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How the New Child Investment Program Works

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On July 4, 2026, the "Trump Accounts" program launches, introducing a new, government-backed savings vehicle designed to help children begin investing early in life. Structured as a "starter IRA," these accounts are built for long-term, tax-advantaged growth, giving families another way to start building wealth for the next generation. 

The timing is also notable, as the launch coincides with the 250th anniversary of U.S. independence, reinforcing the broader theme of financial independence and long-term opportunity. 

At the center of the program is a one-time $1,000 government seed contribution for eligible children born between January 1, 2025 and December 31, 2028. While accounts can be opened for any child under 18, only those within this window qualify for the initial government deposit.

 

Contributions and Investment Rules

Trump Accounts are designed to be simple and disciplined, with clear limits on contributions and a defined investment framework. Families, friends, and even employers can contribute, but there are overall limitations as to how much.

• $5,000 aggregate annual contribution limit per child from parents, family, friends, and employers
• Employers may contribute up to $2,500 per employee as a tax-free benefit
• Only one account per child is permitted
• Investments are limited to low-cost mutual funds and ETFs tracking U.S. markets (e.g., S&P 500)

  

Trump Account Structure

From a structural standpoint, Trump Accounts operate similarly to other custodial investment accounts, with a few key distinctions. 

The account is owned by the child, while a parent or guardian manages it until the child reaches adulthood. During this time, the account is in what's often referred to as a "growth period," where funds are intended to remain invested and untouched. 

• A Trump Account may be opened any time before the child turns 18
• No withdrawals are allowed before the child reaches 18
• The child is the legal account owner, with a parent or guardian serving as a custodian to manage the account
• At age 18, the account transitions to follow traditional IRA tax rules

 

Role in Financial Planning

Trump Accounts can be a valuable addition to a broader financial plan, but they are generally best viewed as a secondary tool rather than a primary savings strategy. 

For most families, priorities like retirement savings and education funding should still come first. That said, these accounts introduce a unique opportunity to start investing earlier than ever, which can be meaningful over a long time horizon. 

They also offer some flexibility once the child reaches adulthood, with features that mirror traditional IRA benefits. When used thoughtfully, these accounts can complement existing strategies and help build long-term financial habits early.

Key Considerations for Planning:

• Typically, secondary to core priorities like retirement savings and education funding
• Allow the same qualified withdrawals as IRAs (e.g., education, first home purchase up to $10K) at age 18
• Can be converted to a Roth account when the child is in a lower tax bracket
• Children with earned income may still contribute to other IRA accounts

 

How to Set Up an Account

Setting up a Trump Account is designed to be relatively straightforward and ties directly into the tax filing process. To open an account and elect the government contribution (if eligible), an authorized individual (i.e., a parent or guardian) must complete the required IRS form or use the online portal.

Steps to Establish an Account:

• File Form 4547 along with your individual tax return (Form 1040). This can be e-filed along with your tax return. Clients working with a tax preparer should request inclusion of Form 4547
• The process can be completed through trumpaccounts.gov
• Information submitted will be used to establish the account, followed by additional setup steps

Filing Form 4547 is essential, as it both initiates the account and secures eligibility for the $1,000 government deposit, if applicable.

 

Key Considerations

As with any new program, the overall concept is relatively simple, but the details matter. Trump Accounts include a number of nuances, particularly around how contributions are treated and reported, that can affect planning decisions over time. Before moving forward, it is important to understand how current rules apply and where future guidance may introduce changes.

Account Set-Up and Flexibility:

• Custodians for initial funding are limited to Bank of New York (BNY) and Robinhood
• Accounts can be transferred to other major financial institutions after establishment of the account and receipt of the $1,000 government deposit

Tax Treatment:

• Contributions from family and friends are made with after-tax dollars, meaning the contributed amount (basis) is not taxed again upon withdrawal
• Government and employer contributions are taxable upon withdrawal
• Distributions are taken on a pro-rata basis, blending taxable and non-taxable amounts
• Tracking and maintaining accurate records of contribution basis is important

Gift and Estate Considerations:

• Under current rules, contributions do not qualify for the annual gift tax exclusion (e.g., $19,000 per individual in 2026)
• As a result, contributors are generally required to file Form 709
• Contributions reduce the federal lifetime gift and estate tax exemption
• These contributions are currently treated as future-interest gifts, which is why they do not qualify for the annual exclusion

That said, this area remains in flux. There is ongoing discussion around whether contributions should instead be treated as present-interest gifts, which would make them eligible for the annual exclusion. Future guidance may ultimately change this treatment. 

Additional Considerations:

• The kiddie tax may apply to certain withdrawals for younger account holders
• As with any new legislation, rules and interpretations continue to evolve, and updates are expected over time

 

Conclusion

When used strategically, Trump Accounts can serve as a disciplined way to introduce long-term investing early and build meaningful wealth over time.

Contact BakerAvenue to evaluate how a Trump Account fits within your broader financial plan, coordinate contribution strategies, and navigate the evolving tax and gifting rules with confidence.

The Mega Backdoor Roth Contribution Strategy

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The Mega Backdoor Roth Strategy is one of the most powerful retirement and tax-planning strategies available to high-income earners. It allows individuals to move significant sums into Roth status each year, far exceeding normal Roth IRA contribution limits.

The strategy uses After-Tax 401(k) contributions (not a Roth 401(k)), combined with either an in-service Roth conversion inside the 401(k) plan or a rollover to a Roth IRA after retirement. This works because total 401(k) contribution limits, combining Pre- and After-Tax, are substantially higher than employee Pre-Tax deferral limits. 

