If you’re an American living in Israel, the new One Big Beautiful Bill (OBBB) could bring meaningful and wide-reaching changes to your tax situation. We’re talking about real-world dollars and shekels. Bigger child tax refunds. Expanded deductions for seniors. Changes to how the GILTI tax on your Israeli company profits gets taxed back in the U.S., and yes, even a free $1,000 just for having a baby between 2025-2028.

We can focus on many different topics, and we will be expanding on each in further pieces.  Additionally, the starting dates for the following rules change based on each one.  We will break it all down in future writing.

However, below you can find a more concise breakdown of the seven biggest issues affecting U.S. citizens here in Israel. It offers practical strategies to help you navigate these updates. Whether you’re a salaried employee, business owner, retiree, or just starting your family, this matters.

Before we dive into what will change, though, the most significant benefit of the new bill is how much it keeps the same.  If this bill had not passed, the old changes from 2017 would have lapsed, and we would have had major changes.  OBBB makes most of those old 2017 changes, like the increased child tax credit, permanent. 

Key Points

• The Child Tax Credit increases to $2,200 and is indexed for inflation. The refundable portion keeps increasing beyond $1,700/child.
• A new Trump Account gives a one-time $1,000 deposit to each U.S. citizen child born from 2025 to 2028.
• Charitable giving now offers a $2,000 above-the-line deduction. 
• Seniors over 65 get a new $6,000 deduction on top of age-based add-ons. 
• The estate and gift tax exemption increases to $15M in 2026, removing estate tax concerns for many Americans abroad.
• GILTI changes eliminate the QBAI exclusion and get worse for U.S. citizens in Israel and U.S. businesses. 
• 1202 qualified small business stock gain exclusions are now 50% after 3 years, 75% after 4 years, and 100% after 5, with a higher $15M cap.

1. Bigger Refunds, If You Don’t Use FEIE

The Child Tax Credit rises to $2,200 per child in 2025, with the refundable portion (previously capped at $1,400) indexed for inflation. For many families in Israel, this can be a substantial refund, unless you exclude your income under the Foreign Earned Income Exclusion (FEIE).

Income excluded under FEIE doesn’t count as earned income when calculating the refundable portion. That means you could lose out entirely. Using the Foreign Tax Credit (FTC) instead keeps your income in play and wipes out U.S. tax liability thanks to high Israeli taxes while unlocking refundable credits.

Also, one of the parents and the children must have valid Social Security numbers to claim the credit. Don’t delay filing for your newborn’s SSN. One version of the original bill needed both parents to have a SSN, but the final version only requires one to have it. This helps many families continue to receive these big refunds.

For 2024, the inflated refundable amount was $1,700 per child.  For 2025 onwards, it will continue to be $1,700 or higher based on inflationary adjustments.

2. $1,000 Trump Accounts for Newborns

Each U.S. citizen child born between 2025 and 2028 is eligible for a one-time $1,000 deposit into a Trump Account. Parents must elect this on their tax return and secure a valid SSN for the child. You can also contribute further amounts to grow tax-free, like a Roth-IRA plan.

These accounts, similar to the Israeli pension accounts for kids, are a way to ensure that children have funds when they turn 18 to 25 to help them get off the ground.

These accounts grow tax-free in the U.S. and may eventually be rolled into an IRA or ABLE account. However, Israel may not recognize the tax benefit, so this is a point to look into and plan around for U.S. and Israeli tax purposes.

It’s free money, but it only stresses how important it will be for your kids to get an SSN quickly. If only the Jerusalem embassy could stop losing the applications in the mail.

3. New Benefits for Charitable Giving

The OBBB restores a $2,000 above-the-line deduction (married filing jointly) for charitable giving if you don’t itemize. This is a welcome change for expats who don’t usually have enough deductions to itemize.

A new rule for everyone is a 0.5% AGI (Adjusted Gross Income) floor on all charitable contributions. You only deduct amounts above that threshold. For example, with $100,000 AGI, the first $500 of giving isn’t deductible unless it qualifies for the above-the-line treatment.

For large or regular givers, it’s time to consider bunching donations or using donor-advised funds.

4. $6,000 Deduction for Seniors

Seniors 65+ can now claim a $6,000 deduction in addition to the regular senior add-on. A married couple over 65 could see their standard deduction increase to over $42,000.

This deduction has a phase-out. For joint filers, the deduction starts reducing once Modified AGI exceeds $150,000. Seniors with pensions and part-time income can now pay lower taxes in the U.S. 

This was a compromise to avoid tax on Social Security, but it ends up being extra beneficial for U.S. citizens in Israel, where Social Security is already exempt.

For more on this topic, tune into the premiere episode of our new podcast, PSA: People, Stories & Accounting.

5. $15M Estate Exemption = Less Stress, Still Reporting

Starting in 2026, the estate and gift tax exemption rises to $15M and continues to be indexed for inflation. This change removes estate tax concerns for most U.S. citizens in Israel.

But estate planning isn’t gone. We help many clients with trust contributions and estate planning.  For many in Israel, this will continue to be a big area to plan around.  Without the passing of The OBBB, this amount was set to go back down to ~$7.5M, so this change is a nice reprieve for many.

Also, you must continue to report gifts and inheritances over $100,000 from foreign persons, using Forms 3520 and 3520-A. Penalties for non-compliance can be steep, even if no tax is owed.

6. GILTI Gets Tougher, Especially for Low-Tax Entities

Warning: Heavy tax jargon ahead for the next two sections! In a future piece, we will delve into more details and make it more layman-friendly.  

The OBBB eliminates the 10% QBAI exclusion and lowers the Section 250 deduction from 50% to 40%. However, the FTC cap on GILTI income rises from 80% to 90%, which softens the blow.

If your Israeli company pays the full 23% corporate tax rate, you likely won’t owe additional U.S. tax. But if you’re under a reduced rate, like 7-9% under Preferred Enterprise status, you’ll owe more U.S. tax unless you plan. 

Net Operating Losses are also still a problem for GILTI, causing more tax for U.S. citizen entrepreneurs in Israel, and was not fixed in the OBBB.

Section 962 elections remain a strong option, offering corporate treatment for individuals. Just note the new 10% haircut on FTCs when repatriating profits. That’s a second layer of tax you’ll need to factor in. 

Before the OBBB, your Israeli company had to pay at least 13.125% in Israeli taxes to avoid GILTI. The new necessary Israeli tax rate will be 14% with all these changes.

7. Qualified Small Business Stock (1202) – More Flexibility, Higher Cap

The OBBB adds flexibility to QSBS for high-tech founders and investments by allowing partial exclusion of gain sooner. This has been a hot topic for U.S. citizens in Israel for years, and now it has gotten even better!

You can now exclude 50% of gain after 3 years, 75% after 4 years, and 100% after 5 years. The lifetime cap increases to $15M per issuer, indexed from 2027.

This change is huge for founders and investors in U.S.-based C-corporations with ties to Israel. Many startup exits happen before year 5. Now, some tax relief kicks in earlier.

Israel’s 25% capital gains tax still applies, so coordinate your exit strategy to avoid double taxation.

Stay Tuned!

If you’ve read this far, you can see the OBBB isn’t just another bill. It’s a comprehensive reworking of how Americans abroad plan for family life, business, philanthropy, and retirement.

We’ll be diving deeper into each of these seven areas in the coming weeks. Check back soon for detailed breakdowns, real-world examples, and updates that help you plan smarter.

Meanwhile, you can enjoy the premiere episode of our new podcast, PSA: People, Stories & Accounting, which dives into the OBBB.