for Tax Strategies for many of my clients. I am in favor of lower taxes and hope that families will use these tax savings to increase their investment and add to their portfolio. Spending these savings would be squandering this opportunity.

Much of the OBBBA is to make permanent the key provisions of Trump’s 2017 Tax Cuts and Jobs Act. These include:

  • keeping the higher standard deduction amounts, which are increased to $15,750 ($31,500 married);
  • keeping the top tax rate at 37%, and not reverting to 39.6%;
  • making permanent the Estate Tax Exemption of $13.99 million ($27.98 million married).

We previously discussed the new $6,000 senior tax deduction in detail here. Today we look at three key components of the OBBBA for individual taxpayers.

Higher SALT Cap

The OBBBA raises the cap on deducting state and local taxes from $10,000 to $40,000. This is for taxpayers who itemize. For those in high tax states, who pay a lot in state income tax or property tax, the $10,000 Cap meant that most were taking the standard deduction and not eligible to itemize. Of course, with the standard deduction at $31,500 you need to have a lot of deductions in order to itemize.

A quick reminder: Itemized deductions include four things: State and Local Taxes, home mortgage interest, charitable donations (see below), and medical expenses which exceed 7.5% of your AGI.

Tax strategy: It may make sense to look at bunching your property taxes (and donations). What does this mean? You bunch two years of property taxes into one year by paying one in January and the next one in December. For example, if your property taxes are $25,000, you are below the standard deduction of $31,500 (married). You would end up taking just the standard deduction in both years and get no benefit, assuming you didn’t have any other itemized deductions.

Bunch those two property tax payments into this year and now you get a $40,000 deduction this year and a $31,500 deduction next year. Note that the $40,000 limit reverts to $10,000 after 2029.

Charitable Donations

There are some big changes coming to Charitable donations and tax deductions. Starting in 2026, you can deduct $1000 ($2000 married) as an Above The Line deduction. This means you do not have to itemize to get this tax deduction for a charitable donation. The new deduction, however, will only apply to cash donations, not to donations to a Donor Advised Fund, or donations of appreciated stock.

The other big change is a new 0.5% AGI floor on deducting charitable donations on the itemized line. If your Adjusted Gross Income is $200,000, you can only deduct your donations which exceed $1000. This also starts next year, 2026.

Tax Strategies:

  • If you can hold off 2025 donations until January 1, you will be better off, assuming your donations would be under the $1000 / $2000 (married) level.
  • If you are already itemizing for 2025, calculate your situation for donating now versus in 2026. Especially if you are donating appreciated stock. Be sure to consider the new SALT Cap when calculating if you will itemize.
  • Starting in 2026, tax payers may want to donate cash first, up to the $1,000/$2,000 (married), and then switch to donating appreciated stock above those amounts.
  • QCDs, Qualified Charitable Donations from your IRA remain unchanged. Those over age 70 1/2 can donate QCDs of up to $105,000 a year and not count the distribution as income. Since the QCD can count towards your RMD, this can reduce your taxable income.

Elimination of Clean Energy Tax Credits

Unfortunately, the OBBBA is eliminating many tax benefits for converting to clean energy. If you are thinking of making a purchase, you still have some time before these programs expire.

Tax Strategies:

  • The tax credits for electric vehicles will expire on September 30, 2025. There are two programs, one for new vehicles and one for used vehicles. Both tax credits are being eliminated.
  • The Residential Clean Energy Credit, a 30% tax credit for solar panels and battery storage, will end on December 31, 2025.
  • The Energy Efficient Home Improvement Credit, for heat pumps and insulation for example, will end on December 31, 2025.

The Long-Term Outlook

Everyone likes lower taxes and being able to keep more of their hard earned money. I would be more enthusiastic about these tax cuts if they had been paired with cuts to spending. The deficits we are accumulating will eventually become a problem for our children and grandchildren. While the markets are flying high right now, the debt could eventually erode confidence in the economy and crowd out money being used for more productive purposes. The deficits will make the under-funding of Social Security and Medicare a harder problem to address in 2033. These criticisms of the OBBBA are widespread.

In spite of these concerns, most Americans will see some tax benefits under the OBBBA. I’ve highlighted three areas where many investors might benefit with some additional tax planning. First, look at the SALT Cap and determine if you can take any steps to maximize your itemized deductions, or alternate years of standard versus itemized deductions. Second, understand the new charitable donation rules. I have many clients who are generous with their resources and we want to see them take any tax benefits which they can. Third, if you are planning on any clean energy upgrades to your home or vehicles, those tax credits are going away soon. Better act right away!

Taxes can take a big bite out of our income and ability to save. Taxes can be a significant drag on investment returns and accumulating assets. That’s why tax planning has been a central part of our wealth management process from the very beginning. Tax rules change all the time, and we are not surprised to see some pretty big changes for 2025. We will continue to look for ways to use the tax code to help clients reach their goals.