 

The Basics: 401(k) and IRA Contributions

In 2026, you can contribute up to $24,500 on a pre-tax (i.e., tax-deductible) basis into your 401(k) and another $7,500 into either a Roth or traditional IRA. If you are age 50 or older, you can contribute extra catch-up contributions to your 401(k) and IRA. Employers often provide a match on a portion of your 401(k) contributions, but there are limitations:

• You cannot contribute directly to a Roth IRA if your Adjusted Gross Income (AGI) exceeds $168,000 (Single) or $252,000 (MFJ) in 2026.
• You will not get a tax deduction for your Traditional IRA contributions if you participate in a company plan, such as a 401(k), and your AGI exceeds $91,000 (Single) or $149,000 (MFJ).
• The total 401(k) limit (employee + employer + After-Tax) is $72,000.

  

Why Use the Mega Backdoor Roth Contribution Strategy?

This powerful but rarely utilized benefit is only available through your employer's 401(k). It allows employees to first make very large After-Tax contributions into the 401(k) plan and then convert these After-Tax 401(k) contributions to a Roth account.

• The Mega Backdoor Roth Strategy can provide tax-advantaged retirement accumulation greater than all other tax-advantaged savings plans combined — not only will your contributions and earnings grow tax-free, but your withdrawals will also be "tax-free forever" in retirement.
• You can contribute more to retirement savings via the Mega strategy — up to $72,000 per year vs. $24,500 for a regular 401(k) contributions strategy.
• The Mega Backdoor Roth uses established 401(k) plans.
  

 

Example Scenarios:

Assume a 45-year-old earning $350,000 contributes the maximum $24,500 to their 401(k), receives a $11,500 employer match, and has access to After-Tax contributions and in-service Roth conversions.

 

 

20-Year Financial Illustration:

Taxable Brokerage Savings vs. Mega Backdoor Roth

This illustration assumes annual After-Tax contributions of $36,000 (see above), invested for 20 years at an 8% annual return. Under these assumptions, the projected future value is approximately $1,648,000. It is also assumed that the gain portion (about $928,000) is subject to the long-term capital-gains tax rate of 23.8%, while the Mega Backdoor Roth scenario assumes all growth is tax-free.

30-Year Financial Illustration:

Taxable Brokerage vs. Mega Backdoor Roth

If $36,000 is invested annually for 30 years at 8%, the account may grow to about $4,080,000. Estimated taxable liquidation tax could exceed $714,000, creating a substantial long-term Roth advantage.

 

Key Benefits

A Mega Backdoor Roth strategy allows for significantly higher annual After-Tax contribution potential than standard Roth IRA or Roth 401(k) limits. By contributing After-Tax dollars to a 401(k) and then converting them to a Roth, you can move a large amount of money into an account that grows tax-free. Over time, this can substantially amplify long-term wealth through compounding.

Another major advantage is that, once rolled into a Roth IRA, these funds are not subject to required minimum distributions (RMDs). This makes them highly flexible for retirement planning and allows you to better control your income in retirement. In addition, Roth assets can be an effective estate-planning tool because heirs can receive tax-free distributions, offering a meaningful legacy benefit.    

 

Important Considerations

Not all employer plans support this strategy, so the first step is confirming that your 401(k) plan allows After-Tax contributions above the traditional pre-tax/Roth limits. In addition, the plan must permit either in-service Roth conversions (inside the plan) or rollovers to a Roth IRA. Without one of these features, the strategy is much less effective.

Timing is also important. After-Tax contributions should be converted to Roth quickly to minimize taxable earnings that can accumulate within the After-Tax bucket — earnings are taxed when converted, while the contributions are not.

Finally, it is wise to stay aware of any potential legislative or IRS rule changes, as this is a strategy that periodically attracts regulatory attention and could evolve over time.            

 

Conclusion

For disciplined high-income earners, the Mega Backdoor Roth Strategy can potentially add hundreds of thousands — or even millions — of dollars in incremental after-tax wealth over a career.

Contact BakerAvenue to review your 401(k) documents, advise on optimal contribution levels, and help you implement your Mega strategy every step of the way.

Key QOZ Updates for 2026 and Beyond

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Qualified Opportunity Zones (QOZs) have offered investors a meaningful way to defer and, in certain cases, reduce capital gains taxes, all while supporting long-term community investment. As we approach the scheduled sunset of the original QOZ framework at the end of 2026 and look ahead to a newly updated version beginning in 2027, this is an ideal time to revisit your strategy and understand how the rules are evolving.

 

The End of QOZ 1.0

If you invested in a QOZ under the original rules (available from 2017 through 2025), the capital gain you deferred will be recognized for tax purposes on December 31, 2026. That date is fixed, regardless of when you originally invested.

Because that tax liability is now firmly on the horizon, it's worth being thoughtful about the rest of 2026. Losses harvested during the year can help offset the reinstated gain, but losses realized after year-end cannot be carried back. That makes 2026 an important window for proactive tax-loss planning.

 

What QOZ 2.0 Introduces in 2027

Beginning on January 1, 2027, the Qualified Opportunity Zone program shifts into a new, permanent version often referred to as QOZ 2.0. While the spirit of the program remains the same, several key updates aim to make the incentives clearer, more consistent, and more effectively targeted. 

