One Big Beautiful Bill (OBBB) 2025: What Changes for Equity Compensation in 2026

Executive Summary

The One Big Beautiful Bill Act (P.L. 119-21), signed into law on July 4, 2025, is the most consequential tax legislation since the 2017 Tax Cuts and Jobs Act. For employees and founders with equity compensation—stock options, RSUs, QSBS, and equity in estate plans—2026 brings both expanded opportunities and new traps that demand immediate attention.

The bottom line: The OBBBA permanently locks in higher AMT exemptions, dramatically expands QSBS benefits, and raises the estate tax exemption to $15 million per person. However, the doubled AMT phaseout rate (50 cents per dollar vs. 25 cents) creates a stealth tax increase for high earners exercising ISOs. Strategic planning in 2026 is not optional—it is the difference between a six-figure tax savings and a six-figure tax surprise.¹

Critical Warning: Do not assume the OBBBA is purely beneficial for equity holders. The doubled AMT phaseout rate means your effective marginal AMT rate can reach 42% in the phaseout range (28% base rate + 14% from exemption clawback). If you exercised ISOs safely in 2025, the same exercise in 2026 could trigger substantially more AMT. Recalculate your crossover point before any 2026 ISO exercise.²

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What Is the One Big Beautiful Bill Act?

Legislative Background

The OBBBA originated as a comprehensive budget reconciliation bill that permanently extends and modifies the Tax Cuts and Jobs Act (TCJA) provisions that were scheduled to sunset after December 31, 2025. Without the OBBBA, the tax landscape for 2026 would have reverted to pre-2018 rules—higher rates, lower exemptions, and eliminated QSBS benefits.

Key Provisions Affecting Equity Compensation

The net effect: the OBBBA creates a more favorable environment for long-term equity holders while simultaneously tightening AMT exposure for those who exercise large ISO positions in a single year.³

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AMT Exemptions: Permanent but With a Catch

What Changed: Before vs. After

The OBBBA permanently extends the TCJA's higher AMT exemptions but modifies the phaseout mechanics starting in 2026.

The Phaseout Cliff: Why It Matters

Without the OBBBA, exemptions would have reverted to approximately $55,000 (single) and $86,000 (MFJ)—pre-TCJA levels. The permanent higher exemptions are genuinely beneficial. But the doubled phaseout rate creates a new dynamic.

Example: Single Filer, $750,000 AMTI (including ISO bargain element)

Result: At $750,000 AMTI, you retain a $57,187 exemption in 2025 but zero exemption in 2026. The effective AMT rate in the phaseout range reaches 42% (28% base + 14% from lost exemption).⁴

Impact on ISO Exercise Strategy

For a detailed walkthrough of AMT crossover point calculations, see our AMT Planning Guide for Stock Options.

Key implications for 2026:

• Recalculate your crossover point. The formula hasn't changed, but the inputs have. Lower phaseout thresholds mean you hit the exemption cliff sooner.
• Consider spreading exercises. If your total AMTI from salary plus ISO bargain element will exceed $500,000 (single) or $1,000,000 (MFJ), you will lose exemption faster.
• Coordinate with high ordinary income years. When regular tax already exceeds AMT (e.g., large RSU vesting, bonus years), ISO exercises have minimal AMT cost. See our Year-End Tax Planning Guide for coordination strategies.
• Model disqualifying dispositions. For some exercises, selling shares in the same year (disqualifying disposition) may produce a lower net tax than holding for a qualifying disposition with AMT credit recovery.

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QSBS Expansion: The Biggest Win for Startup Founders

What Changed Under OBBBA

The OBBBA delivers the most significant expansion of Section 1202 QSBS benefits since the exclusion was raised to 100% in 2010. These changes apply to stock acquired after July 4, 2025.

For a complete breakdown of QSBS qualification requirements, see our Section 1202 QSBS Exclusion Guide.

The Tiered Exclusion Structure

The most notable structural change is the introduction of tiered exclusions based on holding period. Previously, you needed to hold QSBS for at least 5 years to receive any exclusion. Now:

Real-World Impact: Before and After OBBBA

Scenario: Founder holds QSBS with $500K basis, sells for $20M after 5 years.

