How the Permanent Estate Tax Exemption Changes Planning for Real Estate Investors and Business Owners

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law. Among its provisions, the OBBBA permanently increased the federal estate and gift tax lifetime exclusion and made the Generation-Skipping Transfer Tax exemption permanent as well. Starting in 2026, the exclusion is $15 million per individual and $30 million for married couples filing jointly. Inflation adjustments begin in 2027.

The OBBBA did not make estate planning simpler. It made the planning framework stable, and for investors with significant real estate and business equity, that stability has real planning value.

For real estate investors and business owners in the NJ/NY market, the practical implications depend entirely on the size and composition of the estate. Understanding exactly what changed, what did not, and where the new framework creates genuine opportunity is the starting point for any updated wealth transfer conversation.

What the OBBBA Established

Prior to the OBBBA, the elevated exemption created by the 2017 Tax Cuts and Jobs Act — approximately $13.99 million per individual in 2025 — was scheduled to expire on December 31, 2025, reverting to roughly $7 million per person adjusted for inflation. That expiration created urgency around wealth transfer planning that drove significant activity in 2024 and early 2025.

The OBBBA resolves that uncertainty permanently. The exemption does not revert. Starting in 2026 it increases to $15 million per individual and $30 million for married couples. It will grow with inflation from 2027 onward. Transfers already made using the elevated TCJA exemption are protected and not subject to clawback under the permanent law.

Key considerations

• The 2026 exemption is $15 million per individual — an increase from the 2025 TCJA level, not a preservation of it
• Married couples filing jointly can now transfer up to $30 million combined free of federal estate and gift tax
• Inflation indexing begins in 2027 — the exemption will grow over time
• Prior gifts made under the elevated TCJA exemption are fully protected — no clawback risk under the permanent law

What the OBBBA Did Not Change

The federal estate tax rate remains 40 percent on the value above the exemption. A real estate investor or business owner with an estate of $25 million faces 40 percent tax on the $10 million above the $15 million threshold — the higher exemption reduces exposure, but does not eliminate it for larger estates.

Stepped-up basis on inherited assets is unchanged. For real estate investors who have accumulated significant deferred gain through sequential 1031 exchanges, this provision continues to make long-term holding one of the most tax-efficient wealth transfer strategies available. At death, heirs receive a new basis equal to the property's fair market value at that date, permanently eliminating any deferred capital gain and recapture. This benefit is not the result of the OBBBA — it was in place before and remains in place after.

Key considerations

• The federal estate tax rate remains 40 percent on the value above the exemption
• Stepped-up basis for inherited real estate is unchanged — deferred 1031 exchange gains are permanently eliminated for heirs who inherit the property
• NJ does not impose a separate estate tax under current law — the planning focus for NJ investors is on federal exposure

The Urgency Has Shifted — But Planning Has Not Become Optional

The deadline urgency that characterized 2024 and 2025 estate planning is gone. Investors who deferred action because of legislative uncertainty can now proceed on a confirmed, stable foundation. Strategies that were rushed in anticipation of the sunset — trust funding, partnership transfers, direct gifts — may benefit from a review now that the framework is stable and the exemption is higher than the TCJA level.

For investors whose estates exceed $15 million per individual — or who expect appreciating real estate and business equity to push them above that threshold over time — the planning tools that reduce estate exposure remain fully available and relevant. Irrevocable trusts, family limited partnerships, charitable remainder trusts funded with appreciated real estate, and coordinated 1031 planning can all be deployed deliberately, without the distortion of an artificial deadline.

Key considerations

• Estate plans built entirely around sunset urgency should be reviewed — strategies accelerated under deadline pressure may have trade-offs worth reconsidering now
• Investors above or approaching the $15 million threshold still have meaningful federal estate tax exposure — planning remains consequential
• Investors well within the exemption may shift planning focus toward income tax efficiency — capital gains management, depreciation strategy, and stepped-up basis optimization

The Importance of Valuation for Business Owners

For closely held business owners planning wealth transfers under the new permanent framework, the higher exemption creates the ability to transfer more business equity without triggering estate or gift tax. But the precision of those transfers depends entirely on accurate, defensible valuations.

Without a current valuation, it is not possible to determine how much of the $15 million exemption is consumed by a given transfer, what minority interest discount for lack of control or marketability applies to the transferred interest, or whether a specific gift is sized appropriately. The OBBBA's higher exemption does not reduce the importance of independent business valuation for gift and estate tax purposes — it raises the dollar threshold at which that valuation becomes the binding constraint on the transfer strategy.

Key considerations

• A qualified independent appraisal is required to establish the fair market value of closely held business interests for gift and estate tax purposes
• Minority interest discounts for lack of control and lack of marketability reduce the taxable value of transferred interests — applied correctly, they allow more equity to be transferred within the exemption
• IRS scrutiny of gift transfers involving closely held businesses does not diminish under higher exemptions — defensible valuations remain essential audit protection

How to Choose the Right Approach for Your Situation

The appropriate response to the OBBBA depends on where the investor's estate stands relative to the $15 million individual exemption. For investors significantly below the threshold, the primary planning focus is income tax — managing capital gains, leveraging stepped-up basis at death, and optimizing depreciation strategy during the holding period. For investors above or approaching the threshold, wealth transfer strategies using the full available exemption deserve deliberate attention.

A $15 million permanent exemption is a meaningful foundation for estate planning. The investors who use it most effectively are the ones who plan around it deliberately — not the ones who assume its permanence means planning is no longer necessary.

Conclusion

The One Big Beautiful Bill Act, signed July 4, 2025, permanently established the federal estate and gift tax exemption at $15 million per individual and $30 million per married couple starting in 2026, with inflation adjustments beginning in 2027. The sunset urgency that drove much of 2024 and 2025 estate planning activity is resolved. The 40 percent tax rate above the exemption, stepped-up basis on inherited assets, and the importance of independent business valuations for gift transfers are all unchanged.

A structured planning discussion can review your current estate position against the permanent $15 million framework and identify which wealth transfer strategies are most appropriate given your portfolio, family objectives, and anticipated appreciation in real estate and business equity.

General Disclosure