 

1. Re-designation of Qualifying Census Tracts

Perhaps the most notable change is that states are required to re-designate eligible zones every ten years. This refresh helps ensure that capital continues flowing to the communities the program is meant to support based on current economic data, rather than decade-old census information. Eligibility standards are tighter, focusing capital more precisely on distressed communities.

 

2. Rolling Five-Year Deferral Window

Another important update is the introduction of a rolling five-year deferral window. Under QOZ 1.0, everything was tied to the December 31, 2026 deadline. Under QOZ 2.0, gains invested in a Qualified Opportunity Fund (QOF) are deferred for five years from the date of investment, with no cliff date or compressed timeline. This restores meaningful time-value-of-money benefits for investors considering new opportunities after the program resets. 

 

3. Basis Step-Ups and Rural Incentive Enhancements

The updated structure also includes a clear basis step-up, which reduces the amount of the deferred gain that will eventually be taxable. For standard QOFs, the increase in basis on the deferred gain is 10% after five years, reducing taxable gains to 90% of the original amount. For qualifying rural funds (formally called Qualified Rural Opportunity Funds, or QROFs), the basis increase is even more generous at 30%, reducing taxable gain to 70%. These rural funds also benefit from a more flexible improvement requirement, which is intended to make development more feasible outside major metro areas. 

QROFs must invest primarily in qualifying rural opportunity zone property. Beyond the more generous 30% basis step-up, rural projects receive a more achievable substantial improvement requirement. Instead of needing to improve a property by 100% of its basis, as required in many urban or standard QOZ projects, rural funds must meet only a 50% improvement threshold. This lower bar is intended to reflect the practical realities of rural development and make these projects more accessible and economically viable.

 

4. 10-Year Tax-Free Appreciation

Crucially, one of the most compelling features of the original program remains unchanged: if an investor holds their QOF investment for at least 10 years, all post-investment appreciation is entirely exempt from federal capital gains tax. This preserves the most powerful feature of the original program: tax-free long-term compounding.

 

5. Compliance and Reporting

Enhanced annual reporting requirements and meaningful penalties increase transparency and reinforce institutional credibility under the revised framework, particularly as funds, businesses, and investors will now be subject to more detailed data disclosures and stricter compliance oversight. This added structure is intended to address gaps identified in the original program while improving confidence in how Opportunity Zone capital is deployed.

 

Tax Impact Comparison: QOZ 1.0 vs. QOZ 2.0

Financial Illustration ($1,000,000 Capital Gain Example)

Using a $1,000,000 capital gain as an example, the differences between a standard tax outcome, a QOZ 1.0 investment, and the new QOZ 2.0 incentives become much easier to appreciate. The following chart illustrates these differences: 

Scenario	Taxable Gain	Tax Owed	Present Value (6%)
No QOZ Investment	$1,000,000	$238,000	$238,000
QOZ 1.0 (Invest 2026)	$900,000	$214,200	$214,200
QOZ 2.0 Standard QOF	$900,000	$214,200	$160,063
QOZ 2.0 Rural QROF	$700,000	$166,600	$124,493

Assumptions: $1,000,000 long-term capital gain, 23.8% federal rate, 6% discount rate.

 

Chart 1: Nominal Tax Liability Comparison

 Assumptions: $1,000,000 long-term capital gain, 23.8% federal rate, 6% discount rate. 

 

Chart 2: Present Value Comparison

 Assumptions: $1,000,000 long-term capital gain, 23.8% federal rate, 6% discount rate. 

 

Without a QOZ investment, the full $1,000,000 gain is immediately taxable, resulting in $238,000 of federal tax. QOZ 2.0 with its rolling deferral and enhanced rural incentives, can offer more flexibility, more long-term benefit, and a more meaningful time-value advantage. For investors with significant capital gains and long-duration horizons, the updated framework provides meaningful after-tax compounding advantages.

 

What This Means for Your Planning

The upcoming transition offers an opportunity for both reflection and preparation. For those with existing QOZ 1.0 positions, 2026 is a planning year: managing the reinstated gain thoughtfully can help reduce its impact. For those who have capital gains to redeploy in the future, QOZ 2.0 presents a refreshed incentive structure designed to be more durable and more flexible over time. 

 

Client Considerations

For clients who previously deferred a capital gain into a QOZ under the original QOZ 1.0 regime (applicable to tax years 2017 through 2025), that deferred gain will be deemed realized on December 31, 2026. Tax losses harvested during 2026 may be used to offset the reinstated gain, but losses realized after year-end cannot be carried back. To help manage the impact, BakerAvenue recommends maintaining or establishing an active tax-loss harvesting account. Some clients may also wish to consider large charitable-giving strategies in 2026, such as contributing to a Donor Advised Fund, to help reduce taxable income in the recognition year. 

If you would like to explore a new QOZ investment or discuss planning for the gain reinstatement from a QOZ 1.0 investment, please reach out to your Advisor. 

 

You can contact BakerAvenue to discuss how these changes fit into your broader tax-planning strategy and determine the next steps that are right for you.

A Strategic Guide to

Individual vs. Trust Designations

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Naming an Individual as Your Beneficiary

The most common and straightforward approach is to name an individual, such as a spouse, child, or other relative, on the beneficiary designation form. 

 

When This Option Works Well

• Simplicity and Ease: This is the simplest path. No additional legal documents are needed beyond the beneficiary form itself. 
• Maximum Flexibility for a Spouse: Naming your spouse provides them with unique advantages. They can roll over the inherited account into their own IRA, allowing the funds to continue growing tax-deferred and delaying required distributions until they turn 73.
• For Responsible Adult Beneficiaries: If your beneficiary is a financially responsible adult and you have no concerns about their ability to manage a large sum of money, this works well. 
  
