NEWSLETTER

Many of the major tax law changes introduced by 2017's Tax Cuts and Jobs Act (TCJA) will expire in 2025. That means one of the most extensive pieces of tax legislation to be passed in the last 30 years will revert to the rules that existed before the act was signed into law. But to plan for this, one must understand no one can know what the political landscape will be like then, whether the sunset of the TCJA will actually occur, or whether an entirely different set of laws may be enacted.

   

​The law known as the Tax Cuts and Jobs Act (TCJA) of 2017, P.L. 115-97, included some major changes to the Code, but not all of them are here to stay. A number of significant provisions are set to expire after 2025. Although Congress may act to extend some or all of them, it is important to know which provisions are expiring so taxpayers can be prepared to maximize their tax savings in case the provisions sunset as currently scheduled.

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Which are the most significant expiring provisions?  

 

Standard deduction: The TCJA increased the standard deduction and eliminated personal exemptions. For example, if the TCJA expires as under current law, the standard deduction for a married couple will be approximately $16,525 in 2026, while the personal exemption will be about $5,275. If this provision of the TCJA were extended through 2026, the standard deduction would be roughly $30,725, and the personal exemption would be zero.

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Individual income tax rates: The TCJA lowered marginal income tax rates throughout much of the income distribution. For example, the TCJA cut the top marginal tax rate from 39.6% to 37%. These rates will increase to pre-2017 levels if the TCJA expires.

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State and local tax (SALT) deduction: The TCJA imposed a $10,000 cap on the deductibility of state and local taxes (SALT). If this provision of the TCJA expires, all state and local property taxes and income taxes (or sales taxes in states without income taxes) will be deductible, primarily benefiting high-income taxpayers in high-tax states.

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Child Tax Credit: The TCJA increased the tax credit for each child under 17 from $1,000 to $2,000, and that is not adjusted for inflation. The maximum credit that can be refunded increased from $1,000 to $1,400 per child in 2018; that is adjusted for inflation and is set at $1,700 in 2024. The TCJA also increased the income thresholds at which the credit phases out. The child tax credit will fall back to $1,000 if the TCJA expires, which would make the real value of the credit about 25% lower than it was in 2017.

 

Deduction for small business income: The TCJA provided a 20% deduction for qualified pass-through income (section 199A) for sole proprietorships, partnerships, and S-corporations. If the TCJA expires, this deduction will no longer be available.

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Alternative minimum tax (AMT): The TCJA increased the AMT exemption amounts and raised the income levels at which the exemptions phase out, resulting in fewer taxpayers liable for the AMT. If this provision of the TCJA expires, the 2026 AMT exemption for married couples filing jointly will be about $110,075, compared to about $140,300 if the provision is extended.

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Estate taxes: The TCJA doubled the estate tax exemption. If this provision expires the exemption in 2026 will be about $14.3 million for married couples, compared to $28.6 million if the provision is extended.

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Which provisions of the TCJA were not enacted on a temporary basis?

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Corporate provisions: Most of the TCJA’s provisions that affect corporations—including the reduction in the corporate tax rate from 35% to 21%— do not sunset. One exception is the provision that permitted a 100% bonus depreciation deduction for assets with useful lives of 20 years of less. This deduction began being phased out in 2023 and will be fully phased out by 2026.  

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Individual and estate provisions: While most of the provisions affecting individuals and estates do sunset, one exception is the change in inflation adjustment methodology, which was enacted on a permanent basis. In particular, the IRS is now required to use the chained CPI-U rather than the CPI-U to index the various provisions of the tax code that are inflation-adjusted—including the tax brackets and the standard deduction. The chained CPI-U typically rises more slowly than the CPI-U, resulting in increased tax revenues.

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​Information Contributor: Brookings Institute https://www.brookings.edu/articles/which-provisions-of-the-tax-cuts-and-jobs-act-expire-in-2025/