OB3 reshapes tax planning for 2026; here’s how

The One, Big Beautiful Bill Act (OB3) carries forward many Tax Cuts and Jobs Act (TCJA) provisions that expired at the end of 2025, while introducing new rules that take effect in tax year 2026 and beyond. For tax professionals, that means fresh planning conversations with clients, from a dramatically higher SALT deduction cap to a new savings vehicle for children called a Trump account.

Here’s what you need to know.

SALT deduction cap jumps, but comes with a phase-down

The $10,000 cap on the state and local tax (SALT) deduction had hit taxpayers in high-tax states particularly hard. Under OB3, the cap rises to $40,000 for 2025 ($20,000 for married filing separately), with 1% increases each year through 2029. Higher earners face a phase-down. For 2026, the reduction begins once modified AGI exceeds $505,000 (half that for married filing separately), with the threshold also rising 1% annually through 2029. Even with the phase-down, the deduction won’t fall below $10,000, so no taxpayer ends up worse off than under the prior law. The cap is scheduled to revert to $10,000, with no phase-down, in 2030.

Planning opp: The higher cap means more clients will benefit from itemizing. Tax professionals may want to help clients time deductions and state tax payments strategically. For example, they could prepay real estate and state taxes in one year to maximize itemized deductions, then take the standard deduction the next. Note that OB3 left the pass-through entity tax workaround untouched, so entities in states offering that election should continue weighing its benefits.

Estate and gift tax exclusion rises to $15 million

Rather than sunsetting to roughly half of the 2025 amount, the estate and gift tax lifetime exclusion is now permanently set at $15 million for decedents passing in 2026, with 2026 as the new base year for inflation adjustments. The annual gift tax exclusion remains at $19,000 per recipient, and the rules around portability of a deceased spouse’s unused exemption are unchanged.

Planning opp: With far fewer taxpayers now facing estate tax exposure, many existing estate plans built around the old, lower exemption may be more complex than clients need. Simplifying those plans can reduce administrative burden and preserve the benefit of a second step-up in basis. For ultra high-net-worth clients engaged in lifetime gifting, this is also a good time to reevaluate their strategy, factoring in state-level gift and inheritance taxes, not just the federal exemption.

Clean energy credits and casualty loss rules

OB3 eliminated clean vehicle credits for vehicles purchased after September 30, 2025, along with the qualified commercial clean vehicle credit, although state incentives may still apply. Residential energy-efficiency credits ended for property placed in service after 2025, and the alternative vehicle refueling credit and energy-efficient commercial buildings deduction expire after June 30, 2026.

OB3 also made permanent the restriction limiting personal casualty loss deductions to federally declared disasters, while adding state-declared disasters to that list starting in 2026.

New reporting for tips and overtime

Two of the law’s most talked-about provisions, deductions for qualified tips and qualified overtime,  now have clearer reporting mechanics. The IRS has published a list of occupations, by three-digit code, whose workers customarily receive tips. On the 2026 Form W-2, qualified cash tips appear in Box 12 with code TP, and employers report the applicable occupation code in Box 14b. If code 000 appears with no other code in Box 14b, the tips aren’t qualified and shouldn’t be used to calculate the deduction.

For overtime, qualified compensation is defined using the Fair Labor Standards Act, which excludes some workers; for example, railroad employees governed by the Railway Labor Act. The 2026 W-2 will report the half-time premium portion of overtime pay in Box 12 with code TT, used to calculate the deduction on Schedule 1-A of Form 1040.

Itemized deductions see several changes

• Mortgage insurance premiums are once again deductible as of 2026, treated the same as mortgage interest, a benefit for homeowners making PMI payments. OB3 also rewrote the overall limitation on itemized deductions for top earners, capping the benefit at two-thirds of the lesser of itemized deductions or taxable income above the 37% bracket threshold.
• Educators get a boost, too The above-the-line deduction rises to $350 ($700 for joint filers who are both educators), with excess expenses now deductible as miscellaneous itemized deductions without an AGI limitation. Interscholastic sports coaches and administrators are now included as eligible educators.
• Gambling losses remain deductible only up to the person’s winnings, but the deductible portion is now capped at 90% of losses, a meaningful reduction for clients who gamble. 
• Non-itemizers can now claim a charitable deduction of up to $1,000 ($2,000 for joint filers), while itemizers face a new 0.5% AGI floor before charitable contributions become deductible, alongside the permanently extended 60% AGI limit for cash gifts.

