The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, and with its expiration will come many changes.
Although some of the provisions within the Act are permanent, such as reducing the corporate tax rate from 35 percent to 21 percent, most individual tax changes are not. If Congress does not renew all or part of this law passed in 2017, there may be changes on the horizon for taxpayers.
It’s important to remember that tax rules can change without notice, and there is no guarantee that the treatment of certain rules will remain the same. This email is for information purposes only and is not a substitute for real-life advice. You may want to review any specific questions about the TCJA with a tax, legal, or accounting professional.
Current and Post-TCJA Comparison
To help you better understand what may change, here is a comparison of where things stand today and what could happen after the TCJA expires.
Changes That May Affect Some
The state and local tax (SALT) deduction would no longer be capped at $10,000 annually and would be subject to phase-outs at higher income levels.
Because state and local taxes vary widely throughout the country, this cap affected wealthy taxpayers the most in states with high tax rates, such as New York, New Jersey, California, and Illinois.
The deduction allowed for mortgage interest would increase from $750k of debt to $1M plus $100k in home equity debt.
This would be felt by taxpayers with high mortgage debt.
Miscellaneous deductions could return.
Before the TCJA, several deductions were allowed for households, including investment expenses, moving expenses, tax preparation fees, and unreimbursed employee expenses exceeding 2 percent of adjusted gross income. Some households may see these deductions return.
Changes That May Affect Others
The standard deduction would be cut in half to the level it was before the TCJA.
Whether this change affects you may depend on your family size and filing status.
Alternative minimum tax (AMT) would apply again to more taxpayers.
Originally designed to ensure that high-income earners paid more taxes, it affected a disproportionate number of households over the years because it was never indexed for inflation. The TCJA raised the AMT exemptions, but if the law sunsets, the AMT is expected to return to prior levels.
The unified lifetime exclusion for estates and gifts would be roughly reduced in half.
High-net-worth individuals, business owners, and others must be aware of this potential change.
Changes That May Affect Business Owners
The TCJA expiration would result in all pass-through income being taxed at the personal income tax rate of business owners.
The TCJA changed how pass-through entities were taxed, creating a new 20% qualified business income deduction for many owners of pass-through entities such as FLPs, LLCs, and S corporations.
Businesses would no longer be allowed to fully and immediately expense short-lived capital investments for five years, and the $1 million cap would return to $500,000.
- In addition to changes to capital investment, various business taxes and expenditure reductions are likely to go away, including the deductibility of net interest, net operating loss carrybacks and carryforwards, and the corporate AMT.
Estate Tax Sunset
The 2017 Tax Cuts and Jobs Act (TCJA) nearly doubled the lifetime estate, gift, and generation-skipping transfer tax. In 2024, the exemption amount is $13.61 million for individuals and $27.22 million for married couples at the federal level. Unless Congress changes this law, the exemption will revert back to its 2017 level, adjusted for inflation. The TCJA exemption amounts can be captured only through use for taxable gifts (or transfers at death) before December 31, 2025.
While it's possible that there may be new tax legislation between now and 2026, families should be reviewing their estate plan with the understanding that the TCJA provisions could expire.
Strategies to Review
There are several different ways in which couples and individuals can tax efficiently transfer assets while still accomplishing their financial and wealth transfer goals. The simplest strategy is to leverage their annual gift tax exclusion, which for 2024 is $18,000 per recipient, per benefactor.
Another strategy is to transfer a portion of their lifetime estate and gift tax exemption, which for 2024 is $13.61 million (double for married couples), into an irrevocable trust for the benefit of their intended heirs.
Finally, another strategy to reduce estate taxes can include leaving assets to charity at death, which can reduce your taxable estate while leaving a charitable legacy.
By having regular conversations with your financial professional and attorney, you can adapt your plans to changes in tax laws or your family's personal situation—while working to safeguard your goals for your legacy.