  

Potential Downsides to Consider

• Absolute Control by Beneficiary: Once your beneficiary inherits the account, the money is theirs to do with as they please. They could withdraw the entire amount at once, triggering a significant tax bill and depleting the inheritance quickly. 
• Special Needs Planning Risks: Inherited retirement accounts are generally included in the beneficiary's estate and personal assets. This can jeopardize an individual's eligibility for government benefits, so it is crucial to understand if the intended beneficiary is eligible for such benefits. 
  
  

Naming a Trust as Your Beneficiary

This is a more complicated strategy that involves naming one or more trusts as the beneficiary of your retirement account. The trust document then outlines your specific instructions for how the assets should be managed and distributed to your beneficiaries.

 

When This Option Works Well

• Planning for Complex Situations: A trust can be essential if you have beneficiaries who are minors, have special needs (as it can be structured to avoid disqualifying them from government benefits), or struggle with managing money.
• Protection for Your Beneficiaries: Assets held within a properly structured trust can receive a layer of protection from a beneficiary's creditors, lawsuits, and claims in a divorce.

Potential Downsides to Consider

• Complexity and Cost: Establishing a trust requires careful legal drafting and carries upfront costs. You will also need to appoint a trustee (an individual or a professional institution) to manage the trust after your death.
• Tax & Distribution Rules: For the trust to work effectively for a retirement account, it must be drafted to meet specific IRS rules. If not, it can lead to accelerated tax payments and negate some of the tax-deferral benefits afforded to retirement accounts. The SECURE Act of 2019 already requires most beneficiaries to withdraw funds within 10 years, and a trust must be carefully structured around this rule. Improperly drafted trusts can result in 5-year distribution requirements. In addition, income tax rates are compressed at the tax level, meaning that trusts are taxed at the highest rate after just $15,650, as of 2025. Depending on the type of trust, there may be significant income tax liabilities that would otherwise be avoided with different beneficiary designations.

For more information on Estate Planning and Trust Services, contact BakerAvenue to discuss how we can help determine which type of beneficiary is right for you.

Significant Tax Changes from the One Big Beautiful Bill Act (OBBBA)

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1. 2017 Tax Cuts Made Permanent

Makes the 2017 Tax Cuts and Jobs Act (TCJA) tax brackets and standard deduction permanent for all taxpayers, preventing any scheduled tax increases for tax year 2026. Higher rates are now permanently removed.

2025 Tax Bracket Comparison: "Old" vs. OBBBA (Made Permanent)

Note: These are 2025 inflation-adjusted federal tax brackets. Under OBBBA, Tax Cuts and Jobs Act's (TCJA) lower rates and structure are made permanent and will continue to adjust annually for inflation.

 

Higher Standard Deduction Made Permanent - Comparison: 2024 vs. 2025 and Following

Standard Deduction by Filing Status

 

2025 Senior Tax Deduction Summary - Effective for Tax Year 2025

This table summarizes the total federal tax deduction available to senior taxpayers (age 65 and older) under OBBBA for the tax year 2025. The new $6,000 senior above-the-line deduction (up to $12,000 per couple) is in addition to the standard deduction and the traditional age-based extra deduction.

All 2025+ standard deductions are indexed for inflation. 

 

2. $2,200 Child Tax Credit - Effective for Tax Year 2025

Raises the child tax credit to $2,200 per child. The refundable portion of the credit, referred to as the Additional Child Tax Credit (ACTC), is adjusted for inflation and, for the 2025 tax year, is set at $1,700. Credit begins to phase out for taxpayers with adjusted gross income (AGI) in excess of $400,000 in the case of married taxpayers filing jointly and $200,000 for all other taxpayers. It completely phases out when the taxpayer’s modified adjusted gross income (MAGI) reaches $ 240,000 and $440,000 MFJ.

 

3. Tip Income Deduction

Creates an above-the-line deduction of tip-based earnings capped at $25,000 per individual. The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $400,000 ($550,000 MFJ).Effective for 2025 through 2028.

 

4. Overtime Pay Deduction

Creates an above-the-line deduction for qualified overtime compensation. Maximum annual deduction is $12,500 ($25,000 for joint filers). The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $275,000 ($550,000 MFJ). Effective for 2025 through 2028.

 

5. New Car Loan Interest Deduction

Permits up to $10,000 of interest deduction on a qualified passenger vehicle. Must be new auto loans for U.S.-assembled cars bought 2025–2028; begins to phase out for singles over $100,000 or joint filers over $200,000, and completely disappears where income exceeds $150,000 for singles and $250,000 MFJ. Above the line deduction. Car must be for personal use - not a business asset.

 

6. Temporary State and Local Tax (SALT) Cap Increase

Raises SALT deduction to $40,000 ($20,000 MFS) for households earning below $500,000 in 2025, phasing out between $500,000 and $600,000, but not below $10,000.Reverting to $10,000 in 2030.

