How Does the Recently Passed Megabill Affect Your Finances?
The newly passed Megabill has captured extensive media attention, with plenty of debate over its political and economic significance. But beyond the headlines, the real question is this: How does this bill impact your investments, your taxes, and your long-term planning?
Unlike the sweeping tax overhauls of 1986 and 2017, this bill is less about reshaping the tax code and more about making permanent key provisions from the 2017 tax reform that were set to expire at the end of 2025.
What Stays the Same:
Tax Brackets: The 2017 tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) remain unchanged.
Standard Deduction: Continues at elevated levels ($15,750 for single filers, $31,500 for married filers in 2025), with inflation adjustments.
Child Tax Credit: Permanently increased to $2,200 per child from 2025, indexed to inflation.
Estate and Gift Tax: The exemption will now permanently start at $15 million per person in 2026, higher than the previously expected drop to $7 million.
New or Adjusted Provisions:
SALT Deduction: The cap on state and local tax deductions rises from $10,000 to $40,000 for incomes up to $500,000, offering planning opportunities for high-income taxpayers.
Charitable Deductions: Modest deductions will be allowed for non-itemizers starting in 2026, but itemized deductions will face a small offset based on adjusted gross income.
Targeted Deductions:
Seniors can now deduct an extra $6,000 per person against Social Security income, and this deduction doesn’t appear to be limited to just Social Security income. The deduction begins to phase out above $75,000 single, $150,000 married filing jointly.
Deductions for tip income, overtime pay, and car loan interest have been introduced, with income thresholds.
Child Savings Account: In 2025 through 2028, newborn children of parents with a Social Security number will receive a government funded tax advantaged investment account with $1,000 deposited at birth.
Green Energy Credits: Key tax credits for clean vehicles and home improvements will now sunset by the end of 2025, years earlier than previously scheduled.
Sector Implications
This new legislation introduces notable shifts in benefits across industries. Some sectors stand to gain favorable policy treatment, while others face reduced support or new challenges.
Corporate Winners
Fossil-Fuel Companies (expanded drilling and subsidies for carbon capture projects)
Tech Investors (expanded tax exclusions for qualified small business stock)
Chipmakers (increased tax credits for domestic semiconductor plants)
Defense Contractors (significant increase in Pentagon spending and missile defense funding)
Airlines (funding to modernize air-traffic control systems)
School Choice Advocates (tax credits to support private school tuition stipends)
Manufacturers (accelerated depreciation and permanent tax breaks for factory construction and equipment)
Developers (expansions of real estate incentives like bonus depreciation and Opportunity Zones)
Private-Student Lenders (reduced federal loan caps likely to boost private loan demand)
Retailers (preservation of the 21% corporate tax rate, benefiting companies with high domestic revenues)
Corporate Losers
AI and Tech Companies (protection against state regulation was removed from the final bill)
Electric Vehicle Manufacturers (elimination of EV purchase subsidies after September 2025)
Solar and Wind Developers (reduced access to renewable energy tax credits after a 12-month runway)
Online Retailers and Shippers (loss of duty-free import exemptions on small packages, potentially increasing shipping costs)
Food Companies (cuts to SNAP benefits expected to reduce consumer demand among low-income shoppers)
Elite Universities (higher endowment taxes on wealthiest schools)
Hospitals (reduced Medicaid reimbursement flexibility through lower allowable provider taxes)
Why Predicting Sector Winners is Tricky
While legislation like the Megabill can shift policy winds in favor of some industries, making concentrated investment bets based solely on new laws is often more difficult than it appears. For example:
During Trump’s first term, the energy sector broadly underperformed despite strong policy support for oil and gas.
Green energy investments struggled during the Obama administration, even with significant federal subsidies.
What are the Most Important Portfolio Considerations Going Forward?
When major legislation is passed, there is often an urge to act quickly. But successful long-term investors should focus on a few key principles:
Tax-Efficient Planning: Consider how the extensions and new deductions may affect your charitable giving, retirement savings, and estate plans.
Diversification: Concentrated bets on sectors that appear to benefit from new laws can backfire. A diversified approach remains one of the best ways to manage uncertainty.
Access and Transparency: Lower-cost alternative investments such as gold exposure or equity hedging strategies sourced through institutional channels can provide diversification benefits without unnecessary layers of fees or complexity.
In conclusion, we believe legislation like the Megabill can certainly open doors for tax planning and strategy, but we resist the temptation to make concentrated investment bets based solely on political developments.
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
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Compass Wealth Management is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where Compass Wealth Management and its representatives are properly licensed or exempt from licensure. This article is solely for informational purposes and is not intended to be relied on as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Compass Wealth Management to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investments involve risks.