The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the tax code. But here’s the catch: many of these provisions are set to expire at the end of 2025. This means tax planning for individuals and businesses will need to take these potential changes into account.
What Happens When TCJA Expires?
Let’s delve into some of the key changes introduced by TCJA and what might happen if they’re not extended:
- Reduced Standard Deductions: The TCJA significantly increased the standard deduction, a set dollar amount you can subtract from your taxable income without itemizing deductions. This simplified filing for many taxpayers. If TCJA sunsets without changes, the standard deduction will likely revert to pre-TCJA levels, which could mean higher taxes for some.
- Return of Personal and Dependent Exemptions: Before TCJA, taxpayers could deduct a set amount for themselves, their spouse, and their dependents. This exemption disappeared with TCJA. Its return in 2026 could benefit some filers, particularly those with larger families.
- Potential Child Tax Credit Changes: The TCJA doubled the child tax credit and raised the income limits for eligibility. If these changes expire, the credit amount could decrease, and fewer families may qualify.
- Home Mortgage Interest Deduction Limits: TCJA limited the amount of mortgage interest taxpayers could deduct on their home loans. If these limits revert to pre-TCJA levels, it would benefit high-income earners with expensive homes.
- Loss of Miscellaneous Deductions: TCJA eliminated deductions for various miscellaneous expenses like unreimbursed employee business costs and investment fees. These deductions might return in 2026, increasing tax breaks for some filers.
- Potential Return of Itemized Deduction Phaseouts: Before TCJA, itemized deductions (like charitable contributions) were phased out for higher earners. The return of these phaseouts could make tax filing more complex for those in high-income brackets.
- SALT Deduction Limits: TCJA capped the state and local tax (SALT) deduction. This primarily impacted residents of states with high income and property taxes. The elimination of this cap in 2026 would benefit taxpayers in those areas.
- Moving Deduction Revival: TCJA eliminated the deduction for job-related moving expenses. Its return could help individuals relocating for work, especially if their employers don’t reimburse moving costs.
- Changes to Commuting Tax Benefits: TCJA suspended a benefit that allowed employers to offer tax-free bicycle commuting reimbursements. Additionally, employers could no longer deduct certain transit and parking benefits provided to employees. The expiration of TCJA could prompt employers to reinstate these benefits.
- Return of Personal Casualty Loss Deductions: TCJA eliminated deductions for personal casualty losses not caused by federally declared disasters. If reinstated, these deductions could help taxpayers recoup some uninsured losses exceeding a certain threshold.
- Estate Tax Exclusion Adjustments: TCJA significantly increased the estate and gift tax exclusion, benefiting wealthy taxpayers. A return to pre-TCJA levels would only affect high net worth individuals.
- Potential Tax Bracket Changes: TCJA introduced new tax brackets, generally lowering tax rates. A return to pre-TCJA brackets would likely result in higher taxes for upper-income earners.
- AMT Uncertainty: The Alternative Minimum Tax (AMT) applies to some taxpayers whose deductions and credits significantly reduce their taxable income. TCJA made the AMT less impactful, but its future remains uncertain after 2025.
- Qualified Business Income (QBI) Deduction Impact: TCJA introduced a deduction for qualified business income (QBI) for certain business structures. The expiration of this deduction could mean higher tax bills for many small business owners.
It’s Important to Note:
- This is not an exhaustive list of potential changes.
- Congress might extend or modify these provisions before the expiration date.
It’s Important to Stay Informed
These are just some of the potential tax changes coming in 2026. The actual outcome will depend on what Congress decides. Regardless, these potential changes highlight the importance of staying informed about tax law updates, especially for long-term financial planning.
Contact us if you have any questions about how these potential changes might affect you. We can help you navigate the complexities of tax planning and ensure you’re prepared for the upcoming tax season.
