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Individual Provisions

1. Permanent Tax Rates and Inflation Adjustments

What changed: The seven-bracket rate system enacted under the Tax Cuts and Jobs Act (TCJA)—10%, 12%, 22%, 24%, 32%, 35%, and 37%—is made permanent. Additionally, the 10% and 12% brackets will receive one extra year of inflation indexing before consolidation.

Why it matters: The permanence of the rate structure removes uncertainty for individuals and families planning long-term financial strategies. It ensures that lower- and middle-income earners continue to benefit from favorable tax brackets, and allows for more accurate forecasting.

To plan: Taxpayers should review multi-year projections to coordinate retirement income strategies, Roth conversions, and capital gains harvesting in light of known future rates. Financial advisors may wish to incorporate these assumptions into updated financial plans.

2. Standard Deduction and Temporary Additional Deduction for Senior Taxpayers

What changed: The elevated standard deduction introduced in 2017 is locked in permanently, beginning at $15,750 for single filers and $31,500 for joint filers in 2025 (indexed). A temporary $6,000 additional deduction—the “senior bonus”—is available from 2025 to 2028 for taxpayers age 65 and older, phasing out at $75,000 (single) or $150,000 (joint) MAGI.

Why it matters: A permanent standard deduction and the new senior deduction significantly reduce taxable income for retirees and low- to middle-income earners. It also simplifies filing for those not benefiting from itemized deductions.

To plan: Seniors should consider how distributions from IRAs, pensions, and Social Security affect their MAGI. Timing income across tax years may help preserve eligibility for the senior bonus. Coordinating the deduction with Qualified Charitable Distributions (QCDs) may further optimize tax outcomes.

3. Section 24 Child Tax Credit

What changed: The credit increases to $2,200 per qualifying child in 2025, with $1,400 refundable. The credit is indexed to inflation and retains existing phaseout thresholds. Only one spouse must now provide a valid Social Security number (SSN) for joint returns.

Why it matters: This change provides larger direct financial support for families with children while simplifying eligibility requirements, especially for mixed-status households.

To plan: Families should ensure dependents meet age, residency, and relationship tests. Confirm accurate SSNs are reported for the child and at least one parent. Tax planning to manage AGI could preserve eligibility for families near the income phaseout.

4. Child and Dependent Care Credit

What changed: The maximum credit is expanded to 50% of qualifying care expenses, subject to a sliding scale based on adjusted gross income. The top benefit is available to households earning up to $15,000, with a phase-down thereafter.

Why it matters: This supports working families with young children or dependents requiring care. It aims to offset the rising costs of daycare, eldercare, and after-school programs.

To plan: Taxpayers should retain detailed records of care expenses, including provider names, taxpayer identification numbers, and payment documentation. Households near the AGI phaseout should consider adjusting withholdings or deferrals to preserve eligibility.

5. Estate and Gift Tax Exemption

What changed: Beginning in 2026, the lifetime estate and gift tax exemption increases to $15 million per individual ($30 million per couple), indexed annually for inflation.

Why it matters: This adjustment extends the ability to transfer significant wealth without incurring federal estate or gift tax liability. It supports both intergenerational giving and business succession planning.

To plan: High-net-worth individuals should revisit estate plans, trust structures, and gifting strategies. Now may be an opportune time to use spousal lifetime access trusts (SLATs), grantor-retained annuity trusts (GRATs), or other advanced planning vehicles.

6. Above-the-Line Deduction for Service and Hourly Wage Income

What changed: A new above-the-line deduction allows individuals to deduct up to $25,000 in tips and $12,500 in overtime compensation for tax years 2025 through 2028. The deduction phases out at $150,000 (single) or $300,000 (joint) MAGI.

Why it matters: This provision offers targeted relief to workers in the service and hourly labor sectors, who may otherwise be unable to access significant deductions due to reliance on the standard deduction.

To plan: Workers should document reported tips and verify accuracy on W-2s or 1099s. Employers should offer educational resources on payroll transparency. Taxpayers approaching income thresholds may benefit from timing compensation or using pre-tax benefit elections to reduce MAGI.

7. Section 163 Interest Deduction for Personal-Use Vehicles

What changed: Taxpayers may deduct up to $10,000 in interest paid on loans for personal-use vehicles assembled in the United States. The deduction applies for purchases between 2025 and 2028.  The deduction phases out at $100,000 (single) or $200,000 (joint) MAGI.

