The income and estate tax landscapes could look vastly different after next year because provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of 2025. Unless action is taken in Washington, here are some of the scheduled changes:
- The individual income tax rates—currently 10%, 12%, 22%, 24%, 32%, 35% and 37%—will revert to 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The starting point for each of the brackets will change, too.
- The standard deduction, which was more than doubled, will be cut back.
- The 60%-of-AGI limit on cash gifts to charity will revert to 50%. The $10,000 limit on deductions for state and local taxes will be eliminated.
- Estate, gift and generation-skipping transfer tax exemptions will drop. In 2024, a credit of $5,389,800 shelters estates and gifts up to $13,610,000 from tax. The credit is scheduled to drop to pre-TCJA levels, plus inflation in the interim.
- The qualified business income deduction for the self-employed and owners of pass-through entities will be eliminated. Personal exemptions will return. Prior to the TCJA, taxpayers could deduct $4,050 (adjusted for inflation) for themselves and their dependents.
- Miscellaneous itemized deductions exceeding 2% of AGI will return. (These include tax return preparation fees, unreimbursed employee expenses and brokerage and IRA fees.)
- Itemized deduction and personal exemption cutbacks on high-income taxpayers will return. In 2017, the cutback applied when AGI exceeded $261,500 for single taxpayers and $313,800 for joint filers. Deductions are reduced by 3% of the amount by which a taxpayer’s AGI exceeds the threshold, up to a maximum of 80%. This applies to deductions for home mortgage interest, real estate taxes, state and local taxes, miscellaneous itemized deductions and charitable contributions.
Kathy Sperlak, JD, is a technical editor and advisor for Sharpe Group.
