TCJA Sunsets: Quick Hits for Individual Taxpayers

The Tax Cuts and Jobs Act (TCJA), enacted in 2017, introduced significant changes to individual federal taxes. However, many of these provisions are set to expire, or “sunset,” at the end of 2025, creating uncertainty for tax planning. Here’s a list of quick hits on the major provisions that could revert to prior rules and the potential impacts on taxpayers.

The TCJA temporarily lowered individual tax brackets, with rates ranging from 10% to 37%. If these provisions expire, the top rate would return to 39.6%, impacting many households. Short-term capital gains, which align with income brackets, would also be subject to these higher rates.

The TCJA retained preferential rates for long-term capital gains (LTCGs) and qualified dividends, with brackets at 0%, 15%, and 20%. Should Congress allow this provision to lapse, the 20% rate may kick in sooner for high earners, aligning with the highest income tax bracket.

The TCJA increased AMT exemption amounts, reducing its reach. If the provision expires, previous AMT thresholds would apply, potentially subjecting more taxpayers to this additional tax.

The TCJA nearly doubled the standard deduction, providing substantial tax relief for many who don’t itemize. For 2024, single filers can claim $14,600, married couples $29,200, and heads of households $21,900. If these revert, standard deductions would return to pre-2018 amounts, reducing this benefit.

The TCJA suspended exemptions for dependents and individuals. Previously, each exemption was worth several thousand dollars, and reinstating it could provide tax relief to larger families.

The child tax credit doubled to $2,000 per child under the TCJA, with an additional $500 credit for non-child dependents. If this provision expires, the maximum credit would decrease, and the $500 dependent credit would be eliminated.

Currently, SALT deductions are capped at $10,000. This limit could be removed, potentially allowing higher-income taxpayers to deduct more in state and local taxes.

Mortgage interest deductions are limited to loans up to $750,000 for primary or secondary residences, a reduction from the previous $1 million cap. If this TCJA cap expires, the higher limit could be reinstated, offering greater deductions to homeowners.

Prior to the TCJA, high earners faced a phaseout that could reduce itemized deductions by up to 80%. The TCJA suspended this rule, but it may return if the provision is not extended.

The TCJA suspended deductions for moving expenses, with exceptions for active-duty military. This deduction could be reinstated, again allowing unreimbursed moving expenses to reduce taxable income.

The TCJA raised the limit on cash contributions from 50% to 60% of adjusted gross income. If this provision is not extended, the lower cap would apply, potentially affecting high-income donors.

The TCJA raised the estate and gift tax exemption to $10 million (indexed for inflation), reaching $13.61 million in 2024 per individual. Without an extension, the exemption would revert to approximately $5.5 million, impacting estate planning for high-net-worth individuals.

The future of these provisions depends on legislative decisions, likely influenced by recent elections. Given the possible expiration, individual taxpayers should stay prudent and ensure they understand how these potential changes could impact their situation. As always, consult with a trusted advisor (such as CSH) to properly anticipate and plan for your future tax obligations.