Provision	Details
New SALT Cap (2025–2029)	Increased from $10,000 to $40,000 in 2025; rises 1% per year until 2029
Reversion (2030+)	Cap reverts to $10,000 unless extended by future legislation
Phase-Out Threshold	$500,000-$600,000 AGI (MFJ); cap reduced by 30% of excess income. $10,000 cap above $600,000.
Phase-Out Floor	Deduction cannot drop below $10,000
Married Filing Single Threshold and Cap	$250,000- $300,000 AGI threshold; $20,000 cap
Annual Inflation Adjustment	Both cap and phase-out thresholds increase 1% per year (2025–2029)
PTET Workaround	Preserved for pass-through entities with anti-abuse provisions
Effective Tax Year	Applies to tax year 2025 (filed in 2026)

 

7. Special Senior Bonus Deduction - Effective for 2025

Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional above-the-line deduction of $6,000 ($12,000 total for a married couple where both spouses qualify). This new deduction is in addition to the current traditional age-based extra deduction standard deduction for seniors under existing law. This special deduction is “in lieu” of the “No Tax on Social Security” campaign promise. Deduction is available for both itemizing and non-itemizing taxpayers. The $6,000 exemption deduction begins to phase out by 6% by the amount a taxpayer’s MAGI exceeds $75,000 ($150,000 MFJ) and varies by filing status as detailed below:

Filing Status	Maximum Deduction	Phaseout Range
Single	$6,000	$75,000–$175,000
Head of Household (HOH)	$6,000	$75,000–$175,000
Married Filing Jointly (One spouse 65+)	$6,000	$150,000–$250,000
Married Filing Jointly (Both spouses 65+)	$12,000	$150,000–$350,000
Married Filing Separately (MFS)	$0	N/A

 

8. "MAGA" Newborn Savings Accounts / Trump's Accounts - Effective for 2026

Taxpayers can make an election on behalf of their eligible child to have $1,000 treated as a tax payment for the taxable year. The $1,000 will be deposited into a Trump account established on behalf of the child. An eligible child, defined as a U.S. citizen child born in 2025 through 2028 for whom no previous election has been made. The account is treated in the same manner as an IRA (cannot be a ROTH IRA) with special rules, during the period when the beneficiary is under age 18.

Additional contributions to the Trump accounts can be made from parents, relatives, and other taxable entities, as well as nonprofit and government entities. Contributions to the accounts can only be made after-tax (except for employer contributions up to $2,500, which can be pre-tax) if made prior to the child turning age 18, and aggregate contributions are limited to $5,000 annually (adjusted for inflation beginning with the 2028 taxable year).

The funds from the accounts cannot be distributed prior to the calendar year in which the child turns age 18. Distributions will be taxed like any other IRA. Because the contributions made by parents and other relatives are made after-tax, these contributions would not be subject to tax when withdrawn.

No income cap specified.

 

9. Charitable Donations - Effective for 2026

Establishes a new above-the-line charitable contribution deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly, available to non-itemizers making cash donations to qualified charitable organizations. No income limitation applies to this deduction, thereby broadening access and encouraging wider participation in charitable giving.

The existing rule allowing deductions for cash gifts to public charities up to 60% of AGI is made permanent. 

For itemizing taxpayers, beginning in tax year 2026, the charitable deduction will only be allowed if total contributions exceed 0.5% of the taxpayer’s AGI. This introduces a new minimum threshold for deductibility of itemized charitable contributions.

Summary of OBBBA Charitable Donation Provisions

Provision	Description	Effective Year
Above-the-Line Deduction for Non-Itemizers	Deduction of up to $1,000 (single) / $2,000 (joint) for cash donations to public charities	2026
New Floor for Itemizers	Only donations exceeding 0.5% of AGI are deductible	2026
Corporate Donation Floor	Corporations can deduct donations only above 1% of taxable income (still capped at 10%)	2026
Cap for High-Income Taxpayers	Maximum tax benefit limited to 35% for taxpayers in the 37% bracket	2026
60% AGI Limit for Cash Gifts Made Permanent	Temporary rule (cash donations to public charities deductible up to 60% of AGI) is now permanent	2026
Tax Credit for Scholarship Donations	Non-refundable credit up to $1,700 for donations to scholarship-granting organizations (non-itemizers OK)	2027

 

10.  Estate and Gift Tax Exclusion Raised to $15M Per Taxpayer - Effective for 2026 

Removes the potential 50% reduction permanently – makes the higher exemption permanent. The $15 million per individual ($30 million for married couples) exclusion will be inflation-adjusted annually and also applies to the generation-skipping transfer tax exemption.

 

11.  Capital Gains Tax Step-Up Preserved 

 Maintains the step-up in basis for inherited assets, avoiding capital gains tax at death.

 

12.  Repeal Clean Energy Credits – Effective for Tax Year 2025 

Eliminates green-energy credits (EVs, solar, wind, hydrogen, etc.), with some as early as September 30, 2025.

Federal Energy Efficiency Tax Credits Overview

Item	Credit Type	Max Benefit	Expiration Date	Eligibility
Solar Panels	Residential Clean Energy	30% of the cost	12/31/2025	Yes
Battery Backup (≥3 kWh)	Residential Clean Energy	30% of the cost	12/31/2025	Yes
EV Charger*	EV Charger Installation	Up to $1,000	06/30/2026	ZIP-based
Heat Pump (HVAC)	Energy Efficiency Upgrade	Up to $2,000	12/31/2025	Yes
ENERGY STAR Refrigerator	Energy Efficiency Upgrade	Up to $600	12/31/2025	Yes
ENERGY STAR Windows	Energy Efficiency Upgrade	Up to $600	12/31/2025	Yes
Hot Water Heater (Tankless/Heat Pump)	Energy Efficiency Upgrade	$600–$2,000	12/31/2025	Yes
Solar-Integrated Roofing	Residential Clean Energy	30% of the cost	12/31/2025	If solar-integrated
Electric Oven	Not Qualified	—	N/A	No
Gas Stove	Not Qualified	—	N/A	No
Microwave	Not Qualified	—	N/A	No
Standard Roof (Shingles Only)	Not Qualified	—	N/A	No
Commercial Electric Vehicle	Commercial Clean Vehicle	Up to $40,000	09/30/2025	Business use
EV (New)	Clean Vehicle Credit	Up to $7,500	09/30/2025	If it meets income/price limits
EV (Used)	Used Clean Vehicle Credit	Up to $4,000	09/30/2025	If it meets income/price limits

