Education
OBBBA Tax Changes: What High Earners Need to Know in 2026
The One Big Beautiful Bill Act (OBBBA) is the most significant tax legislation since the 2017 TCJA. Here's everything that changed for high earners.
100% Bonus Depreciation Restored Permanently
OBBBA §13201 restored 100% first-year bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This reverses the TCJA phase-down that had reduced bonus depreciation to 80% (2023), 60% (2024), and 40% (2025). The 100% rate is now permanent, no scheduled phase-down. For real estate investors doing cost segregation studies, this is the single most impactful change. A $1M property can now generate $200K+ in first-year deductions, compared to $80K under the 2025 phase-down.
SALT Cap Raised to $40,400 MFJ
OBBBA §12102 raised the state and local tax (SALT) deduction cap from $10,000 to $40,400 for married filing jointly ($20,200 for single filers). However, there's a new income-based phase-out: the cap reduces by $20 for every $100 of AGI above $505,000 (MFJ), fully phasing out at $605,000. For high earners in CA, NY, NJ, and other high-tax states earning under $505K, this is a meaningful improvement, an extra $30K+ in SALT deductions. For earners above $605K, the benefit phases out entirely and you're back to the original $10K effective cap.
TCJA Individual Provisions Made Permanent
OBBBA made permanent the individual tax provisions from the 2017 Tax Cuts and Jobs Act that were set to expire after 2025. This includes: the lower individual income tax brackets (37% top rate vs. the pre-TCJA 39.6%), the higher standard deduction ($30,000 MFJ for 2026), the doubled estate/gift tax exemption (~$14M per person), and the elimination of personal exemptions. Without OBBBA, these would have reverted to pre-2017 levels in 2026.
QSBS Exclusion: New Tiered System
OBBBA §13101 replaced the flat IRC §1202 QSBS exclusion with a tiered system based on holding period: 50% exclusion after 3 years, 75% after 4 years, 100% after 5 years. The per-issuer cap increased to $15M (or 15x adjusted basis, whichever is greater). Previously, the exclusion required a 5-year hold for 100% exclusion with a $10M cap. The new tiers give partial benefits to founders and early employees who sell earlier, while maintaining the full benefit for longer holds.
Dependent Care FSA and Trump Accounts
OBBBA §12201 raised the Dependent Care FSA annual limit from $5,000 to $7,500, a modest but welcome increase for families with childcare expenses. Additionally, OBBBA §12401 created 'Trump Accounts' (IRC §529C): new tax-advantaged savings accounts with $5,000 annual contributions per child born between 2025 and 2028. Contributions are not deductible, but growth and qualified withdrawals are tax-free. These accounts function similarly to 529 education accounts but with broader permitted uses.
Charitable Giving: New 0.5% AGI Floor
Effective January 1, 2026, OBBBA §12301 introduced a 0.5% AGI floor for itemized charitable deductions. Donations below this threshold are not deductible. For a taxpayer with $500K AGI, the first $2,500 in charitable contributions is non-deductible. For someone with $1M AGI, the floor is $5,000. This primarily affects smaller charitable gifts, larger donors are minimally impacted. Charitable bunching strategies (concentrating multiple years of giving into one year) become even more important under this provision.
Enhanced Catch-Up Contributions for Ages 60-63
OBBBA §111 created a new super catch-up contribution limit for 401(k) participants aged 60-63. The total contribution limit for this age group is $34,750 (2026), compared to $31,000 for those 50-59 and $23,500 for those under 50. This provides an additional $3,750-$11,250 in tax-deferred savings capacity for workers in the final years before traditional retirement age. At a 37% marginal rate, the maximum tax deferral benefit is approximately $12,857.
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Frequently Asked Questions
When did OBBBA take effect?
OBBBA was signed into law on July 4, 2025. Most provisions are effective for tax years beginning after December 31, 2025 (i.e., the 2026 tax year). Bonus depreciation was made retroactive to property acquired after January 19, 2025. Some provisions have specific effective dates, check each provision for its particular effective date.
Does OBBBA affect my 2025 tax return?
For most provisions, no, they apply starting in tax year 2026. The main exception is bonus depreciation, which is retroactive to January 19, 2025. If you placed qualified property in service after that date in 2025, you may be able to claim 100% bonus depreciation on your 2025 return (or amend if already filed). Consult your CPA on the transition rules.
Is the 37% top bracket permanent now?
Yes. OBBBA made the TCJA individual brackets permanent, including the 37% top rate on ordinary income above $609,350 (MFJ) for 2026. Without OBBBA, the top rate would have reverted to 39.6% in 2026. This is a 2.6 percentage point savings on all income above the top bracket threshold, roughly $7,800 in tax savings for someone with $300K of income above the threshold.
How does the new SALT phase-out work?
The SALT cap is $40,400 (MFJ). For AGI above $505,000, the cap is reduced by $20 for every $100 of excess AGI. At $605,000 AGI, the reduction is ($605K - $505K) / $100 × $20 = $20,000, bringing the cap back to $20,400. At $1,012,000+, the cap is fully phased to $0. This means earners between $250K-$505K get the most benefit, while those above $605K see progressively less improvement over the original $10K cap.