Why it matters: This novel deduction provides tax relief for middle-income Americans financing automobile purchases while encouraging domestic manufacturing.

To plan: Confirm eligibility by verifying the VIN and assembly location before purchasing a vehicle. Retain the loan and purchase documentation. Taxpayers nearing the MAGI cap should consider timing the vehicle acquisition to preserve the deduction.

8. Charitable Contribution Rules

What changed: Non-itemizing taxpayers may now deduct up to $1,000 (single) or $2,000 (joint) in charitable donations annually. A new floor requires deductions exceeding 0.5% of AGI for itemizers to qualify. Corporations must now exceed a 1% AGI floor.

Why it matters: The expansion to non-itemizers encourages broader philanthropic participation. The new AGI floors aim to limit nominal deductions while promoting meaningful giving.

To plan: Consider bunching donations into a single year to exceed the AGI floor or utilizing donor-advised funds. Maintain contemporaneous receipts and written acknowledgments for all contributions over $250.

9. SALT Deduction Cap

What changed: The cap on the deduction for state and local taxes (SALT) is temporarily raised to $40,000 from 2025 through 2029, indexed for inflation. A phase-down applies above $500,000 in MAGI. Pass-through entity tax (PTET) workarounds remain available.

Why it matters: This change restores a larger deduction for residents of high-tax states while retaining an upper-income limitation. It provides relief to many households affected by the prior $10,000 cap.

To plan: Taxpayers in high-tax jurisdictions should coordinate with their accountants to assess the interplay between the federal SALT cap, PTET elections, and state-level planning strategies.

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

What changed: Section 199A is made permanent, preserving the 20% deduction for qualified pass-through income. The phase-in thresholds for specified service trades or businesses (SSTBs) increase to $150,000 (joint) and $75,000 (single). A $400 minimum deduction is now available for eligible companies with at least $1,000 in QBI.

Why it matters: This ensures continued tax benefits for small business owners, independent contractors, and professionals in eligible trades.

To plan: Evaluate entity choice and compensation structure to optimize QBI benefits. SSTBs should monitor income relative to phase-in thresholds and explore retirement contributions or income deferral strategies.

11. Repeal of Section 68 Itemized Deduction Limitation and Introduction of Uniform Cap for High-Income Taxpayers

What changed: The One Big Beautiful Bill permanently repeals the Pease limitation, which previously reduced itemized deductions for high-income taxpayers by 3 percent of income above certain thresholds. In its place, the new law limits the tax benefit of itemized deductions to $0.35 per dollar deducted for taxpayers in the top income bracket, effective beginning in 2026. This simplified cap applies to all itemized deductions, including SALT, mortgage interest, and charitable contributions.

Why it matters: By capping the value of deductions instead of phasing them out, the new rule provides clarity and predictability. While the limitation still affects high earners, it avoids the complexity and stealth tax effect of the former Pease formula.

To plan: Taxpayers near the top marginal bracket should work with advisors to evaluate the real after-tax value of their deductions under the new cap. Strategic adjustments may include timing of deductions, use of donor-advised funds, or reallocating between deductible and nondeductible outflows.

12. Section 530A Tax-Preferred Savings Accounts for Minors

What changed: New tax-advantaged savings vehicles, dubbed “Trump Accounts,” are created for minors. Contributions are tax-deferred, with a $1,000 federal match provided annually between 2025 and 2028. Withdrawal restrictions apply until age 18 unless used for qualified educational or health expenses.

Why it matters: These accounts are designed to foster savings among children and young adults, particularly in low- to middle-income families. The federal match creates an incentive for early financial literacy and participation.

To plan: Parents and guardians should consider contributing annually to maximize the federal match. Monitor compliance with withdrawal rules to avoid penalties. Financial institutions may begin offering specialized custodial account structures to facilitate participation.

13. 529 Plans

What changed: The annual limit for distributions to cover K–12 tuition has doubled—from $10,000 to $20,000 per beneficiary. Additionally, qualified expenses now include a broader range of educational and vocational expenses, such as online learning materials, tutoring fees, educational therapies, dual enrollment fees for college courses, and fees for acquiring or maintaining professional credentials.

Why it matters: These enhancements reflect a growing acknowledgment that education extends beyond traditional college paths. Families now have greater capacity to use tax-advantaged savings to support a wider variety of academic and career-building pursuits. The increased cap for K–12 expenses also provides relief to families facing rising tuition costs at private and parochial schools.

