TCJA Provisions Set to Expire at the End of 2025: What Taxpayers Need to Know

The 2017 Tax Cuts and Jobs Act (TCJA) resulted in many favorable (and a few unfavorable) tax law changes. Most of the changes related to individual taxpayers are set to expire at the end of 2025. What does this mean for taxpayers? While it is expected that a new tax bill will be passed in 2025, taxpayers should start preparing for potentially higher tax bills if the small majorities in the House and Senate are not able to come to an agreement.

Rate Changes and Credit Amounts

Marginal Tax Rates. Pre-TCJA, the marginal tax rates capped at 39.6%. The TCJA lowered the tax rates and capped the highest rate at 37%. The marginal tax rates will revert to their pre-TCJA levels and income ranges (adjusted for inflation). This change does not impact capital gains and dividend rates.

Pass-Through Income. Typically, pass-through income is taxed according to the ordinary income tax. However, the TCJA created a 20% deduction for qualified business income (QBID). Many small businesses benefitted from QBID as it resulted in the highest rate for pass-through income of 29.6%. The 199A deduction is set to sunset and could result in a 10% tax increase on pass-through income.

Standard Deductions. The TCJA almost doubled the standard deduction. This allowed more taxpayers to use and benefit from the increased amount. In 2024, the standard deductions are $14,600 for single filers and $29,200 for married taxpayers filing jointly. The basic standard deduction amounts for 2018 were $6,500 for single filers and $13,000 for married taxpayers filing jointly. If the standard deductions return to the 2018 amounts, more taxpayers who do not itemize deductions will be subject to the lower limits. However, personal exemptions will return after the TCJA expires, which could favor many taxpayers with dependents that are not in the highest tax brackets.

Child Tax Credit. Under the TCJA, taxpayers could reduce their federal income tax liability by up to $2,000 for each qualifying child. The income cap is currently $200,000 for unmarried taxpayers and $400,000 for married taxpayers. The childcare maximum credit will be $1,000 with lower income caps of $75,000 for unmarried taxpayers and $110,000 for married taxpayers starting in 2026. With this change, fewer taxpayers may be able to utilize the child tax credit.

Itemized Deductions

Most itemized deduction changes will be favorable for individual taxpayers, especially for taxpayers who have been able to use the itemized deductions even with the larger standard deduction.

State and Local Taxes. Currently, taxpayers can only deduct up to $10,000 of their state and local taxes paid. For taxpayers with multiple state payments, this resulted in unused deductions and higher state tax payments. When TCJA expires, taxpayers can deduct all eligible state and local income and property taxes. This change will favor taxpayers with large W-2 income and/or pass-through income.

Miscellaneous Deductions Another big adjustment to itemized deductions under the TCJA was the removal of several miscellaneous deductions over 2% of adjusted gross income (AGI), including investment expenses, unreimbursed employee business expenses and tax compliance expenses. This provision is set to expire and will benefit W-2 employees who pay for expenses out of pocket and taxpayers who pay investment fees to their advisors.

Mortgage Interest Deduction. The current mortgage interest deduction debt cap is $750,000. When the TCJA expires, this will revert to $1,100,000 of the combined first and second mortgage regardless of the date that the debt is borrowed.

Personal Casualty Loss. Under the TCJA, a taxpayer can only deduct a personal casualty loss if the President declares their area a federal disaster area. This provision is set to expire and will allow more of these losses to provide a tax benefit.

Cash Donations. Under the current law, cash donations made to public charities are allowed up to 60% AGI. In 2026, these will be reduced to 50% of AGI.

Additional Provisions

Alternative Minimum Tax (AMT). The AMT exemption and phase-out will return to pre-TCJA levels, which means more taxpayers will be subject to AMT.

Moving Expenses. Currently, only members of the armed forces can deduct moving expenses (if they are incurred due to work at a new location). The deduction will return for all taxpayers in 2026. This is good news, especially as more employers are requiring remote workers to return to the office.

Estate and Gift Tax Exemption. The doubled unified estate and gift tax exemption will revert to approximately $7 million from $13,610,000, requiring extensive estate tax planning by the end of 2025 to take advantage of the increased exemption amounts.

A variety of tax laws are set to expire in 2025 - some favorable to taxpayers, others less so. We suggest you discuss your situation with your tax adviser now to plan for them. Estate planning discussions should begin this year, so that you can make decisions and execute a plan before the exemption sunsets.

Moore Colson will continue to follow TCJA-related legislative action and notify you of any additional tax law changes. If you have any questions about your specific situation, please contact us.