Revised Federal and State (Ohio) Tax Provisions Provide Guidance for Estate Planning Purposes

After a substantial amount of debate, both the United States Congress and Ohio General Assembly have completed their budget bill process for 2025. While neither bill was without controversy, when it comes to the tax provisions of each bill, the key word for taxpayers to take away is certainty. Of course, the Internal Revenue Code remains highly complex, but after nearly a decade of taxpayers navigating the possible expiration of the major components of the 2017 Tax Cuts and Jobs Act (TCJA), many of those provisions have now been made permanent, stabilizing the ground from which to make estate and tax planning decisions. 

This First Alert highlights major tax provisions of both the federal and state budget acts, and offers first suggestions for taxpayers moving forward. 

Federal Tax Provision Updates

Estate, Gift, and GST Tax

• The Lifetime Exemption is increased to $15 million per person starting in 2026 and indexed for inflation from 2026 forward. This represents an increase of just over $1 million from the 2024 Lifetime Exemption of $13.99 million.
• With proper planning and potential use of a portability election, married couples with combined assets totaling $30 million or less can avoid estate taxes, unless their lifetime net worth increases beyond this limit (more on that below).

Income Tax

• The brackets established by the TCJA are retained ranging from 10% to 37%, with the income thresholds indexed for inflation (in 2024 the 37% bracket commences at $609,351 for single filers and $731,201 for married filing jointly).
• Individual AMT Exemption amounts are made permanent and indexed for inflation.
• The increased standard deduction from TCJA is made permanent and indexed for inflation.
• The SALT deduction cap is temporarily raised from $10,000 to $40,000 through 2029, with phased out deduction for individuals earning more than $500,000 ($250,000 for married filing separately).
• The Qualified Business Income Deduction from a pass-through entity is permanently fixed at 20%, and the deduction limit phase-in increases to $150,000 (joint filers) or $75,000 (single filers) for high income earners.
• The asset limitation for a Qualified Small Business for those who invest in Qualified Small Business Stock (QSBS), is increased to $75 million, and the applicable gain exclusion is increased to $15,000,000, indexed for inflation. QSBS held for three (3) years receives a 50% gain exclusion; QSBS held for four (4) years receives a 75% gain exclusion; and QSBS held for at least five (5) years receives a  100% gain exclusion.
• The Opportunity Zone program, establishing a rolling ten (10) year period to determine qualified opportunity zone, is made permanent in the Internal Revenue Code, while narrowing eligibility. The basis adjustment on positions held at least ten (10) years is capped at the fair market value on the thirty (30) year anniversary.

Charitable

• The non-itemized charitable deduction is made permanent and is set at $1,000 for single filers and $2,000 for married taxpayers filing jointly.
• For those who itemize deductions, charitable deductions are allowed only to the extent they exceed 0.5% of the taxpayer's contribution base, with some possibility of rolling over the excess. An additional reduction applies to taxpayers in the top tax bracket. Some of these rules may also be applicable to trusts acting as donors, such that utilizing trusts for charitable planning may decrease or increase the deductibility of donations. For taxpayers in the top income tax bracket, charitable giving must be strategically planned going forward to maximize the deductibility of the donation.

Ohio Tax Provision Updates

• The Ohio General Assembly instituted a flat tax rate starting in 2026, capping the tax on income above $26,050 at 2.75%.
• Property Taxes in Ohio remain less certain. The General Assembly passed several items aimed at lowering property taxes, including a provision to allow districts that had already lowered property taxes to the floor to go further in doing so, but this and other provisions were vetoed by Ohio Governor DeWine. It is possible that the Fall session of the General Assembly will include further efforts to override these vetoes.

Key Takeaways for Clients

• With the sunset of the elevated Estate, Gift, and GST Tax Exemptions now off the table, clients can proceed to consider how the new Exemption limits impact their planning.
• Clients who have used most or all of their current Exemption will have over $1 million more to use starting next year. Additionally, with rumors of interest rate cuts on the horizon, these clients should consider options such as a Grantor Retained Annuity Trust (GRAT) or a Charitable Lead Annuity Trust (CLAT) to transfer wealth downstream with minimal use of Estate or Gift Tax Exemption. 
• Clients who have not used a substantial amount of their lifetime Estate, Gift, or GST Tax Exemption, but with the means to do so, are still encouraged to work with their advisor and counsel to do so. Gifting early means that future appreciation on the gifted assets will not count against you for Estate and/or Gift Tax purposes. 
• Clients whose net worth is near the total available Estate, Gift, and GST Tax Exemptions should consider options such as a Grantor Retained Annuity Trust (GRAT) or a Charitable Lead Annuity Trust (CLAT) in order to transfer wealth downstream and avoid the appreciation of assets pushing them over the limit and incurring Estate and GST taxes.
• Clients with charitable intent should consult with their CPA, advisor, and counsel regarding the new rules on charitable gifting, in order to maximize the impact and the deductibility of their charitable activities.