When and which provisions will expire, and potential Democratic and Republican proposals for an Act extension.
Just as the dust finally settled from the tax law changes unleashed with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, a new round of changes are on the horizon as the profession braces for potential sunsetting provisions, most of which would impact individual taxpayers.
The passage of the TCJA in December 2017 was significant as it overhauled the tax landscape for both individuals and corporations. The Act shifted millions of Americans to the standard deduction and reduced both individual and corporate tax rates, to name just a few of the reforms.
Now, many of the provisions enacted by the TCJA are set to expire at the end of 2025. And while most eyes are fixed on the outcome of the 2024 U.S. presidential election, if Congress doesn’t extend the TCJA, then nearly every American will be impacted by the sunsetting provisions.
To help ensure taxpayers are aware of the changes, accounting professionals need to stay informed of any extensions that may arise and also the ramifications should Congress let the Act expire. This article takes a closer look at some of the expiring TCJA provisions and potential extensions.
Jump to ↓
| When does the TCJA expire? |
| What are the expiring TCJA provisions? |
| Democratic and Republican Party tax platforms |
| Keeping an eye on the TCJA |
When does the TCJA expire?
Many of the provisions impacting individuals and families are set to expire at the end of 2025. This means that more than $4 trillion in tax increases will take effect Jan. 1, 2026, charging next year’s Congress and administration with the hefty task of grappling with the tax hikes.
Meanwhile, many of the provisions impacting businesses, including pass-through entities, are set to expire between 2025 and 2028.
While both businesses and individuals will be impacted, most of the provisions set to expire at the end of 2025 will have a notable impact on individuals and families. Therefore, accountants must remain aware of any possible extensions that could affect their individual clients.
What are the expiring TCJA provisions?
The standard deduction, individual tax rates, and the child tax credit are just a few of the provisions affecting individual taxpayers set to expire. Let’s take a closer look at some of the more notable provisions on the chopping block.
Standard deductions
Under the TCJA, basic standard deduction amounts in 2018 were nearly doubled to $12,000 for single filers, $18,000 for head of household filers, and $24,000 for married joint filers. Because of this, many taxpayers have not itemized deductions. This could change.
Beginning in 2026, the basic standard deduction would be roughly half of what it is now, adjusted for inflation. While this may result in many taxpayers once again itemizing their deductions, some taxpayers may find that their itemized deductions will be less than the higher standard deduction under the TCJA.
Individual tax rates
The TCJA lowered individual tax rates; however, at the end of 2025, the individual tax rates will revert to their pre-TCJA levels. This means individual tax rates will be 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. As a result, many clients may be looking for ways they can take advantage of the current lower rates.
Child tax credit
Under the TCJA, the child tax credit was increased from $1,000 to $2,000 per qualifying child, with a phaseout threshold of $200,000 for unmarried taxpayers and $400,000 for married joint filers. In 2026, the child credit will revert back to its pre-TCJA structure of $1,000 per qualifying child. The phaseout threshold will drop down to $75,000 for unmarried taxpayers and $110,000 for married joint filers.
State and local tax (SALT) deduction
Under the TCJA, taxpayers who itemize their deductions can deduct up to $10,000 in state and local income, sales (in lieu of income), and property taxes, as well as foreign income taxes (but not foreign real property taxes). For those taxpayers in high-tax states, the SALT cap has had a significant impact.
Unless extended by Congress, the SALT cap will expire at the end of 2025. Taxpayers will be able to deduct all eligible state and local income, sales (in lieu of income), and property taxes, as well as foreign income taxes. Furthermore, taxpayers will be able to deduct foreign real property taxes.
Estate and gift tax
The TCJA basically doubled the estate and gift tax basic exclusion amount. However, at the end of 2025, the estate and gift tax exclusion amount will be roughly cut in half (reduced from $10 million per decedent to $5 million per decedent and then adjusted annually for inflation).
Qualified Business Income
The qualified business income (QBI) deduction, which is set to expire at the end of 2025, would affect many small business owners.
Under TCJA, owners of pass-through entities like LLCs, partnerships, sole proprietorships, and S corporations, are able to claim a deduction of up to 20% of QBI. Unless extended, this deduction will be eliminated. Hence, pass-through business income will then be taxed based on individual income tax rates without a deduction for QBI.
It is important to note that this deduction was the shining star of TCJA and will most likely be extended, albeit in a modified form.
Democratic and Republican Party tax platforms
Given the opportunity for significant tax reform with the expiration of key provisions, both the Democratic and Republican parties are touting their tax platforms and have an interest in extending or making permanent a number of sunsetting provisions. Comparing both the Democrat and Republican Party platforms can shed light on the possible post-election tax landscape.
Possible Democratic Party extensions
Standard deductions: Democrats support a permanent extension of the TCJA’s individual provisions, such as the standard deductions, for those taxpayers making less than $400,000.
Individual tax rates: To not raise taxes for taxpayers making less than $400,000, Democrats support making the TCJA bracket that threshold. Furthermore, a top rate of 39.6% for single and married filing jointly taxpayers to $400,000 and $450,000, respectively, is proposed in the FY25 Green Book.
Child tax credit: Democrats would like to restore the child tax credit (CTC) expansion under the 2021 American Rescue Plan Act, which increased the credit to $3,000 for older children and $3,600 for younger children. In fact, Vice President Kamala Harris recently outlined her plans to further increase the credit amount for newborns to $6,000. This would result in a credit of $6,000 for newborns in their first year of life, $3,600 for children ages 2 through 5 years old, and $3,000 for children ages 6 and older.
SALT cap: Some Democrats support a repeal of or increases to the SALT cap. At this time, Kamala Harris has not yet shared her position on the SALT cap.
Estate and gift tax: This is proving to be a mixed bag, as opinions vary and there is currently no consistency in proposals from lawmakers who would like to see changes.
Possible Republican Party extensions
Standard deductions: Republicans support a permanent extension of the TCJA’s individual provisions, like standard deductions.
Individual tax rates: The Republican Party would like to see the TCJA bracket sizes and tax rates made permanent.
Child tax credit: Republicans are in favor of extending the current child tax credit amount ($2,000 per child) and thresholds.
SALT cap: Most Republicans oppose repealing or increasing the SALT cap. However, there are exceptions among some lawmakers who live in high-tax states.
Estate and gift tax: Many Republicans would prefer a full repeal of the estate tax. There is, however, support for a continuation of the current estate tax exemption levels.
Keeping an eye on the TCJA
There may currently be more questions than answers about the future of these TCJA provisions, but accountants must stay on top of the news regarding possible extensions of the TCJA. Keeping taxpayers in the know helps further strengthen client relationships and enables accountants to better manage expectations and unlock additional growth opportunities.
Turn to Thomson Reuters Checkpoint Edge with CoCounsel today to ensure your firm stays up to date on the latest developments in tax law this election season.
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