“Easter Eggs” in the One Big Beautiful Bill Act

As we review the sweeping changes introduced by the One Big Beautiful Bill Act, it’s clear that some of the most impactful provisions for high-net-worth individuals are not making headlines. While much attention is given to rate changes and the extension of certain deductions, several nuanced limitations and new rules could have significant effects on tax planning, especially if you have substantial itemized deductions, charitable giving strategies, and exposure to state and local taxes. And some of these new rules may lead to unpleasant surprises if they catch you and your financial advisor unaware.

Below, we highlight four key areas that demand close attention as you plan for 2025 and beyond:

1. The return and modification of the Pease limitation on itemized deductions.
2. New and permanent floors on charitable contribution deductions.
3. Major changes to the state and local tax (SALT) deduction cap, including new phaseouts.
4. Key items that did NOT change but remain important for planning.

Pease Limitation on Itemized Deductions

The Pease limitation, which reduces the value of itemized deductions for higher-income taxpayers, is back—but in a new form. For tax years beginning after December 31, 2025, itemized deductions are reduced by 2/37 of the lesser of (1) total itemized deductions or (2) the amount by which taxable income (plus itemized deductions) exceeds the threshold for the 37% tax bracket (starts at just over $750,000 for married filing jointly in 2026). This is a significant change from the prior 3%/80% formula and can result in substantial lost deductions for high earners.

Example:

• For a married couple with $650,000 in taxable income and $200,000 in itemized deductions, the excess over the 37% bracket is $100,000. The reduction is 2/37 of $100,000 (the excess amount by which taxable income exceeds the 37% threshold), so $5,405. At the highest marginal bracket, the Federal tax impact would be $2,000.
• For a married couple with $1,000,000 in taxable income and $100,000 in itemized deductions, the excess is $350,000. The reduction is 2/37 of $100,000, or $5,405—same as above, except total itemized deductions are the limiting factor in that scenario to be multiplied by the 2/37 limitation. At the highest marginal bracket, the Federal tax impact would be $2,000.
• For a married couple with $3,000,000 in taxable income and $600,000 in itemized deductions due to a significant charitable contribution, the excess is $2,850,000. The reduction is 2/37 of total itemized deductions ($600,000), resulting in a total reduction of $32,432. At the highest marginal bracket, the Federal tax impact would be $12,000.

This limitation applies after all other itemized deduction limitations, including the new SALT and charitable floors, making it a “last-but-not-least” hit to high earners. Importantly, this change takes effect for tax years after 2025, so 2025 is the last year to maximize deductions without limitation —especially via donor-advised funds (DAFs)—before the new Pease limitation applies.

Charitable Reductions

The OBBBA introduces a new floor for charitable deductions: only contributions exceeding 0.5% of adjusted gross income (AGI) are deductible for individuals who itemize, and only contributions exceeding 1% of taxable income are deductible for corporations. This is in addition to the Pease limitation, not instead of it. Think of this as similar to the AGI thresholds placed on medical deductions, where only the amount exceeding the threshold can be deducted.

For example, a taxpayer with $1,000,000 AGI must give more than $5,000 before any charitable deduction is allowed, and only the excess is deductible. The excess is then subject to the Pease reduction if applicable. In this example, the limitation would eliminate $5,000 of the deduction, resulting in a tax increase of $1,850, assuming the taxpayer is in the highest marginal tax bracket.

This double limitation makes 2025 a critical year for front-loading charitable giving before the new floor and Pease limitation take effect. The above-the-line charitable deduction for non-itemizers is also increased and made permanent, but the new floors will reduce the benefit for many donors.

State and Local Tax Deductions (SALT)

The Act increases the SALT deduction cap to $40,000 ($20,000 for married filing separately) for 2025, with annual 1% increases through 2029 for both the deduction and phaseout threshold. It’s essential to note that this is not an exemption available to everyone—it only benefits those who actually pay a significant amount in state and local income, real estate, and/or personal property taxes. The cap is phased down for high-income taxpayers: for 2025, the cap is reduced by 30% of the excess of modified AGI over $500,000 (married filing jointly) or $250,000 (married filing separately), but never below $10,000. After 2029, the cap reverts to $10,000

Examples:

• Married filing jointly taxpayer with $600,000 AGI: Cap is $40,000 MINUS 30% of $100,000 = $10,000 (fully phased down).
• Married filing jointly taxpayer with $525,000 AGI: Cap is $40,000 MINUS 30% of $25,000 = $32,500.

If you have an AGI over $600,000, this increased SALT deduction is likely irrelevant because you will still only qualify for a deduction of $10,000. The Pease limitation further reduces the benefit of the SALT deduction for high-income taxpayers, as the Pease reduction applies after the SALT cap.

We will continue to monitor the potential Alternative Minimum Tax (AMT) effects of the increase in SALT deductions. However, we currently believe that anyone susceptible to AMT would have already been phased out completely from the SALT deduction increases.

Things That Didn’t Change in the OBBBA

While so much of the media coverage around the One Big Beautiful tax bill revolved around the changes, several critical items did not change at all:

• Net Investment Income Tax (NIIT): No changes; the 3.8% tax on net investment income remains in place.
• Tax Brackets: The lower individual tax rates from the TCJA are now permanent, with no scheduled sunset.
• Capital Gain Rates: No changes to the preferential rates for long-term capital gains.
• Carried Interest Rules: No changes; the three-year holding period for long-term capital gain treatment remains.
• Alternative Minimum Tax (AMT): The alternative minimum tax (AMT) exemption and phaseout thresholds are now permanent, with some modifications. The AMT structure is otherwise unchanged.

With the SALT deduction increases available for the current tax year, you could see an increase in itemized deductions on your 2025 tax return and a corresponding reduction in taxable income, which would feel in line with the general consensus that this new tax bill is bringing savings to U.S. taxpayers. However, 2026 could actually see a net decrease in itemized deductions if you outearn the SALT phaseout and will be materially susceptible to the Pease Limitation and Charitable Deduction threshold.

Stay tuned for upcoming content on Qualified Small Business Stock (QSBS), the new estate and gift tax exemption, and other business and estate planning opportunities and pitfalls under the new law.

Key Changes

Provision	2025 Status Under One Big Beautiful Bill Act	Planning Idea
Pease Limitation	Returns as 2/37 formula, applies after other limits	Accelerate deductions in 2025
Charitable Deduction	0.5% AGI floor for itemizers, above-the-line deduction increased	DAFs more attractive in 2025
SALT Deduction	$40,000 cap, phased down for high AGI, reverts to $10,000	High-tax state residents most affected
NIIT, Brackets, Cap Gains	No change	No action needed
Carried Interest	No change	No action needed

Please get in touch with your Cerity Partners advisor to discuss how these recent tax changes from the One Big Beautiful Bill Act may impact your overall financial plan. If you are not yet a client, we invite you to request an introduction with our concierge to explore your objectives and be matched to the right financial advisor for your unique needs.