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 both individuals and corporations; the individual tax provisions are set to expire in 2025. While that expiration is a few years away – and there’s always the possibility of new legislation before it expires – it is a good idea for taxpayers to plan for the end of TCJA now. Below are four of the individual provisions that are set to expire which could affect your taxes when you file in 2026.
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 parameter used to adjust for inflation. The IRS now uses 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.
Under the TCJA, the standard deduction, which reduces your taxable income amount, nearly doubled. In 2023, the standard deduction increases to $27,700 for filers who are married filing jointly. For individuals and married filing separately, the standard deduction increases to $13,850, and for heads of households, the standard deduction will be $20,800.
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, which was eliminated through the TCJA, will come back into effect in 2026.
TCJA: Itemized Deductions
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 benefit 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 $12.92 million in 2023. 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 taxpayers 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?
These areas are only a sample of the provisions set to end in 2025; you can see a comprehensive list here. 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.
If you have any questions or concerns surrounding the TCJA provisions ending in 2025, please contact us. Our financial advisors and tax professionals will collaborate to discuss your financial situation and plan for different outcomes, to help you have the information you need to make proactive financial decisions.
The Team at Chatterton & Associates
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.