Education, family, and child care benefits expand

Starting in 2026, Social Security numbers are required for taxpayers and dependents claiming the American Opportunity or Lifetime Learning credits, a change worth flagging for clients who use ITINs. On the family side, 529 plan distributions for K-12 expenses double from $10,000 to $20,000 annually, and the list of qualifying expenses expands to include tutoring, standardized test fees, dual enrollment costs, and therapies for students with disabilities.

The child and dependent care credit increases to $1,500 for one dependent and $3,000 for two or more, and employers offering child care benefits can now claim 40% (or 50% for qualified small businesses) of costs, up to $500,000 or $600,000, respectively. The dependent care assistance exclusion also rises, to $7,500 for most filers.

Premium tax credit repayment cap eliminated

Perhaps the most consequential change for many taxpayers has to do with healthcare. OB3 eliminated the cap limiting how much excess Affordable Care Act premium tax credit a taxpayer had to repay, previously based on income relative to the federal poverty level. Beginning in 2026, taxpayers must repay the full amount of any excess advance premium tax credit, regardless of income.

Planning opp: Tax professionals should proactively monitor clients with marketplace coverage, and encourage them to keep income and household information current with the marketplace, to avoid a repayment surprise at filing time.

QBI deduction made permanent, with new minimum benefit

The qualified business income (QBI) deduction is now permanent, with higher phase-in thresholds starting in 2026 at $150,000 for joint filers and $75,000 for other filers. A new minimum $400 QBI deduction applies to taxpayers who materially participate in a qualifying trade or business with at least $1,000 in aggregate business income, a welcome benefit for very small businesses.

Planning opp: Run projections for small-business clients on how earnings are allocated between wages, bonuses, and self-employment income.

AMT exposure grows for higher earners

The rate at which the alternative minimum tax (AMT) exemption phases out has doubled, from 25% to 50%, meaning more middle- and high-income taxpayers could face AMT liability without warning. Clients with incentive stock options, high SALT deductions (which remain disallowed under AMT), large capital gains, or private activity bonds are especially at risk and warrant closer review.

Trump accounts create a new savings vehicle for children

OB3 introduces Trump accounts, a pilot program encouraging investment for children born between 2025 and 2028. Eligible children with a Social Security number receive a one-time $1,000 federal deposit, which does not count against the $5,000 annual after-tax contribution limit. Contributions can come from family, employers (up to $2,500, deductible to the employer and excluded from employee income), or tax-exempt entities. Funds must be invested in a qualifying low-cost index fund, and the account converts to a standard IRA at age 18. Accounts are established using Form 4547, with more detail available at trumpaccounts.gov.

Planning opp: Some advisors note that beyond the federal deposit and employer contributions, other vehicles, such as 529 plans may offer more flexibility; it is worth weighing the effect on your clients on a case-by-case basis.

Watch for Social Security number requirements

Several 2026 provisions hinge on Social Security number eligibility, including  the child tax credit, tips and overtime deductions, the senior deduction, Trump account contributions, and education credits. Since the two look similar, tax pros should confirm whether clients and dependents have Social Security numbers or ITINs. ITINs always begin with 9, with the fourth and fifth digits falling in specific ranges.

Be the tax advisor your clients want … and need

The OB3 provided permanency to many TCJA provisions, while adding new limits, reporting requirements, and planning opportunities effective in 2026 and beyond. But more than that, it provided yet another opportunity to be a tax advisor to your clients.

 From the higher SALT cap and expanded estate exclusion to new tip and overtime reporting, eliminated premium tax credit repayment caps, and the debut of Trump accounts, the changes touch nearly every client relationship.

Tax professionals should help clients plan proactively rather than react at filing time. As the IRS continues issuing guidance, staying current will be essential throughout the year.