The investment landscape is shifting again with the passage of the One Big Beautiful Bill(OBBB)—a sweeping tax reform package that has redefined how capital gains and dividends will be taxed beginning in 2025. For investors, these changes have far-reaching consequences, especially for those looking to preserve wealth and minimize tax exposure through strategic estate planning.
Key Changes Under the 2025 Tax Code
Under the new tax code, the capital gains tax rate for high-income individuals has increased significantly. Long-term capital gains, which were previously taxed at 15% or 20% depending on income level, may now be subject to rates as high as 25% for individuals earning over $500,000 annually. Short-term gains, which are already taxed at ordinary income tax rates, remain unchanged, but those brackets have been adjusted upward, potentially increasing the tax burden.
Dividends also face new scrutiny. Qualified dividends, which previously enjoyed preferential treatment at long-term capital gains rates, may now be partially taxed at higher rates depending on the investor’s overall income. For high-net-worth individuals, this could mean thousands of dollars in additional tax liability each year if not proactively managed.
The Bill’s Built-In Offsets
While some investors are concerned about the increased rates, the OBBB includes strategic offsets. For instance, the estate tax exemption will increase to $15 million per individual in 2026, which could relieve pressure on intergenerational wealth transfers. However, this doesn’t negate the need to examine income-producing investments and how they affect annual tax filings.
Trust Structuring and Tax Mitigation Strategies
One of the most effective ways to reduce tax exposure on investments is through thoughtful trust structuring. Irrevocable trusts, for example, can be used to shelter certain assets from high tax rates, particularly if structured to distribute income to beneficiaries in lower tax brackets. Additionally, grantor retained annuity trusts (GRATs) and charitable remainder trusts (CRTs) may be leveraged to reduce taxable gains over time.
Don’t Overlook Tax-Loss Harvesting
For those with taxable investment accounts, tax-loss harvesting remains a powerful strategy. Selling off underperforming assets to offset realized capital gains can help rebalance portfolios and mitigate tax liability. This strategy is especially important given the higher tax rates in 2025.
It’s also critical to monitor how dividends are classified. Reinvestment strategies, fund choices, and account types (like Roth IRAs or 529 plans) can all affect how your dividend income is taxed.
What You Can Do Now
With these changes now codified into law, 2025 presents an important window of opportunity for investors to update their strategies. Meet with your estate planning attorney and financial advisor to evaluate the implications of the new tax code on your holdings. Trusts, gifting strategies, and strategic timing of asset sales are all levers worth pulling before rates rise further.
At Lowthorp Richards, LLP our team of estate planning attorneys can help tailor a tax-efficient investment strategy that aligns with your legacy goals. Don’t wait until next year to plan—protect your future now. Call us at (805) 981-8555 or fill out our online contact form to schedule a consultation.