To plan: Account holders should revisit their savings goals and contribution strategies in light of the expanded uses. Consider adjusting automatic contributions to take advantage of the higher distribution limits if paying for K–12 tuition. Those considering alternative education paths—such as trade schools or homeschool curricula—should verify that their anticipated expenses qualify under the new rules.

Business & Nonprofit Provisions

1. Bonus Depreciation

What changed: The bill reinstates and makes permanent 100% bonus depreciation for qualified property placed in service after January 19, 2025. It also expands the definition of bonus-eligible assets to include qualified production property such as tooling and molds used in manufacturing.

Why it matters: Bonus depreciation allows businesses to deduct the full cost of qualifying assets in the year placed in service, rather than depreciating them over time. This improves cash flow and incentivizes immediate reinvestment in productive equipment.

To plan: Businesses anticipating significant capital expenditures should schedule purchases on or after the effective date. Careful documentation of in-service dates and asset classification will be essential. Firms should coordinate depreciation strategy with broader financing plans to optimize tax efficiency.

2. Section 179 Expensing

What changed: The maximum expensing limit under Section 179 increases to $2.5 million, with a phaseout threshold starting at $4 million. Moving forward, these amounts will be indexed for inflation.

Why it matters: Section 179 is a critical tool for small and midsize businesses to write off the full cost of specific tangible personal property and off-the-shelf software. The limit increase ensures broader applicability and reduces the chance of hitting the phaseout cap.

To plan: Businesses should evaluate their expected equipment and software investments and model out Section 179 usage against available bonus depreciation. Planning purchases within the qualifying year and below the phaseout range will ensure full deductibility.

3. R&D Expensing (Section 174)

What changed: The bill restores the ability to immediately expense domestic research and experimental (R&E) expenditures beginning in 2025. Small businesses may also apply this treatment retroactively for tax years 2022 through 2024. Foreign research must still be amortized over 15 years.

Small businesses are defined as those with less than $31M of gross receipts for the first year beginning in 2025. Larger businesses can elect to expense the remaining unamortized R&D from 2022 to 2024 over one or two years starting in 2025.

Why it matters: This eliminates the burdensome amortization rule imposed in 2022, allowing companies to better match R&D expenses with revenue. It also supports innovation and reduces compliance costs.

To plan: Companies should properly separate domestic and foreign R&D expenditures in their accounting systems. Amending prior returns for retroactive application could yield refunds or tax savings. Advisors should review eligibility carefully before proceeding with amended filings.

4. Interest Deduction Limitation (Section 163(j))

What changed: The limitation on business interest expense deductibility permanently reverts to an EBITDA-based formula rather than EBIT. This change allows depreciation and amortization to be added back when calculating the 30% cap.

Why it matters: EBITDA-based calculations allow businesses to deduct more interest expense, particularly in capital-intensive sectors. This supports expansion and financing flexibility.

To plan: Companies with significant debt or planned leverage should recalculate interest deductions using the new formula. Modeling should include anticipated changes in EBITDA and asset purchases.

5. Employer-Provided Childcare Credit

What changed: The credit for employer-provided childcare services increases from 25% to 40% of qualified expenses, with an expanded limit of $500,000 in fees ($600,000 for businesses with fewer than 50 employees).

Why it matters: This provision incentivizes businesses to support employees through direct child care services, aiding workforce participation and retention.

To plan: Employers should assess the viability of offering on-site childcare or contracting with third-party providers. Those already offering support should ensure costs are properly documented and eligible under IRS guidelines.

6. Qualified Small Business Stock (QSBS)

What changed: The bill modifies Section 1202 to retain the 100% exclusion for gains on Qualified Small Business Stock but introduces tiered exclusions for shorter holding periods. Taxpayers now qualify for a 50% exclusion after three years, 75% after four years, and 100% after five years. The gross assets threshold for a business to qualify as a “small business” is also raised to $75 million.

Why it matters: Qualified Small Business Stock offers a powerful tax incentive for investors and founders in early-stage companies by excluding capital gains on the sale of eligible stock. The tiered approach provides earlier partial relief while preserving the maximum benefit for long-term holders. The raised asset threshold expands eligibility to a broader range of growing businesses.

To plan: Founders and investors should review stock issuance documentation to ensure it meets the statutory requirements at the time of issuance. Holding period tracking should be carefully maintained to determine which exclusion level applies. Businesses nearing the gross assets threshold should consult with tax advisors before purchasing new capital or significant assets.

