4 Tax Cuts and Jobs Act Provisions Set to End - How Will It Affect You?
When the Tax Cuts and Jobs Act (TCJA) was signed in 2017, it set into motion one of the most extensive overhauls of the tax code in nearly 30 years. Changes were made for individuals and corporations; the individual tax provisions expire in 2025, potentially impacting millions of taxpayers starting in 2026. While new legislation could extend or modify these provisions, taxpayers should plan for these impending changes.
TCJA: Personal Taxes
Tax Rates and Brackets
One of the initial changes made to personal taxes by the TCJA was the reduction of tax rates and lower tax brackets, which shifted tax thresholds for taxpayers. While there are still seven tax brackets, and adjustments continue to be made for inflation, the marginal tax rates have changed.
In 2017, the marginal tax rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Currently, the marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. When the TCJA sunsets in 2025, the tax rates will return to 2017 levels.
The TCJA also switched the parameters used to adjust for inflation. The IRS now uses the Chained Consumer Price Index (C-CPI) instead of the Traditional. C-CPI is thought to be more accurate. While it will not revert in 2026, it can result in bracket creep.
Standard Deduction
Under the TCJA, the standard deduction, which reduces your taxable income amount, nearly doubled. For the 2024 tax year, the standard deduction increases to $29,200 for married filers filing jointly. For individuals and married filing separately, the standard deduction increases to $14,600; for heads of households, the standard deduction will be $21,900.
In 2017, the standard deduction amounts were $12,700, $6,350, and $9,350, respectively. While these deduction amounts will be adjusted for inflation, they will revert to 2017 levels at the end of 2025. Note that the personal exemption, eliminated through the TCJA, will come back into effect in 2026.
TCJA: Itemized Deductions
SALT Limit
The State and Local Tax (SALT) deduction was capped at $10,000 in property taxes plus state income or sales taxes (but not both) under the TCJA. Before the tax overhaul, there was no cap – and the deduction benefits taxpayers in states like California and New York, where the state tax is higher.
Though there have been legislative efforts to increase the SALT cap, they have not been passed. If no further legislation occurs, the cap will sunset in 2025.
TCJA: Estate Taxes
The Tax Cuts and Jobs Act increased the estate tax exemption from $5.49 million in 2017 to $13.61 million in 2024. Any assets surpassing that threshold will be taxed at the 40% rate. By 2026, the exemption will revert to $5 million (adjusted for inflation). The IRS has stated that people who have taken advantage of the increase will not be penalized once the drop to 2017 levels occurs.
How can you prepare now for the ending provisions of the Tax Cuts and Jobs Act?
One of the ways you can prepare now is to begin tax projections, which allows us to run “what if” scenarios and plan for the future – including the tax implications of the TCJA ending.
Please contact us if you have any questions or concerns surrounding the TCJA provisions ending in 2025. Our financial advisors and tax preparers will collaborate to discuss your financial situation and plan for different outcomes, ensuring you have the information you need to make proactive financial decisions.
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
