Estate Tax and Business Sale Planning After the OBBBA

In this article, Don James, CPA, of DJ Tax Solutions, explains how the One Big Beautiful Bill Act (OBBBA) changed the estate tax planning landscape for business owners. While the legislation removed much of the urgency surrounding the federal estate tax exemption, it also created new planning opportunities for business owners preparing to sell their companies or transfer wealth to the next generation.

A Permanent Exemption Replaces Years of Uncertainty

On July 4, 2025, the One Big Beautiful Bill Act became law and resolved years of uncertainty for closely-held business owners thinking about a sale or transition. The Act permanently set the federal estate and gift tax exemption at $15 million per individual ($30 million for married couples) beginning January 1, 2026, indexed for inflation thereafter. The exemption that had been scheduled to fall back to roughly $7 million at the end of 2025 is now permanently elevated and continues to grow with inflation.

For business owners weighing a sale or generational transition, this changes the planning landscape in several specific ways. This piece walks through what the new framework means for owners who are three to seven years from a liquidity event, which is when the most consequential planning decisions get made.

The Pressure to Rush Has Eased – But Has Not Disappeared

In the years before OBBBA, advisors urged HNW families to use the elevated $13.99 million 2025 exemption before it potentially halved at the end of the year. This drove a wave of compressed gifting, family limited partnership transfers, and irrevocable trust funding – much of it done under time pressure rather than from clear strategy.

With the exemption now permanently set at $15 million per person and rising with inflation, the artificial deadline pressure is gone. Owners who hadn’t yet acted no longer face the choice between hurried action and potentially losing access to the elevated exemption.

This is real relief, but it does not mean the planning conversation goes away. Several considerations remain:

• Future Congresses can change the law again. “Permanent” in tax legislation means “in effect until Congress changes it,” and the political environment may shift.
• For owners with estates well above $30 million per couple, the increased exemption helps but does not eliminate the estate tax problem. Planning to use available exemption and to remove appreciation from the estate remains valuable.
• State estate taxes still apply in approximately 18 jurisdictions. The state estate tax exemption in some of these states is much lower than the federal exemption, sometimes only $1 million to $2 million. A federal solution does not solve the state problem.
• Annual exclusion gifting (now $19,000 per donee in 2026) continues to be useful for shifting wealth and reducing the taxable estate gradually.

What Changed for Business Sale Planning Specifically

The OBBBA changes that matter most for owners planning a business sale or transition fall into three categories: the estate exemption itself, the expanded Section 1202 Qualified Small Business Stock rules, and the surrounding rate structure that determines how much of the sale proceeds the owner actually keeps.

Why This Matters for Business Owners

For owners contemplating a sale of a business in the $5 million to $50 million range, the higher and permanent exemption changes what pre-sale planning looks like.

Strategies that involve transferring business interests to family members or to trusts before sale – locking in lower valuations for transfer tax purposes while preserving the seller’s economic interest in some structures – remain valuable. With the exemption permanently elevated, these strategies can be done more deliberately rather than under deadline pressure.

A married couple with a $30 million combined exemption can transfer substantial business equity to grantor trusts for the next generation before the sale, removing future appreciation from the taxable estate. If the business is sold for a substantial gain after the transfer, the appreciation accrues to the trust rather than to the parents’ estate. Properly structured, this can save substantial estate tax at the parents’ eventual deaths without using more exemption than was already available.

This works best when planned several years before the sale. Last-minute transfers immediately before a sale face IRS scrutiny under the step-transaction doctrine and may not achieve the intended results. The new permanent framework gives owners the runway to do this work without rushing.

Expanded Section 1202 Opportunities

The OBBBA’s changes to Section 1202 (Qualified Small Business Stock) are arguably the most significant tax development for closely-held C corporation owners in recent memory. The changes apply only to QSBS issued after July 4, 2025, so the timing of stock issuance matters.

Three core changes:

• Tiered holding period. Previously, a full five-year holding period was required for any Section 1202 exclusion. The OBBBA introduces a tiered structure: three years for 50 percent exclusion, four years for 75 percent exclusion, and five or more years for 100 percent exclusion. For founders who may need liquidity earlier than five years, this is a meaningful improvement.
• Higher per-issuer cap. The exclusion cap rose from $10 million to $15 million per issuer (or 10 times basis, whichever is greater), indexed for inflation after 2026. This expansion benefits founders with larger gains.
• Larger qualifying corporations. The gross asset test limit for the issuing corporation rose from $50 million to $75 million, indexed after 2026. More mid-stage companies now qualify as Section 1202 issuers.

For business owners structuring a sale, these changes affect several decisions. C corporation status, which had been less attractive after the TCJA for many small businesses, becomes more strategically interesting if the owner can hold QSBS for the requisite period before sale. Pre-sale conversion from S corporation or LLC to C corporation can be a powerful move in the right circumstances – but the rules around the conversion are technical and the timing must be planned carefully.

Note that excluded businesses (law, accounting, consulting, financial services, and others whose principal asset is the reputation or skill of employees) cannot qualify as QSBS issuers regardless of these expansions. Many service business owners cannot use Section 1202 even after the OBBBA changes.

