The Tax Cuts and Jobs Act (TCJA) of 2017 introduced sweeping changes to the U.S. tax code. While many of its provisions have benefited individuals and businesses, several are set to expire at the end of 2025. Provided for informational purposes by Optima Tax Relief, reviews the key provisions that could change if Congress does not extend them.
Individual Income Tax Rates and Brackets
One of the most notable changes under the TCJA was the reduction in individual income tax rates. The current rates, ranging from 10% to 37%, are set to revert to the pre-2018 brackets, which peaked at 39.6%. If Congress does not take action, this reversion may lead to higher tax bills for many income brackets.
Standard Deduction Increase
The TCJA nearly doubled the standard deduction. In 2024, it is $14,600 for single filers and $29,200 for joint filers. However, this increase is temporary and will revert to its previous, lower levels after 2025. As a result, more taxpayers might opt to itemize deductions, especially if other provisions, like the State and Local Tax (SALT) deduction cap, are not extended.
State and Local Tax Deduction (SALT) Cap
The TCJA limited the SALT deduction to $10,000, significantly impacting taxpayers in high-tax states. If this provision expires, the previous unlimited deduction could return, possibly offering some relief to these taxpayers.
Child Tax Credit (CTC)
The TCJA increased the Child Tax Credit from $1,000 to $2,000 per child and expanded eligibility. After 2025, the credit may revert to its previous amount unless extended by Congress. This reduction could increase the tax burden for families with children.
Qualified Business Income (QBI) Deduction
The QBI deduction allows eligible pass-through entities to deduct up to 20% of their qualified business income. This deduction is slated to expire after 2025, potentially increasing the tax liability for many small business owners and self-employed individuals if Congress does not extend it.
Estate and Gift Tax Exemption
The TCJA doubled the estate and gift tax exemption. In 2024, the estate tax exemption is $13.61 million per individual (adjusted annually for inflation). However, this increase is temporary and will drop back to approximately $5 million per individual if no action is taken, possibly impacting estate planning strategies.
Alternative Minimum Tax (AMT)
The TCJA significantly raised the AMT exemption amounts, reducing the number of taxpayers affected by it. If the current exemption levels expire, more individuals might be subject to the AMT, which could increase their overall tax liability.
Other Temporary Provisions
Additional provisions set to expire include limits on mortgage interest deductions, changes to alimony payments, and the repeal of personal exemptions. Each of these changes could have a notable impact on individual taxpayers if allowed to expire.
Why These Provisions Matter
If the TCJA’s expiring provisions are not extended, taxpayers could face significant changes in their tax liabilities. Businesses and individuals may need to adjust their financial plans in anticipation of higher tax rates, lower deductions, and altered credits. Staying informed and planning ahead might help mitigate the potential impact.
As 2025 approaches, taxpayers should keep an eye on legislative developments to ensure they are prepared for these possible changes. For specific tax advice and to understand the potential implications for individual financial situations, consulting with a qualified tax professional is recommended.
Disclaimer: This content is provided for informational purposes only and is not intended as financial, legal, tax, or any other form of professional advice. It does not replace the advice of qualified financial, legal, or other professionals. Readers are encouraged to seek guidance from appropriate professionals before making any financial, legal or tax-related decisions.
Published By: Aize Perez
