The 2025 reconciliation bill signed into law on July 4, 2025, (commonly referred to as the “One Big Beautiful Bill Act” or “OBBBA”), brings sweeping changes, including higher SALT caps, new charitable limits, and the early expiration of popular energy credits. In addition, the IRS has released new guidance on research expenses, and major international tax changes are set to take effect in 2026. These developments create both opportunities and new limits, and some require action before year-end.

This three-part series outlines several time-sensitive provisions to discuss with your clients that may impact their 2025 tax planning.

Charitable Giving: Actions to Take Before Year-End

• Charitable deductions made after Dec. 31, 2025, will be subject to new limitations. Accelerating or frontloading contributions before year-end may preserve tax benefits, especially through a donor-advised fund (DAF) or private foundation. Donating long-term appreciated stock avoids capital gains tax and gives a deduction at fair market value. However, if the tax rate is expected to be higher in future years, deferring may provide a larger long-term benefit.

• Beginning in 2026, a 0.5 percent AGI floor will apply before any charitable deduction made by individuals is allowed. The portion disallowed under this new floor is permanently lost, unless the same contribution is also limited under the existing 20/30/60 percent AGI caps, in which case the carryforward rules apply. Note that this limitation does not apply to trusts, which provides a potential planning opportunity to make contributions through a non-grantor trust, assuming the trust allows for it.

• Also beginning in 2026, itemized deductions will be reduced by 2/37 of the lesser of total itemized deductions or the amount by which a client’s taxable income exceeds the start of the 37 percent bracket ($626,350 single/$751,600 joint in 2025). Itemized deductions generally include medical expenses above 7.5 percent of AGI, state and local taxes, mortgage interest, investment interest expense, and charitable contributions.

• One way to avoid these new charitable limits is through Qualified Charitable Distributions (QCDs) from IRAs, which remain available for those age 70.5 and older. QCDs allow up to $108,000 per individual per year (2025 limit, adjusted annually for inflation) to be transferred directly to charity. These distributions are excluded from income and not treated as an itemized deduction, so they do not increase AGI and avoid the new charitable limits taking effect in 2026. In addition, QCDs count toward satisfying required minimum distribution (RMD) for the year and may help reduce Medicare premiums and other AGI-based phase-outs.

• The larger standard deduction amounts are now permanent ($31,500 joint/$23,625 head of household/$15,750 single or married filing separately in 2025). Taxpayers near these thresholds may want to bunch itemized deductions into certain years.

• Starting in 2027, contributions to qualified scholarship-granting organizations may provide a federal credit of up to $1,700 per taxpayer per year, subject to IRS guidance. Unlike a deduction, this credit reduces a taxpayer’s tax liability dollar-for-dollar, is available whether or not they itemize, and is not subject to the new charitable or overall itemized deduction limits.

SALT and PTET

• The state and local tax (SALT) deduction cap rises from $10,000 to $40,000 for tax years 2025 through 2029, but phases back down to $10,000 with modified adjusted gross income (MAGI) between $500,000 and $600,000 (For those who are married filing separately, the cap is $20,000 and phases down to $5,000 at MAGI between $250,000 and $300,000). The cap reverts to $10,000 in 2030. Note that the deductible amount may also potentially be subject to the overall limitation on itemized deductions discussed above.

• The Pass-Through Entity Tax (PTET) remains a valuable workaround for owners of passthrough entities, since taxes paid at the entity level are not subject to the SALT cap. While many states have adopted their own PTET regimes, the details vary significantly. For example:

  • California: The PTET has been extended through 2030 (previously set to expire after 2025). The election itself is made on the timely filed tax return, but a June 15 prepayment (greater of 50 percent of the prior year PTET or $1,000) is required to preserve eligibility. For tax years 2024 and 2025, failure to make the required June 15 payment (or to pay enough) means the entity cannot elect in at all. Beginning in 2026, the election will still be available even if the June 15 installment is short or missed, but each owner’s PTET credit will be reduced by 12.5 of the shortfall.

  • New York: The PTET program has no expiration date, but the election must be made online through the NY Business Online Services portal by March 15 of the tax year. Estimated tax payments are due quarterly, and the annual PTET return is due the following March 15. A six-month extension to file is available, but it must be submitted separately via the same online portal and is not covered by the entity’s regular New York tax return extension. For New York City residents, New York City additionally offers its own PTET program that mirrors New York State’s program.

Planning note: Even with the temporary $40,000 SALT cap, PTET elections may still be valuable because these deductions generally reduce federal AGI, which can lower exposure to the net investment income tax and other AGI-based limitations.

Expiring Energy Credits: Key 2025 Deadlines

Clients considering energy improvements or EV purchases should act quickly to capture these benefits before they expire, since most provisions terminate earlier than previously scheduled.

• Those considering installing solar panels, battery storage or other clean energy systems for personal residence, the credit (30 percent of the project cost including installation) expires for property not placed in service by Dec. 31, 2025. Prepayment alone does not preserve eligibility.

• Energy-efficient upgrades such as windows, doors, HVAC, water heaters and insulation on a personal residence also qualify only if placed in service by Dec. 31, 2025. These carry an annual maximum credit of $3,200, with specific individual category limits. Additions generally must be Energy Star certified to qualify.

• Solar panels installed on residential rental or commercial buildings may qualify for the business energy credit, but only if placed in service by Dec. 31, 2025. In addition, the Section 179D commercial building energy-efficient deduction (covering HVAC, lighting and building envelope upgrades) expires for projects that begin construction after June 30, 2026.

• To qualify for the EV credit, new or used vehicles must be purchased or leased by Sept. 30, 2025. Unlike the other energy credits above, the EV credit is subject to income limits: it phases out above $150,000 (single) and $300,000 (joint) for new vehicles, and $75,000 (single) or $150,000 (joint) for used vehicles.

In Part 2, we look at what the OBBBA means for depreciation and expensing for real estate & business assets; estate and gift planning; research & experimental (R&E) expenses; and international tax changes.

Any tax advice in this communication is not intended or written by Navolio & Tallman LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer, or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this newsletter, Navolio & Tallman LLP is not rendering any specific advice to the reader.