Higher Asset Threshold: Who This Helps

The increase from $50M to $75M in gross assets means companies that previously "graduated" out of QSBS eligibility may now qualify. This is particularly relevant for:

• Series B/C startups that crossed $50M in assets during growth rounds
• Bootstrapped companies with retained earnings pushing past the old threshold
• Companies with IP or real estate that inflated gross asset values

Planning action: If you were told your stock doesn't qualify as QSBS because the company exceeded $50M in assets, verify again under the new $75M threshold. Stock issued after July 4, 2025 benefits from the higher ceiling.⁵

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Estate Tax Exemption: Permanent at $15M

The Sunset That Didn't Happen

Under the original TCJA, the estate and gift tax exemption was scheduled to drop from $13.99M per person to approximately $7.2M on January 1, 2026. The OBBBA eliminates this sunset entirely.

What This Means for Equity Holders

For tech employees and founders with significant equity wealth, the permanent $15M exemption changes the urgency of estate planning:

Reduced urgency for "use it or lose it" gifting. The pre-OBBBA environment drove aggressive gifting strategies before the 2025 sunset. With a permanent $15M exemption, the timeline pressure is gone—but the planning opportunities remain.

GRATs and equity transfers remain powerful. Grantor Retained Annuity Trusts loaded with pre-IPO equity can still transfer millions tax-free. The higher exemption simply means you have more room before estate taxes apply. See our Estate Planning Guide for Stock Options and RSUs for detailed GRAT strategies.

NSO gifting is still effective. Transferring non-qualified stock options to family members or trusts before appreciation removes all future gains from your taxable estate—and the $15M exemption means the transfer itself is less likely to trigger gift tax.

Planning tip for 2026: Even with a $15M exemption, if your equity position could grow to $20M+ (common for senior employees at late-stage startups), estate planning is still critical. The 40% rate on amounts exceeding the exemption hasn't changed.⁶

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SALT Deduction: Relief for High-Tax State Residents

What Changed

The OBBBA raises the state and local tax (SALT) deduction cap from $10,000 to $40,000 for taxpayers with modified adjusted gross income of $500,000 or less.

Impact on Equity Compensation

For employees in high-tax states (California, New York, New Jersey, Massachusetts) with significant equity income, the SALT change interacts with equity compensation in several ways:

• RSU vesting income pushes you toward the $500,000 MAGI threshold, potentially phasing out the increased cap
• ISO exercises that generate AMT adjustments don't directly affect MAGI for SALT purposes, but the state tax paid on equity income is now more deductible
• QSBS gains that are federally excluded may still be subject to state tax (notably in California), and the higher SALT cap helps offset that burden

Key caveat: The $40,000 cap is temporary through 2029. Do not build long-term plans around it.⁷

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2026 Action Items: What to Do Now

For ISO Holders

1. Recalculate your AMT crossover point using the 2026 parameters ($90,100 single / $140,200 MFJ exemption, $500,000 / $1,000,000 phaseout thresholds, 50% phaseout rate)
2. Model exercises in tax projection software before committing to any 2026 exercise
3. Consider spreading large exercises across 2026 and 2027 to stay below phaseout thresholds each year
4. Evaluate disqualifying dispositions if AMT would exceed ordinary income tax on the same shares
5. Coordinate with RSU/NSO vesting to minimize net AMT exposure in high-income years

For QSBS Holders

1. Verify your stock qualifies under the new $75M gross asset threshold if previously disqualified
2. Track acquisition dates precisely—only stock acquired after July 4, 2025 benefits from the new $15M cap and tiered structure
3. Review holding period strategy—the 3-year / 50% tier creates a new planning opportunity for earlier partial liquidity
4. Consider stacking exclusions across family members (each taxpayer gets their own per-issuer cap)
5. Update your QSBS documentation—ensure Form 8949 records reflect the correct acquisition date and exclusion tier

For Estate Planning

1. Review your estate plan in light of the permanent $15M exemption—aggressive pre-sunset gifting may no longer be necessary
2. Evaluate GRAT funding with pre-IPO equity while valuations are low
3. Consider portability elections to preserve unused exemption for a surviving spouse ($30M combined)
4. Update irrevocable trust strategies—the permanent exemption changes the cost-benefit analysis for trust funding

Summary: 2026 Equity Compensation Planning Checklist

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Side-by-Side: 2025 vs. 2026 Tax Landscape for Equity Holders

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Frequently Asked Questions

Did the OBBBA change the AMT tax rates?

