The TCJA Sunset: Possible Changes on the Horizon
On Dec. 22, 2017, 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 of the temporary changes for individual taxpayers could sunset, unless Congress takes action.
Should you be thinking ahead to the possibility of tax rates reverting to their pre-2018 levels? While anything could happen between now and the end of 2025, it’s probably a good idea to stay up-to-date on which provisions could expire and discuss the implications with your financial, estate, or tax advisor. Here is an overview of some of the Act’s sunsetting provisions:
Individual Tax Rates
The TCJA lowered tax rates for many individuals and married couples. If allowed to sunset on Dec. 31, 2025, the following rate changes 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 standard deduction in 2018 to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. If allowed to revert to their pre-TCJA schedule, these amounts would be much lower. For 2018, before the TCJA, the standard deduction for married filing jointly would have been $13,000, $9,550 for head-of-household filers, and $6,500 for all other taxpayers.
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 that originated 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
Under the TCJA, the personal exemption amount, used to calculate taxable income, was effectively eliminated until the sunset date. Prior to 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 allowed to lapse, 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. In December 2023, Savant’s director of wealth transfer, Dominick Parillo, outlined several strategies to consider now.
At this point, we don’t know whether Congress intends to renew, modify, or let the provisions from the TCJA sunset as planned, but it never hurts to be prepared. If you have questions, team Savant is ready to help. Schedule an introductory call today!