The Tax Cuts and Jobs Act (TCJA) of 2017 made waves with substantial modifications to the tax code, promising immediate and lasting impacts on taxpayers. Many provisions are scheduled to sunset after 2025, raising questions and considerations for individuals. As we draw closer to a pivotal year, it’s important to recognize that not all changes brought by the TCJA are here to stay. Understanding the implications of these expiring provisions is crucial for effective tax planning and maximizing tax savings.
Provisions scheduled to sunset after 2025
Here are some of the key provisions that are scheduled to sunset after 2025:
- Individual tax rates: The TCJA lowered tax rates for individuals to 10%, 12%, 22%, 24%, 32%, 35% and 37%. The top tax rate will revert to 39.6% on Jan. 1, 2026.
- Standard deduction: The TCJA significantly increased the standard deduction, which reduces taxable income. For 2024, the standard deduction is $12,550 for single filers, $18,800 for heads of household and $25,100 for married couples filing jointly. Starting in 2026, it will be about half of what it is currently, adjusted for inflation.
- Itemized deductions:
- State and local tax (SALT): Taxpayers in high-tax states were significantly impacted by the $10,000 cap on the SALT deduction. This cap will lift after 2025, providing a larger deduction for taxes paid throughout the year, such as real estate, income, local taxes and personal property taxes.
- Mortgage interest deduction: The TCJA generally suspended the home equity loan interest deduction. For any loan originated on or after Dec. 16, 2017, the home mortgage interest deduction was restricted to the first $750,000 of debt (if married filing jointly). The mortgage interest deduction will return to pre-TCJA levels starting in 2026, meaning that interest on the first $1 million of a house mortgage debt and $100,000 of a home equity loan can be written off.
- Miscellaneous itemized deductions: The TCJA temporarily repealed most miscellaneous itemized deductions, including unreimbursed employee expenditures, legal fees and investment/advice fees. Under the old regulations, these deductions will be permitted again as of Jan. 1, 2026, provided they exceed 2% of the taxpayer’s adjusted gross income.
- Expansion of the child tax credit: The TCJA expanded the child tax credit, which provides a tax credit for each qualifying child. The maximum credit amount was increased to $2,000 per child and the income thresholds for eligibility were raised. This higher tax credit will revert to pre-TCJA levels of $1,000 per qualifying child in 2026.
- Estate tax exemption: The TCJA increased the estate tax exemption, which is the amount of assets that can be passed on to heirs without incurring estate tax. For 2024, the estate tax exemption is $12.06 million per individual or $24.12 million for a married couple. This estate tax provision will sunset, cutting the exclusion roughly in half.
Six strategies for effective tax planning before TCJA sunset
Given the uncertainties surrounding the future of specific provisions, proactive planning is crucial. Here are some strategies to consider:
- Rethink when to take deductions: This tax strategy is crucial for taxpayers who expect their tax rate to be higher when the TCJA provisions expire. By delaying payment or incurring a deductible expense until the higher rates apply, you can ensure your deductions are more beneficial against higher income tax rates. This plan applies to several deductions for 2025, including charitable contributions, business costs and SALT payments (as the latter will no longer be subject to the $10,000 maximum starting in 2026). Additionally, itemized deductions can now be more advantageous than they were due to the planned reduction of standard deduction levels.
- Maximize your retirement contributions: You can minimize your taxable income and tax liabilities by contributing to retirement accounts like 401(k) plans, IRAs or SEP-IRAs. People 73 or older may use a tax-free qualified charitable distribution from their IRA to make charitable contributions. This approach supports effective tax minimization.
- Roth conversions: Consider moving some of your standard retirement funds into Roth accounts over time. Those with a combination of pretax and Roth accounts may better manage their future tax liabilities. For example, it may be wise to take withdrawals from pretax sources while tax brackets are lower and then use Roth sources when tax levels are higher.
- Giving to charities: To avoid paying capital gains taxes and claim a tax benefit, consider giving appreciated assets to a charitable organization. Donor-advised funds, charitable remainder trusts, private foundations and charitable gift annuities are a few charitable giving methods you may explore. If someone is considering donating in 2025 as opposed to 2026, they should consider if the tax benefits in 2026 will be greater because of a projected rise in their tax rates. It will be necessary for people to carefully evaluate their income tax situation for both years to determine which alternative is more advantageous.
- Education savings accounts: To benefit from tax-free growth and withdrawals for eligible educational expenses, contribute to 529 plans or other education savings accounts. In addition, some states may provide an income tax deduction for 529 contributions.
- Contributions to health savings accounts (HSAs): If eligible, you can lower your taxable income by funding an HSA, with tax-free withdrawals allowed for approved medical costs.
Stay ahead of the changes
As the sunsetting of the TCJA approaches, it’s essential to stay informed and proactive in your tax planning. By understanding the potential impacts and exploring strategies to maximize your tax savings, you can better navigate the changing tax landscape. Don’t wait until the last minute. Reach out to your wealth manager or tax advisor today to discuss how these changes may affect your financial situation and what steps you can take to optimize your estate planning and tax planning. Together, you can develop a comprehensive strategy that aligns with your long-term goals and ensures you are well-prepared for the future.
Talk to us 