*EV Charger Credit requires property to be in a qualified low-income or rural area for eligibility.

 

13.  529 Plan Expansion – Effective for 2025 

K–12 tuition withdrawal limit doubled up to $20,000 per year and expanded K–12 expenses to cover books, tutoring, test prep, online learning, and educational therapy.

Broadens scope beyond traditional college education, and 529 funds can now be used for vocational, trade, and credentialing programs. Tax-free rollovers from 529 plans to ABLE accounts are now permanently allowed.

ABLE account enhancements like Saver’s Credit and ABLE-to-Work contributions are also made permanent. No stated income cap on withdrawing funds from a 529 plan.

529 Plan Changes Summary - Most Effective 7/5/2025

Provision	Description	Effective Date	Notes
K–12 Education Limit Increase	Annual tax-free withdrawal limit raised from $10,000 to $20,000 per beneficiary	July 5, 2025	Applies to tuition at elementary & secondary schools
Expanded K–12 Expenses	Includes books, tutoring, test prep, online resources, and educational therapy	July 5, 2025	Includes students with disabilities
Post-Secondary Credentialing	529s can now fund vocational, trade, and certification programs	July 5, 2025	Includes program fees, books, supplies, and exams
529-to-ABLE Rollovers (Permanent)	Tax-free rollover to ABLE accounts is now a permanent provision	Immediately	Beneficiary must be the same or a qualified family member
Other ABLE Enhancements	Saver’s Credit and ABLE-to-Work contributions rules made permanent	Immediately	Improves long-term disability savings planning
State Tax Treatment	May vary by state — check for conformity with federal rules	Varies by state	Important for K–12 and new qualified expense categories

 

14. Health Savings Accounts (HSAs)

Permanent allowance for first-dollar telehealth coverage under high deductible health plans (HDHPs) without affecting HSA eligibility. Afforable Care Act (ACA) marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility. Up to $150/month (individual) or $300/month (family) in Direct Primary Care fees are now HSA-eligible.

OBBBA HSA Changes Summary

Provision	Description	Effective Date	Included in Final Bill?
Telehealth Coverage	Permanent allowance for first-dollar telehealth coverage under HDHPs without affecting HSA eligibility	Plan years starting in 2025	Yes
Bronze & Catastrophic Plans	ACA marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility	Jan 1, 2026	Yes
Direct Primary Care (DPC) Fees	Up to $150/month (individual) or $300/month (family) in DPC fees now HSA-eligible	Jan 1, 2026	Yes
HSA contributions after enrolling in Medicare Part A	Would have allowed contributions post-Medicare enrollment	—	No
Higher contribution limits for low-income individuals	Proposed expansion of contribution caps	—	No
Combined catch-up contributions for spouses	Would have allowed one combined catch-up for both spouses aged 55+	—	No
Fitness/gym expense reimbursement	Up to $500/year in gym or fitness fees using HSA	—	No
60-day retroactive reimbursements	Proposed coverage of medical expenses incurred before HSA opened	—	No
HSA eligibility with spousal  Flexible Spending Account (FSA) or clinic access	Would have removed disqualifications tied to spouse’s FSA or employer clinic	—	No

 

15. Mortgage Interest Deduction

 Permanently extends the TCJA’s limitation of qualified residence interest deduction for the first $750,000 in home mortgage acquisition debt.

 

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Business Taxation in the OBBBA

 

1. 100% Bonus Business Depreciation Made Permanent

Allows for the immediate expensing of 100% of qualifying property costs, permanently restoring the full write-off for businesses without income limits. Applied to property acquired after January 19, 2025.

 

2. Full R&D Expensing
Permanently allows full expensing of domestic specified research or experimental
expenditures (SREs) starting with the 2025 taxable year, reversing prior amortization rules— available to all businesses, no income limitation. Small business taxpayers (i.e., those with average annual gross receipts of $31 million or less) can apply the change retroactively to taxable years beginning after December 31, 2021. In addition, all taxpayers who capitalized domestic research or experimental expenses between December 31, 2021, and January 1, 2025, may elect to accelerate the deduction of any remaining unamortized amounts over one or two years.

 

3.  Section 199A Qualified Business Income (QBI) Deduction 

Makes the 20% QBI deduction permanent and adds a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from an active trade or business, adjusted for inflation. Beginning with the 2026 taxable year, the phaseout ranges for purposes of computing the §199A deduction are increased from $50,000 ($100,000 MFJ) to $75,000 ($150,000 MFJ), which means that the size of the phaseout range is now wider.