The Rate Structure Behind the Sale

The OBBBA also made permanent the individual income tax rates and brackets from the Tax Cuts and Jobs Act, which had been scheduled to sunset at the end of 2025. For business sellers, this matters because:

• Long-term capital gains rates (0, 15, and 20 percent) remain at TCJA levels for the foreseeable future
• The 3.8 percent Net Investment Income Tax continues to apply to sale gains for most HNW sellers
• The qualified business income deduction (Section 199A) was made permanent, affecting how owners are taxed on operating income in the years leading up to a sale

For most closely-held business sellers, the effective federal rate on sale proceeds (long-term capital gains plus NIIT) is approximately 23.8 percent at the federal level. State capital gains rates layer on top of that – Colorado at 4.4 percent flat, Ohio with graduated rates – though some states tax capital gains more favorably than ordinary income.

Planning Implications for Owners 3-7 Years from Sale

The owners who benefit most from the new framework are those who plan ahead. For owners three to seven years from an anticipated sale, several specific moves remain valuable:

Review and Update Existing Estate Plans

Estate plans drafted under prior law often included provisions that automatically optimized for the smaller exemption that would have applied after the TCJA sunset. With the new permanent $15 million framework, those provisions may no longer be optimal. A review of existing wills, revocable trusts, and irrevocable trust funding decisions is appropriate any time tax law changes significantly. OBBBA qualifies as significant change.

Specifically worth reviewing: marital deduction formulas that allocated assets between credit shelter and marital portions, GST exemption allocations, and any provisions that were designed to maximize use of an exemption that was assumed to be lower than what now applies.

Consider Your Business Structure

For owners with an anticipated sale several years out, the Section 1202 expansion creates a meaningful planning opportunity. Conversion from a pass-through entity to a C corporation, holding for the required period, then selling QSBS at long-term rates with the 100 percent exclusion can produce dramatically different after-tax results compared to a straight asset sale of a pass-through entity.

The math is most compelling when:

• • The expected sale price is in the range where the exclusion materially helps (typically up to roughly $50 million per owner, given basis and exclusion cap interactions)
  • The owner has enough years before the anticipated sale to hold QSBS through the required period
  • The business is in an industry that qualifies (not a service business like law or accounting)
  • The current pass-through tax cost of conversion is acceptable relative to the future Section 1202 benefit

This is technical work that requires modeling specific to the owner’s situation. The opportunity is real, but it’s not a one-size-fits-all answer.

Explore Pre-Sale Estate Planning Strategies

For owners with substantial expected sale proceeds and HNW estate planning needs, transferring some portion of the business equity to trusts before the sale can lock in lower valuations for transfer tax purposes and shift future appreciation outside the estate. Common structures include:

• • Grantor Retained Annuity Trusts (GRATs) for owners willing to retain a payment stream from the trust
  • Sales to Intentionally Defective Grantor Trusts (IDGTs) for owners who want to remove the business equity from the estate while retaining a promissory note
  • Charitable Lead Annuity Trusts (CLATs) for owners with significant charitable intent
  • Spousal Lifetime Access Trusts (SLATs) for married couples who want to use exemption while retaining indirect access through the spouse

Each of these structures has technical requirements and economic trade-offs. The right structure depends on the owner’s circumstances, the family situation, and the specific facts of the anticipated sale. The point is not to choose a structure from a menu but to do the analysis early enough that the choice is real rather than a constrained reaction to imminent liquidity.

Coordination with Charitable Planning

For owners with charitable intent, the sale of a business is one of the most efficient times to make significant charitable gifts. Donating appreciated business interests before a sale (subject to careful structuring around the assignment-of-income doctrine) can produce both a substantial income tax deduction and the elimination of capital gains on the donated portion. The new OBBBA framework increases the $1,000 / $2,000 non-itemizer charitable deduction starting in 2026, but for business owners, the more impactful charitable planning involves itemized deductions tied to large pre-sale gifts of stock or assets.

Planning Ahead Creates Better Outcomes

The OBBBA gives closely-held business owners and HNW families substantially more flexibility and substantially less deadline pressure than they faced in the run-up to the TCJA sunset. For owners thinking about a sale or transition in the coming years, the new framework rewards advance planning – not last-minute action.

The Section 1202 expansion is particularly powerful for owners of qualifying C corporations who can plan a multi-year hold before sale. The permanent $15 million exemption removes the pressure that drove much of the 2025 estate planning conversation. Together, they create an environment where thoughtful, multi-year planning produces meaningfully better outcomes than reactive end-of-year decisions.

The work to do now is not to lock in transactions before something changes. It is to use the increased certainty to plan well over the next three to seven years – so that when the sale or transition happens, the structure was put in place deliberately rather than improvised under pressure.

Plan for Your Business’s Future 

Whether you’re preparing to sell your business, transition ownership to family members, or build a long-term estate plan, today’s decisions can have lasting tax consequences.

At DJ Tax Solutions, we help business owners evaluate tax law changes, structure succession plans, coordinate estate planning strategies, and prepare for future liquidity events with confidence. Contact DJ Tax Solutions to schedule an introductory consultation and build a tax strategy that protects your business, your family, and your legacy.