Update – Significant Expiring Provisions of the Tax Cuts and Jobs Act

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA) making significant changes to the existing tax code. Many of the provisions of the act were set to expire at the end of 2025 and most of the sunsetting provisions apply to individual taxpayers. Incoming president Donald Trump favors extending all the provisions, and with a Republican Congress, chances are good that these provisions will be extended. However, when and how that will happen remains to be seen.

Some of the most significant expiring provisions for individuals include:

1. Standard deduction – TCJA increased the standard deduction and eliminated personal exemptions. If this provision expires, the standard deduction for a married couple in 2026 will be approximately $16,525 and the personal exemption amount about $5,275. If the provision is extended, the standard deduction would be about $30,725 for the same taxpayers with a personal exemption of $0.
2. Individual income tax rates – TCJA cut the top marginal tax rate from 39.6 percent to 37 percent. The other new individual tax rates were 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, and 35 percent. If this provision expires, the seven individual tax rates in the Internal Revenue Code will return to 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent.
3. State and local tax deduction – TCJA imposed a $10,000 cap on the deductibility of state and local taxes. If this provision expires, all state and local property taxes and income taxes (or sales taxes in some instances) will be deductible. High-income taxpayers in high-tax states would most benefit from the expiration of this provision.
4. Child tax credit – TCJA increased the tax credit for each child under seventeen from $1,000 to $2,000 and increased income thresholds at which the credit phases out. If this provision expires, the child tax credit will return to $1,000 and income thresholds will drop to 2017 levels.
5. Deductions for small business income – TCJA provided a 20 percent deduction for qualified pass-through income for sole proprietorships, partnerships, and S-corporations. If the provision expires, this deduction will no longer be available.
6. Alternative minimum tax exemption amounts were increased under TCJA along with the income levels at which the exemptions phased out. This resulted in fewer taxpayers being liable for the AMT tax. If the provision expires, more taxpayers will have to calculate and pay this tax.
7. Estate taxes – TCJA doubled the estate tax exemption, adjusted each year for inflation. If the estate and gift tax exemption sunsets, it will be reduced from $13.61 million per person (in 2024) to approximately $7 million per person.

We expect to see Congress make some changes to provisions relating to business taxation in 2025 and 2026. Significant changes TCJA made to taxation of businesses and possible changes that may be in the future include:

1. The corporate tax rate was reduced from 35 percent to 21 percent. While this was a permanent change, it is a tempting target for policymakers looking for ways to pay for other investments and offsets.
2. Bonus depreciation was being phased out by TCJA and will be 0 percent beginning in 2027. The section 179 expense limit of $1,220,000 and phase-out threshold of $3,050,000 is now a permanent part of the tax code. Accelerated depreciation seems to be a favorite for Congressional tinkering, so we expect to see changes here, but nothing has been done yet.
3. Interest deduction limitation – For large businesses, TCJA limited deductions for net interest expenses to 30 percent of adjusted taxable income. As in many provisions of the tax code, exceptions apply. If this provision expires, business taxpayers would likely be able to deduct more interest expense and lower their overall tax bills.
4. Limits on net operating loss (NOL) deductions – TCJA limited how much NOL could be used to offset prior and future year income. This provision expiring could allow businesses more flexibility in carrying back losses to prior years and offsetting future taxable income with current losses.

With Donald Trump taking office, we expected to see tax legislation taking center stage. However, House Republicans wrapped up a three-day issues conference on January 29 without an agreement on what 2025 tax reform should look like. One issue preventing consensus is concern that renewing TCJA provisions will not reduce the national debt unless additional changes are made. Another is that some of the TCJA extensions and other tax cut proposals would negatively impact families while benefitting the wealthy. We are keeping a careful eye out for changes and will let you know as they occur.