No. The AMT rates remain 26% on the first $244,500 of AMTI (above the exemption) and 28% on amounts above that threshold. What changed is the phaseout mechanics—exemptions vanish faster, which effectively raises your marginal rate in the phaseout zone.

Source: IRC Section 56

Does the new QSBS $15M cap apply to stock I already own?

Only if the stock was acquired after July 4, 2025. Stock acquired before that date remains subject to the $10M cap and previous rules. The acquisition date—not the sale date—determines which rules apply.

Source: Godfrey & Kahn OBBBA Analysis

Can I sell QSBS after just 3 years and get a partial exclusion?

Yes, for stock acquired after July 4, 2025. The new tiered structure provides a 50% exclusion for stock held more than 3 years, 75% for more than 4 years, and 100% for more than 5 years. Previously, no exclusion was available for holding periods under 5 years.

Source: IRC Section 1202

Is the $15M estate tax exemption really permanent?

Yes, under current law. The OBBBA removed the TCJA sunset provision, making the $15M per-person exemption permanent and indexed for inflation. However, a future Congress could change this. Advisors still recommend using the exemption proactively when planning involves appreciating assets like pre-IPO equity.

Source: IRS: One Big Beautiful Bill Provisions

How does the SALT cap increase interact with equity compensation?

The $40,000 SALT cap (up from $10,000) benefits taxpayers in high-tax states who pay significant state income tax on equity income. However, the benefit phases out above $500,000 MAGI. For high earners with large RSU vesting or option exercises, the MAGI threshold may limit the benefit.

Source: Bipartisan Policy Center: SALT Changes

Should I exercise all my ISOs in 2026 to take advantage of permanent AMT exemptions?

No. While the permanent exemptions are positive, the doubled phaseout rate means exercising a large ISO position in a single year is riskier in 2026 than in 2025. Model your specific situation using the AMT crossover point calculation with 2026 parameters before making any exercise decisions.

Source: IRS Revenue Procedure 2025-11

What if my company's assets exceeded $50M but are under $75M?

Stock issued after July 4, 2025 by a company with gross assets under $75M at issuance may qualify as QSBS under the new threshold. Stock issued before that date is still subject to the $50M test. Verify with your company's finance team and a qualified tax advisor.

Source: IRC Section 1202

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Footnotes

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Disclaimer: This guide discusses legal tax optimization strategies only. Tax evasion is illegal and is never recommended. This content is for educational purposes and does not constitute tax, legal, or financial advice. Tax laws vary by jurisdiction and change frequently. Always consult a qualified tax professional (CPA, tax attorney, enrolled agent) before making decisions based on this information. The authors accept no liability for actions taken based on this content.

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Primary Sources

Last Updated: March 2026 | Research Team: VestingStrategy

Footnotes

1. The One Big Beautiful Bill Act (P.L. 119-21) was signed into law on July 4, 2025, permanently extending and modifying TCJA individual tax provisions including AMT, QSBS, and estate tax exemptions. ↩

2. Under the OBBBA, AMT phaseout rates double from 25 cents to 50 cents per dollar of AMTI exceeding the threshold, creating effective marginal rates of up to 42% in the phaseout range (28% base AMT rate + 14% from exemption clawback). ↩

3. IRS Revenue Procedure 2025-11 provides inflation-adjusted 2026 tax parameters incorporating OBBBA changes. ↩

4. The effective marginal AMT rate in the phaseout range is calculated as: base 28% rate + (50% phaseout rate x 28%) = 28% + 14% = 42%. See KLR Tax Advisory: AMT Changes. ↩

5. The OBBBA amends IRC Section 1202 to raise the gross asset ceiling from $50M to $75M for stock issued after July 4, 2025, with inflation indexing beginning in 2027. See Crowell & Moring: QSBS Analysis. ↩

6. The OBBBA permanently increases the estate and gift tax exemption to $15M per individual ($30M per married couple with portability), effective January 1, 2026, with annual inflation adjustments. See Godfrey & Kahn Analysis. ↩

7. The SALT deduction cap increase to $40,000 applies only for tax years 2026 through 2029 and phases out for taxpayers with MAGI exceeding $500,000. See Bipartisan Policy Center Analysis. ↩