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Charitable Giving Under The New Tax Law

Posted On December 21, 2017 By Scott Stratton, CFP(R), CFA In Tax Strategies /   2 Comments

Starting in 2018, it is going to be much more difficult to deduct your Charitable Donations. That’s because the standard deduction will rise from $6,350 (single) and $12,700 (married) in 2017 to $12,000 and $24,000 in 2018. You will need to exceed this much higher threshold to deduct your charitable gifts.

It will be even more difficult to reach those levels because the Tax Cuts and Jobs Act (TCJA) is also capping your state and local taxes (property, income, and sales) to $10,000. And they completely eliminated your ability to deduct “miscellaneous” expenses including unreimbursed employee expenses, home office expenses, tax preparation, and investment advisory fees.

Let’s take a look at a hypothetical scenario for a married couple:

In 2017, a typical year, let’s say you have $12,000 in local taxes, $4,000 in mortgage interest, $10,000 in charitable donations, $5,000 in unreimbursed employee expenses, and $6,000 in investment and tax preparation fees. (Let’s assume these miscellaneous amounts are the amounts above the 2% of AGI threshold.) Your total itemized tax deduction would be $37,000 for 2017. That’s well above the standard deduction of $12,700.

In 2018, you spend exactly the same amounts. However, under the TCJA, your local tax deduction is capped at $10,000. You keep the mortgage interest deduction of $4,000 and the $10,000 in charitable donations. The $5,000 in unreimbursed employee expenses and the $6,000 in investment and tax preparation fees are both disregarded. Your new tax deduction would be $24,000.

$24,000 is also the amount of the standard deduction for a married couple, so you are in effect getting no tax benefit for any of your spending, relative to someone who had ZERO local taxes, mortgage interest, or charitable donations. That doesn’t sound like a very good deal to me. The IRS expects that the number of taxpayers who itemize will fall from around 33% to 10%.

That poses a problem for charitable giving, because many people will in effect no longer be able to get any tax benefit at all. For people who do regularly give, it’s discouraging. Nonprofit organizations worry that this might reduce how much people are able to give.

We can help you potentially get more of a tax deduction if you can plan ahead for your charitable giving. Here’s how: by using a Donor Advised Fund (DAF). A DAF is a non-profit entity which will hold an account for you, to give grants to charities of your choosing when you instruct them. When you make a deposit into a DAF, you receive a tax deduction that year, even if the funds are not distributed until later years.

Let’s go back to our original scenario and imagine that you plan to give $10,000 a year to charity for the next five years.

Original scenario: You have $24,000 in total deductions each year, same as the standard deduction. Total over 5 years: $120,000, same as every other married couple.

Scenario Two, with a DAF: In year one, you make a $50,000 donation to the Donor Advised Fund and then give out $10,000 a year to your charities as planned. Your total itemized deduction in year one is $64,000. In the following years, you only have $14,000 in itemized deductions, so elect to take the standard deduction of $24,000 (years 2-5). Total over 5 years: $160,000. That’s $40,000 more than the first scenario, even though you still donated the same $10,000 a year to charity. If you are in the 33% tax bracket, you’d save $13,200 in taxes by establishing a DAF in this example.

With a DAF, your gift is irrevocable, however, you can change which charities receive the money and when. Or you can leave the money in the account to invest and grow for later. If you pass away, the DAF is excluded from your taxable estate, and you designate successors such as your spouse or children, who can decide on when and how to distribute money to charities.

If you risk losing your ability to deduct your charitable donations under the TCJA, let’s talk more about the Donor Advised Fund and how it might work in your situation. You can also gift appreciated securities, such as stock or mutual funds, to the DAF and not have to pay capital gains tax on those assets when you fund the DAF. That can give you a double tax benefit.

As your Financial Advisor, I can help you establish a Donor Advised Fund that will be held at our custodian, TD Ameritrade, using the Renaissance Charitable Foundation. This means your account will still be held with your other accounts and professionally managed to your objectives. While a DAF is clearly more cost effective than establishing a Private Foundation with under $1 million in assets, even many ultra-wealthy families find that a DAF can accomplish their philanthropic goals with less expense, compliance headaches, and time commitment.

One other option to get a tax benefit on your charitable donations: If you are over age 70 1/2, you can make a charitable donation directly from your IRA in place of your Required Minimum Distribution. See my previous article on the Qualified Charitable Distribution. The QCD reduces your above-the-line income, so you do not have to itemize to receive a tax benefit for your donation.

Charitable giving is near and dear to our hearts at Good Life Wealth Management. We donate 10% of our gross profits annually to charity and will continue to do so as we grow. Charitable giving is never just about the tax deduction, of course. But if we can stretch those dollars further, we have an opportunity to make an even bigger impact with the donations we make.

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