Phaseout Ranges by Filing Status

Filing Status	2025 Threshold Amount	2025 Phaseout Ends
Married Filing Jointly	$394,600	$494,600
All Other Taxpayers	$197,300	$247,300

 

4.  Qualified Opportunity Zone (QOZ): New Series Approved – Effective for Tax Year 2027  

Permanently extends Opportunity Zones and introduces a new series of designated zones with a 5-year deferral of original gain. Enhanced tax incentives for rural QOZs. 

Qualified Opportunity Zone Changes - 2027 Onward

Category	OBBBA Changes
Permanence & New Designation Cycle	• Makes QOZ program permanent • New zone designations every 10 years (starting 2026, effective 2027–2036)
Rolling 5-Year Gain Deferral	• For investments from Jan 1, 2027 onward • Gain deferral lasts 5 years or until asset sale
Basis Step-Ups	• Standard QOFs: 10% step-up at 5 years (no more 7-year bonus) • QROFs (Rural Funds): 30% step-up at 5 years; only 50% substantial improvement required
Long-Term Hold Rules	• No capital post-acquisition gains tax after 10 years on QOZ investment - step-up to FMV for 10 to 30 years • After 30 years, step-up is fixed; future gains are taxable
Zone Eligibility Changes	• Lowered income threshold: ≤70% of area median • Eliminated contiguous tract rule • Overall zone count reduced by ~20–22%

 

5.  Qualified Small Business Stock (QSBS): Expanded Reliefs

Existing rules unchanged. For new investments made after July 4, 2025, there are new rules. Potential for partial relief after as little as three years. 

Qualified Small Business Stock (QSBS) - Two Regimes

Feature	Pre-OBBB (Before July 4, 2025)	Post-OBBB (On or After July 4, 2025)
Holding Period Requirement	≥ 5 years for 100% gain exclusion	≥ 3 yrs → 50%, ≥ 4 yrs → 75%, ≥ 5 yrs → 100%
Exclusion Cap	$10M or 10× basis (whichever is greater)	$15M or 10× basis (indexed from 2027)
Issuer Gross Asset Limit	≤ $50M	≤ $75M (indexed from 2027)
Applies To	Stock issued before July 4, 2025	Only to stock issued on or after July 4, 2025
Other QSBS Rules (e.g., entity type, active business)	Unchanged	Unchanged

 

6.  Section 179 Expensing

Raises the maximum Section 179 expensing limit to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million, both of which will be adjusted annually for inflation. 

 

7.  Corporate Charitable Contribution Deduction

Establishes a floor of 1% of taxable income to deduct charitable contributions, up to a ceiling of 10% of taxable income. Effective after December 31, 2025. 

If you have any questions about these updates, please contact BakerAvenue.

Top Tax Provisions from the 'One Big Beautiful Bill'

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1. 2017 Tax Cuts Made Permanent

Makes the 2017 Tax Cuts and Jobs Act (TCJA) tax brackets and standard deduction permanent for all taxpayers, preventing any scheduled tax increases for tax year 2026.

Higher rates, now permanently removed, versus TCJA Lower Tax Rates in operation since 2017:

• Bracket 1 - 10.0% vs. 10.0%
• Bracket 2 - 15.0% vs. 12.0%
• Bracket 3 - 25.0% vs. 22.0%
• Bracket 4 - 28.0% vs. 24.0%
• Bracket 5 - 33.0% vs. 32.0% 
• Bracket 6 - 35.0% vs. 35.0%
• Bracket 7 - 39.6% vs. 37.0%

 

Higher Standard Deduction Made Permanent - Comparison: 2024 vs. 2025 and Following

Standard Deduction by Filing Status

Senior Bonus Deduction (Age 65+)

Note: Senior bonus deduction begins phasing out at $75,000 (single) and $150,000 (joint), and is fully phased out at approximately $175,000 and $250,000, respectively.

All 2025+ standard deductions are indexed for inflation.

 

2. $2,200 Child Tax Credit

Raises the child tax credit to $2,200 per child, fully refundable and inflation-adjusted. Phases out for single filers over $200,000 and joint filers over $400,000.

 

3. Tip Income Deduction

Allows deduction of tip-based earnings for workers with income under $150,000, capped at $25,000 per year, valid through 2028.

 

4. Overtime Pay Deduction

Creates a deduction for overtime earnings for individuals earning under $150,000, capped similarly to tips, valid through 2028.

 

5. New Car Loan Interest Deduction

Permits up to $10,000 of interest deduction on new auto loans for U.S.-assembled cars bought 2025-2028; phases out for singles over $100k or joint filers over $200k.

 

6. Temporary SALT Cap Increase

Raises SALT deduction to $40,000 ($20,000 MFS) for households earning <$500,000 in 2025, phasing down above $500,000. Reverting to $10,000 in 2030.

 

7. Special Bonus Deduction

Allows a special $6,000 deduction for taxpayers aged 65+, phasing out for MAGI over $75k (single) and $150k (joint), valid through 2028. This special deduction is "in lieu" of the "No Tax on Social Security" campaign promise.

 

8. "MAGA" Newborn Savings Accounts

Allows one-time $1,000 tax-exempt contribution for each newborn into a designated savings account; annual contribution limit $5,000. No income cap specified.

 

9. Above-the-Line Charitable Deduction

Introduces $2,000 ($1,000 single) deduction for non-itemizers; no income limit specified, encouraging broader charitable giving. Effective for tax year 2026 and following.

 

10. 100% Bonus Business Depreciation Made Permanent

Allows immediate expensing of 100% qualifying property costs, permanently restoring full write-off for businesses without income limits.