7. Unrelated Business Income Tax (UBIT) Modernization

What changed: The Senate-approved version of the One Big Beautiful Bill (OBBB) treats expenses for qualified transportation fringe benefits incurred by tax-exempt organizations as unrelated business taxable income (UBTI), effectively codifying the prior disallowance under the Tax Cuts and Jobs Act (TCJA). A specific exception is provided for church organizations. This change is effective for amounts paid or incurred after December 31, 2025

Why it matters: Although the provision doesn’t overhaul the broader UBIT framework, it reintroduces the inclusion of certain fringe benefit expenses as UBTI. This reimposes compliance requirements that some organizations may have set aside after the TCJA provision expired. Organizations previously exempt from UBIT for transportation benefits will need to revisit their reporting practices.

To plan: Tax-exempt organizations should assess whether they provide qualified transportation fringe benefits (e.g., transit passes, parking) and determine the potential tax impact starting in 2026. Church organizations are explicitly exempt, but others may need to resume UBTI reporting and consider cost or benefit changes. Consultation with a nonprofit tax advisor is advised to ensure compliance and evaluate options.

Clean Energy Credit Changes

1. Termination of Federal Clean Energy Credits

What changed: The OBBB terminates or phases out a wide range of clean energy credits introduced under the Inflation Reduction Act (IRA). Key provisions include:

• • • EV and clean vehicle credits (Sec. 30D and 25E) sunset after September 30, 2025
    • Residential energy credits (Sec. 25C and 25D) end December 31, 2025
    • Commercial energy efficiency deduction (Sec. 179D) ends for projects begun after June 30, 2026
    • Hydrogen, sustainable aviation fuel, and clean electricity credits phase out by 2027 or 2028

Why it matters: The rollback of federal support significantly alters the economics of green investments, especially for developers and individual homeowners. Many taxpayers will need to accelerate projects to benefit.

To plan: Taxpayers considering solar, EV, or energy-efficient improvements should complete purchases or construction before expiration deadlines. Businesses should model ROI scenarios without the credits and investigate whether state-level incentives may supplement the loss.

International Provisions

1. Reform and Rebranding of GILTI and FDII

What changed: GILTI is renamed “Net CFC Tested Income,” and FDII becomes “Foreign-Derived Deduction Eligible Income.” The deduction rates are reduced to 40% (GILTI) and 33.34% (FDII), raising effective U.S. tax rates on foreign earnings.

Why it matters: These changes increase the U.S. tax burden on multinational companies’ foreign earnings. The renaming aims to reflect a more neutral tax base, but the lower deductions translate into higher tax obligations.

To plan: Multinational firms should reevaluate their international structures, IP location strategies, and tax credit optimization. Forecasting and compliance systems must also be updated to accommodate the new definitions and rates.

2. Base Erosion and Anti-Abuse Tax (BEAT)

What changed: The BEAT rate is locked in at 10.5%, preventing a scheduled increase to 12.5%. However, the bill eliminates certain exceptions and broadens the base, making the tax applicable to a broader range of payments.

Why it matters: While the rate is lower than initially planned, the broadened application increases exposure, especially for U.S. subsidiaries of foreign multinationals and businesses making large cross-border payments.

To plan: Companies should analyze payment flows to foreign affiliates and third parties to identify BEAT exposure. Legal structures and transfer pricing arrangements may need revisited to mitigate risk.

3. Qualified Opportunity Zones: Permanence and Reforms

What changed: Qualified Opportunity Zones (QOZs) become a permanent fixture of the tax code, with new rules allowing rolling 10-year designations starting in 2027 and enhanced reporting requirements.

Why it matters: Permanency increases the utility of QOZs as long-term investment vehicles. However, enhanced compliance may limit speculative use or loosely governed structures.

To plan: Investors and fund managers should monitor the release of updated zone maps and qualification criteria. Real estate and private equity funds should align acquisition timelines and reporting processes with the new framework.

Strategic Considerations and Outlook

The One Big Beautiful Bill Act marks a significant shift in tax policy, blending long-term certainty with targeted relief. By locking in lower individual tax rates and extending business incentives, the law enables taxpayers to plan more confidently. Key changes, such as enhanced deductions, revised international rules, and phased credit terminations, make 2025 a critical year for proactive tax planning. Individuals and businesses should engage early with advisors to ensure timely action and long-term benefit.

