Plan Now for the TCJA Sunset
On Dec. 22, 2017, then-president Trump signed the Tax Cuts and Jobs Act (TCJA) into law, making permanent changes to corporate tax rates and temporary changes to individual tax rates. On Dec. 31, 2025, many temporary changes for individual taxpayers could sunset, unless Congress intervenes.
Individual Tax Rates
The TCJA lowered tax rates for many individuals and married couples. If allowed to sunset on Dec. 31, 2025, the following rates could revert to their 2017 levels:
- The 12% rate could return to 15%
- The 22% rate could return to 25%
- The 24% rate could return to 28%
- The 37% rate could return to 39.6%
Standard Deductions
When first enacted, the TCJA increased the 2018 standard deduction to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. These amounts would be lower if the deductions revert to their pre-TCJA schedule.
Itemized Deductions
Mortgage interest: The TCJA temporarily limited home equity loan interest deductions, and limited the home mortgage interest deduction to the first $750,000 of debt for any loan originating after Dec. 15, 2017. If allowed to revert to pre-TCJA levels, taxpayers could generally deduct interest on the first $1 million of home mortgage debt and $100,000 on a home equity loan.
State and Local Tax (SALT): The TCJA capped the SALT deduction at $10,000 for taxpayers who itemize. This could include state and local income, sales (in lieu of income), real and personal property taxes, and foreign income taxes (but not foreign real property taxes). If allowed to sunset, taxpayers would potentially be able to deduct all eligible state and local income, sales (in lieu of income), real and personal property taxes, foreign income taxes, and foreign real property taxes.
Other itemized deductions: Most miscellaneous itemized deductions are not allowed under the TCJA, such as unreimbursed employee business expenses or investment expenses.
Personal Exemptions
The TCJA eliminated the personal exemption amount, used to calculate taxable income, until the sunset date. Before the TCJA, for 2018, it would have been $4,150 per taxpayer, subject to income limitations.
Child Tax Credit
The TCJA increased the child tax credit to a maximum of $2,000 per qualifying child and allowed a $500 credit for each dependent who isn’t a qualifying child. If this provision sunsets, the $2,000 tax credit will revert to $1,000.
Estate and Gift Taxes
The basic estate and gift tax exemption effectively doubled under the TCJA and included inflation adjustments each year. For 2024, the exemption is $13.61 million for individuals and $27.22 million for married couples. Unless Congress makes changes, the exemption will revert to 2017 levels, which was $5.49 million for individuals and $10.98 million for married couples.
This is an important area to watch for families who plan to pass on their wealth. If this provision is allowed to sunset at the end of 2025, those who adopt a “wait and see” posture may lose the ability to save on their estate taxes.
While we don’t know whether Congress intends to renew, modify, or let the provisions from the TCJA sunset as planned, it never hurts to be prepared.
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