Taxpayers face challenges as tax provisions sunset in 2025

Taxpayers face challenges as tax provisions sunset in 2025

While today’s tax code is favorable for many taxpayers, unless Congress acts, current tax rates expire at the end of 2025. Additionally, most provisions in the tax code will expire as well, creating a challenging tax planning environment for taxpayers and their advisors. While tax rates will increase, the expiration of key tax provisions represents a mix of positive and negative repercussions for taxpayers.

On the positive side:

  • The SALT deduction will no longer be capped at $10,000 annually (but will be subject to phaseouts at higher income levels)
  • The deduction allowed for mortgage interest increases
  • Miscellaneous deductions return (e.g., deduction for certain investment expenses)

On the negative side:

  • The standard deduction will be reduced roughly in half
  • The alternative minimum tax (AMT) will apply to many more taxpayers
  • The unified lifetime exclusion for estates and gifts will be roughly reduced in half

Here’s an analysis of how key tax provisions may change upon expiration of the Tax Cuts and Jobs Act (TCJA):

Comparison of key tax provisions

Provision 2023 Post-TCJA expiration
Standard deduction $13,850 for individuals,
$27,700 for couples
Reduced roughly in half; prior to TCJA, the standard deduction was $6,350 for individuals, $12,700 for couples
State and local tax deduction (SALT) Capped at a maximum of $10,000 No cap applies, deductions phaseout at higher income levels due to the Pease limitation (phaseout begins at $261,500 for individuals, $313,800 for couples)
Mortgage interest deduction Limited to interest on $750,000 of qualified debt Limited to interest on $1,000,000 of qualified debt and an additional $100,000 of qualified home equity interest debt
Miscellaneous deductions Not available Applicable once deductions exceed 2% of AGI; examples include investment fees, job search expenses, uniforms, unreimbursed work-related expenses
Personal exemptions Not available $4,050 per taxpayer and qualified dependents; phaseout at higher income levels begins at $261,500 for individuals, $313,800 for couples
Child Tax Credit $2,000 per qualifying child (under age 17); $500 for other dependents; phaseout begins at $200,000 for individuals, $400,000 for couples $1,000 per qualifying child with income phaseouts beginning at $75,000 for individuals, $110,000 for couples
Alternative Minimum Tax (AMT) Applies to relatively few taxpayers given high exemption amounts ($81,300 for individuals, $126,500 for couples) and income phaseout amounts ($578,150 for individuals, $1,156,300 for couples) AMT would apply to significantly more taxpayers due to much lower exemption and income phaseout amounts
Deduction for Qualified Business Income (QBI) 20% deduction applicable for pass-through businesses depending on circumstances Not available
Estate and gift tax Unified lifetime exclusion amount is $12,920,000 per individual Unified lifetime exclusion amount reduced roughly by half

Note: Assumes that Congress does not take legislative action and the tax rates and provisions under the TCJA expire as scheduled at the end of 2025. Taxpayers should consult with a qualified professional on their personal tax and estate planning circumstances.

Planning considerations

  • Since most taxpayers currently claim the standard deduction, consider lumping several years’ worth of charitable gifts into one tax year to itemize deductions for that year, while claiming the standard deduction for other years
  • For those age 70½ or older, donate to charities from an IRA using a tax-free qualified charitable deduction (QCD)
  • High net-worth families may want to consider a gifting strategy to transfer wealth before the current gift and estate lifetime exclusion expires
  • Certain pass-through business owners may want to consult with a tax professional given the expiration of the 20% qualified business income (QBI) deduction. Since the tax rate for a C-Corp does not expire (remains at 21%), certain S-Corp business owners may want to explore a conversion to a C-Corp if it would yield a more favorable tax outcome

For more detail on potential changes in tax rates for tax filing as well as key provisions that could change, and planning considerations, read “Looking ahead to the expiration of the TCJA.”


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