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The IRS has recently released Form 7217, “Partner’s Report of Property Distributed by a Partnership,” as well as the accompanying instructions, reflecting a new reporting requirement for partners in investment partnerships, among others, for tax years beginning in 2024 or later.

This new reporting requirement applies to any partner in any partnership that receives from the partnership distributions of property other than cash and marketable securities treated as cash. In the context of investment partnerships, it applies to investors in private equity, venture capital, and hedge funds that make in-kind distributions of securities or other property. In addition, funds of funds that receive such distributions will also need to prepare this form. This requirement could also come into play in the context of fund restructurings, such as the formation of continuation funds.

Tax-Free Distributions from Investment Partnerships

Investment partnerships that meet certain requirements can distribute marketable securities to partners on a tax-free basis. The recipient partner can defer income recognition until the securities are later sold. Other partnerships are required to treat marketable securities as cash, resulting in more immediate tax consequences.

Each partner receiving a tax-free distribution of property, including marketable securities from an investment partnership, is required to file the new Form 7217. A separate Form 7217 is required to be filed for each date during the tax year in which a distribution was received and will be attached to the recipient’s tax return. The information reported must include the basis of the distributed property and any required basis adjustments to such property.

Insights

This new filing requirement is part of the IRS’s increased scrutiny of partnerships and basis-shifting transactions.  Fund managers should be prepared to receive additional requests from limited partners as they comply with Form 7217 reporting.

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This article outlines practical, accounting-informed strategies to help you make smart financial moves as your company grows.

1. Review Entity Structure as You Scale

As your business grows, your current structure may no longer serve you effectively. For instance, sole proprietorships and partnerships often result in higher self-employment taxes, which can limit profitability.

Many businesses transition to an S corporation or Limited Liability Company (LLC) to improve tax efficiency. S Corporations allow owners to take a portion of income as distributions rather than wages—potentially reducing self-employment taxes.

Accounting Tip: Evaluate how much of your income can be shifted into distributions without triggering IRS scrutiny. Review reasonable compensation standards annually with your CPA.

2. Use Section 179 and Bonus Depreciation for Asset Investments

Business expansion often comes with major investments—whether in equipment, technology, or vehicles. Instead of spreading the cost over several years through standard depreciation, you can take advantage of Section 179 and the 40% bonus depreciation rules to deduct a significant portion of the expense in the year the asset is placed in service.

In 2025, bonus depreciation remains at 40%, but it’s scheduled to phase out gradually in the coming years. That makes the timing of your purchases a powerful tax planning strategy.

Accounting Tip: Ensure purchases qualify for accelerated depreciation. Keep detailed records of asset costs, dates placed in service, and business use percentages to support your deductions.

3. Maximize Tax Credits Before Year-End

Don’t leave money on the table. Federal tax credits can reduce your tax bill dollar for dollar. Some of the most impactful credits for expanding businesses include:

• R&D Tax Credit – Qualifying activities include developing or improving products, processes, or software. While related costs must now be amortized over five years, the credit still offers valuable, immediate tax savings.
• Work Opportunity Tax Credit (WOTC) – Hiring employees from targeted groups (e.g., veterans or long-term unemployed) can trigger credits up to $9,600 per hire. WOTC is currently authorized through December 31, 2025.
• Energy-Efficient Commercial Building Deduction (Section 179D) – For upgrades that improve HVAC, lighting, or insulation.

Accounting Tip: Credits require timely documentation and sometimes certification. Your accountant can help ensure eligibility and maximize value.

4. Plan for Multi-State Tax Compliance

Expanding into new states—whether through remote employees, sales, or physical presence—can create nexus, meaning you may owe income, franchise, or sales taxes in those states.

Each state has its own rules. Failing to register or file can result in penalties or interest.

Accounting Tip: Your accounting team should run a nexus study annually. They’ll use revenue data, payroll records, and inventory locations to assess exposure and file accordingly.

5. Create a Tax-Efficient Reinvestment Strategy

Unexpected tax bills can quickly drain cash flow from growth. Work with your accountant to estimate quarterly tax payments and set aside reserves throughout the year.

Then, consider reinvestment strategies that also offer tax benefits—like funding retirement plans (e.g., SEP IRAs, solo 401(k)s), providing health insurance or fringe benefits, or reinvesting in new product development.

Accounting Tip: A cash flow forecast that includes tax liability projections is a powerful tool for decision-making. Revisit this model quarterly as your business grows.