 

11. Full R&D Expensing

Permits immediate expensing for domestic R&D costs, reversing prior amortization rules -- available to all businesses; no cap cited.

 

12. The 20% Pass-Through Deduction (§199A) Made Permanent

Keeps 20% QBI deduction.

 

13. Estate and Gift Tax Exclusion Raised to $15M Per Taxpayer Effective 2026

Removes potential 50% reduction permanently -- makes higher exemption permanent and indexed for inflation going forward.

 

14. Opportunity Zones for Capital Gains Deferral - New Series Approved

Permanently extends Opportunity Zones and introduces a new series of designated zones with deferral of original gain through 2033. Enhanced incentives for rural Zones. Further details to be issued.

 

15. Capital Gains Tax Step-Up Preserved

Maintains the step-up in basis for inherited assets, avoiding capital gains tax at death.

 

16. Repeal Clean Energy Credit

Eliminates green-energy credits (EVs, solar, wind, hydrogen, etc.), some as early as September 30, 2025.

 

17. 529 Plan Expansion

Permits 529 withdrawals for K-12 tuition, apprenticeships, homeschool; no stated income cap.

 

If you have any questions about these updates, please contact BakerAvenue.

What Is Qualified Small Business Stock?

Phase 2: Filing and Managing Your Insurance Claim

Recovering from the devastation of a wildfire is a long and complex process. After reviewing your insurance policy and securing short-term housing, the next critical phase is filing and managing your insurance claim effectively. This guide provides a step-by-step breakdown of the claims process and offers essential tips to maximize your coverage and ensure a smooth recovery.

For more information on creating an action plan and understanding your home insurance policy, read our first article: Phase 1: Action Plan and Insurance Policy Review.

Phase 1: Action Plan and Insurance Policy Review

Experiencing a loss of a home due to wildfires is devastating and navigating the process can be difficult and time-consuming. It's important to take specific actions after a loss to ensure you understand your options and the home insurance policy you have in place. If you were affected by the wildfires, we have provided an action plan and guide to help you understand your home insurance policy.

BakerAvenue will publish a series of articles to guide those who have been impacted by the fires. Even if you haven’t been affected by the recent events, it's still important to ensure you have adequate insurance coverage and an action plan in place for emergencies. Please reach out to your advisor if you have questions or need to review your home insurance policy in detail.

Important Disaster Relief Information from the IRS

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Hurricane Beryl & Wildfire Relief

Due to various hazardous fires and storms caused by Hurricane Beryl across the country, the IRS has announced Disaster Relief: The due date for 2023 tax returns has been extended to February 3, 2025. The due date for 2024 estimated payments is extended to February 3, 2025.

• 2023 filing relief (not payment) for fire and severe storm for those affected by  Hurricane Beryl in the entire states of LA, VT, Puerto Rico, The Virgin Islands, and specific counties AZ, CT, IL, KY, MN, MO, MT, NY, PA, SD, TX, WA - Due February 3, 2025
• 2024 estimated payment relief for fire and severe storm for those affected by Hurricane Beryl in the entire states of LA, VT, Puerto Rico, The Virgin Islands, and specific counties AZ, CT, IL, KY, MN, MO, MT, NY, PA, SD, TX, WA - Due February 3, 2025

Please check the following website for specific filing and payment information: IRS reminder to disaster area taxpayers with extensions: All or parts of 14 states, 2 territories need to file 2023 returns by Feb. 3; others have until May 1

 

Hurricane Helene and Milton Relief

Due to the hazardous hurricanes that hit the Southeast regions: Alabama, Georgia, North Carolina, South Carolina, and Florida, the IRS has announced Hurricane Relief: The due date for 2023 and 2024 tax returns has been extended to May 1, 2025.

• 2023 relief for return filing (not payment) for the entire states AL, FL, GA, NC, SC - Due May 1, 2025
• 2024 relief entire states of AL, FL, GA, NC, SC - Return & Payment - Due May 1, 2025

Please check the following website for specific filing and payment information: IRS reminder to disaster area taxpayers with extensions: All or parts of 14 states, 2 territories need to file 2023 returns by Feb. 3; others have until May 1

 

Israel/Gaza Terrorist US Citizen Relief

Due to the terrorist attacks in Israel, the IRS has announced relief to affected individuals and businesses: The due date for 2023 and 2024 tax returns has been extended to September 30, 2025.

• 2023 relief for return filing and payment for anyone affected by conflict in Israel, Gaza, or West Bank - Due September 30, 2025
• 2024 relief for return filing and payment for anyone affected by conflict in Israel, Gaza, or West Bank - Due September 30, 2025

Please check the following website for specific filing and payment information: IRS announces new relief for taxpayers affected by terrorist attacks in Israel: 2023 and 2024 returns and payments are now due Sept. 30, 2025; other relief available

 

California - Los Angeles Wildfires (Los Angeles County) Relief

Due to the hazardous wildfires throughout Los Angeles County, the IRS has announced Wildfire Relief: The due date for 2023 and 2024 tax returns has been extended to October 15, 2025.

• 2024 relief for filing and paying individual, S Corp, Non Profits and Payroll returns, tax due and estimated payments - Due date is now October 15, 2025
• 2024 relief for IRA and health savings accounts contributions - Due date is now October 15, 2025

Please check the following website for specific filing and payment information: IRS: California wildfire victims qualify for tax relief; various deadlines postponed to Oct. 15

If you have any questions about these tax updates, please contact BakerAvenue.