Scaling Smart: Let Tax Strategy Fuel Your Growth

Tax planning is not just about avoiding problems—it’s about uncovering opportunities. Strategic accounting during growth phases can minimize taxes and maximize reinvestment potential.

Don’t wait until tax season. A proactive approach—grounded in accurate financials and strategic foresight—sets the foundation for sustainable, profitable scaling.

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Many individuals want to provide financial assistance to family members to help them experience the joys and pride of home ownership. From aiding grandchildren to purchase their first homes to empowering children or other loved ones to build their personal balance sheets through investing in residential real estate, there are many options to explore regarding how financial support is best provided. Each approach has tax implications, and determining the best approach will require consideration of a number of factors, including:

• Whether the residence is already owned by the family or is being newly acquired;
• The anticipated growth of the home’s value;
• The expected period of time that the family will own the home; and
• The availability of attractive bank financing terms.

This article explores some of the options that may be considered and identifies some of the tax implications that should be evaluated.

Navigating Estate and Gift Tax Exemptions

The estate and gift tax lifetime exemption is currently $13.61 million for individuals and $27.22 million for married couples, under the Tax Cuts and Jobs Act (TCJA), but it is set to be reduced to an estimated $7 million per person beginning January 1, 2026. If the value of your residential real estate is a significant component of your personal balance sheet, transferring those assets outside of your estate may be a prudent way to take advantage of the higher lifetime exemption before the TCJA estate tax provisions sunset.

The Generation-Skipping Transfer Tax

In addition to the estate and gift tax, the generation-skipping transfer (GST) tax often comes into play when wealth owners wish to transfer real estate, like vacation properties or second homes, to younger family members. GST tax is imposed on wealth transfers to grandchildren and more remote descendants that exceed the exemption limits so individuals cannot avoid transfer taxes by “skipping” a generation. The GST tax is levied in addition to gift or estate taxes and is not a substitute for them. The exemption for the GST tax is also $13.61 million per person and the exemption may be applied to gifts during lifetime or transfers through the grantor’s estate. The GST tax exemption is also scheduled to sunset at the end of 2025 and will be lowered to $7 million per person in 2026.

Gifting as a Means to Support Home Ownership

Many individuals consider offering a “deal” to their loved ones by pricing the residence at a level their family member can afford, below the current market rate. However, this situation can create a tax filing obligation because the IRS considers any transfer of assets for less than full and adequate consideration than would be paid “between a willing buyer and a willing seller” (Treas. Reg. §20.2031-1) to be a gift. A gift tax return must be filed to disclose the gift to the IRS, and it must include a qualified appraisal as of the transfer date if the delta between the transfer price and the market value of the gift is higher than the annual exclusion ($18,000 for 2024). When the total value of all gifts made throughout an individual’s life exceeds the lifetime exemption amount (again, currently set at $13.61 million per person), then a 40% gift tax will be assessed on the excess of the total over the lifetime exemption amount.

Rather than gifting an entire property, wealth owners can make a cash gift to a beneficiary to cover the down payment, the monthly mortgage, property tax, insurance payments, maintenance and repair costs, and more. As mentioned above, the Internal Revenue Code provides an annual gift exclusion that allows individuals to give up to $18,000 in 2024 to as many people as they’d like without incurring gift taxes. If the gift is solely in cash, does not exceed the annual exclusion amount, and there are no other gifts to report for the year, a gift tax return is not required.

Gifting Real Estate Through Trusts

Using trusts to gift real estate is a technique often used in estate planning, as many trusts include provisions that allow the trustee to make discretionary distributions to or on the beneficiary’s behalf for health, education, maintenance, and support. The ongoing costs of home ownership, such as real estate taxes, insurance, mortgage payments, and home repairs can fall within the maintenance and support standard, to assist beneficiary’s with home ownership expenses.

Some types of trusts can be structured to continue for several generations, allowing a wealth owner to provide for home ownership even for decedents who are not yet living at the time the trust is created, if desired. This is done by allocating the GST exemption to the trust. Some trusts qualify for the $18,000 annual gift exclusion too, if there is a single beneficiary and all the assets and income go to the beneficiary or their estate.

Using estate planning techniques like a qualified personal residence trust (QPRT) may allow individuals to transfer a residence to their children, and still allow that individual to live in the home.  In addition to reduced transfer taxes, any future appreciation in the residence after the QPRT is established is transferred to children without being subject to additional transfer tax. Learn more about QPRTs here.

Living Arrangements and Reduced Rent Options

If you already own the home you want to gift or transfer, you could consider allowing a family member to live there rent-free or at a reduced rent. An annual gift tax return may be required if the market value of the reduced rent is higher than the annual exclusion, but a key advantage of this approach is that if you intend to transfer the property to the beneficiary upon your passing, maintaining the asset within your estate ensures it will benefit from a step-up in basis. This is an attractive option for a home that has a very low basis and has appreciated significantly over many years of ownership.

Loan Options for Home Purchase Assistance

Another option you can consider is loaning your family member the money to purchase the home from you at fair market value. However, there are protocols that must be followed to avoid running afoul of IRS regulations. Such loans must be formally documented, and payments made according to the terms of the agreement. Interest rates on related-party loans must be set, at a minimum, at the interest rate provided by the IRS in monthly published Revenue Rulings (known as the Section 7520 rates), and other arm’s length terms must be observed.

Of course, the grantor could forgive part of the loan at any point during the loan term. If the loan forgiveness amount is $18,000 or less per year, then it should qualify for annual exclusion gifting and not reduce the grantor’s lifetime estate and gift exemption.

However, it’s important to avoid a predetermined arrangement for forgiving the loan annually under the annual exclusion, as the IRS might view this as a single gift made in the first year, resulting in an inadvertent reduction of the donor’s lifetime exemption.

Financing Strategies for Home Purchases

Many families have relationships with their banking partners that allow them to obtain favorable interest rates or terms. In addition, they may own other assets, such as brokerage accounts, that may be used as additional collateral to support a loan, although it would not be advantageous to sell those assets. Using such assets as collateral usually entails the addition of restrictions that prevent the disposition of the assets while being held for collateral without prior authorization from the financial institution. A parent or grandparent can serve as a personal guarantor on the loan between the beneficiary and the bank, but there may be a gift value to a personal guarantee, and consideration should be given as to whether this triggers a gift tax filing requirement.

Consulting with Advisors for Tailored Strategies

As you can see, there are many ways in which wealthy individuals may offer to help loved ones achieve home ownership or favorable living arrangements. Talking with your advisors will help determine which options accomplish your goals while utilizing tax-efficient strategies. We can address your inquiries and assist in crafting a personalized strategy that enables you to transfer your wealth not merely as a gift but with meaningful intent and purpose, aligning with your family’s home ownership goals and financial well-being.

Written  by Abbie M.B. Everist. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com

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Individual Tax Planning

Change is constant, which means your tax strategy needs to evolve year after year as laws and policies change. This guide includes tax planning highlights and considerations for federal tax planning.

Business Tax Planning

Tax planning remains crucial for businesses seeking to maximize cash flow by effectively managing their long-term tax responsibilities. Below are year-end guides on various tax topics that impact business tax planning.

State and Local Tax

Discover expert insights and practical guidance for companies with 2023 year-end SALT planning and get a head start on your 2024 planning in this article.

Partnerships

The IRS has actively challenged partnerships’ tax positions in court over the past year, and the agency is dedicating funding and resources to examine partnerships further. There are a number of tax implications partnerships should consider, and they should plan for year-end and beyond. Here’s what you should be looking into.

Real Estate

When it comes to real estate transactions, understanding the tax implications is crucial. As we approach the end of the year and prepare for the year ahead, real estate businesses should take the time to review how current tax rules apply to their transactions. This guide will help you plan ahead and ensure your real estate transactions are structured in the most advantageous way possible.

Financial Transactions

Failing to understand the tax rules for financial transactions and instruments and how they apply to your business can be detrimental. Thankfully, companies can take some steps over the year to ensure they are compliant. Follow these considerations as part of your year-end tax planning.

Business Incentives & Tax Credits

Quite a few tax incentives and credits have been getting a lot of hype over the past few years. Here are a few you can consider including in your tax strategy for your business.

Tax Accounting Methods

Tax accounting methods determine when a taxpayer’s income is recognized and costs are deducted for tax purposes. To drive tax savings, taxpayers should strategically adopt or change tax accounting methods. However, the rules are complex. That is why we put together this guide on what you should consider for 2023 and 2024.

Each guide provides information and insights on what to consider for your year-end tax planning. As you examine your tax strategy, the Walter Shuffain team is available to answer your questions. Don’t hesitate to contact us!

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