6 Tax Complications Posed by Tax Cuts and Jobs Act Sunset in 2025

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Money likes certainty, and right now there’s ambiguity ahead.

In 2017, the Trump Administration passed one of the largest tax cuts in U.S. history. While this was a complicated law with many moving pieces, it focused broadly on three main areas: reducing corporate taxes, reducing high-income individual taxes, and doubling the standard deduction for individuals. Beyond that, the Tax Cuts and Jobs Act (TCJA), rearranged a large number of deductions and tax breaks.

As is relatively common practice, Congress wrote many of the TCJA’s provisions to expire within a set number of years. This is known as a “sunset provision.” In theory, legislators use this when they want a law to address a temporary condition, or when they want to test a law’s impact before making it permanent. In practice, it may be implemented as a budgeting tactic to make laws seem less expensive at the time of passage.

While most, if not all, of the corporate tax cuts in the TCJA were written to be permanent, many of the law’s changes to the individual tax code are scheduled to sunset in 2025. This means that those provisions will apply for tax year 2025, but will not apply to tax year 2026.

This has created significant uncertainty around the tax situation going forward. That said, the incoming Trump Administration, along with Republican leadership in both the House and Senate, have said they intend to make these tax cuts permanent. That does not mean there will be no changes, but with Republican majorities in Congress and a Republican White House, it is likely that many, if not most, of the TCJA provisions will be extended.

Here are the most important parts of the tax law that are set to expire unless they are extended. You can also connect with a financial advisor who can help you navigate and prepare for changes to the tax code.

The TCJA eliminated what were called “personal exemptions.” These were dollar amount deductions that you could claim for yourself and your dependents, effectively allowing larger families to claim larger deductions.

The law also roughly doubled the size of the standard deduction. This is a dollar amount reduction to your income that all taxpayers can claim as an alternative to itemizing their taxes. Since most households use the standard deduction, in practice this gave a tax break to most individuals. This tax break somewhat offset the elimination of personal exemptions.

If the TCJA expires, in tax year 2026 an individual will receive a personal exemption of around $5,300 and a standard deduction of around $8,350 ($13,650 total). If the TCJA is extended or made permanent, in tax year 2026 an individual will receive a standard deduction of $15,450 and no personal exemption. If the law expires, a married couple will receive a personal exemption of $10,600 ($5,300 per person) and a standard deduction of around $16,535 ($27,135 total). If the law remains in place, a married couple will receive a standard deduction of $30,725 and no personal exemptions.

This change would be most significant for families, as this element of the TCJA effectively raised taxes for people with dependents. For example, if the TCJA expires a married couple with two children will be able to reduce their taxable income by $37,735 ($5,300 personal exemption * 4 + $16,535 standard deduction). If the TCJA is extended, that same family will be able to reduce their taxable income by $30,725 ($0 personal exemptions + $30,725 standard deduction).

The Tax Cuts and Jobs Act also lowered some of the tax brackets. If the law expires, those brackets will reset to their levels in 2017. Here is how the current rates compare with the potential changes based on the 2025 income thresholds.

Many itemized deductions were restructured or eliminated by the TCJA. This was, in large part, due to the increased size of the standard deduction. Some of the most significant line-item deductions that will change if the TCJA expires include:

Miscellaneous deductions, including tax preparation and financial services, will return
State and local tax deductions above $10,000 will return
Mortgage interest will be deductible for larger mortgages
Charitable contributions will be deductible up to 50% of income rather than up to 60%
Unreimbursed medical expenses will be deductible up to 10% of income rather than 7.5%

The combined effect of the TCJA was to significantly reduce the number of taxpayers who take itemized deductions in favor of the standard deduction, and to reduce the savings for people who do line-item their taxes.

Consider speaking with a financial advisor if you’re interested in building a tax-efficient strategy to manage your wealth amid legislative changes.

The TCJA doubled the child tax credit available to households, from $1,000 per-child to $2,000 per-child. This was designed, in part, to offset the impact of eliminating personal exemptions. (While significantly smaller than personal exemptions, the child tax credit directly reduces a family’s taxes rather than just reducing their taxable income.) The TCJA makes this tax credit refundable up to $1,700 per-child.

If the law expires, the child tax credit would revert to its previous incarnation. As currently written, it would be a fully refundable credit worth $1,000 per-child. It is unclear whether this would be adjusted for inflation, but the law is not currently written to automatically do so.

The TCJA doubled the lifetime exemption for gifts and estates. As currently written, an individual can give away up to $13.99 million in their lifetime untaxed, beyond the annual exclusions, whether through gifts or your estate. Married couples can give away $27.98 million.

If the TCJA expires, this will revert to its inflation-adjusted rates of half that value. Individuals will be able to pass up to $6.99 million untaxed, and married couples will be able to give away up to $13.99 million above their annual exclusions.

Consider speaking with a financial advisor for help with your estate plan, gifting and more.

Finally, under the TCJA small businesses and self-employed individuals receive a 20% tax deduction for what is known as “pass-through” income. Broadly speaking, this is money you take as income directly from the profits of running your business, rather than in the form of a structured paycheck. This generally applies to sole proprietorships, S-corporations and partnerships. This deduction will expire with the law.

Many elements of the Tax Cuts and Jobs Act, a sweeping 2017 law that cut and restructured taxes, are scheduled to expire in 2025. This would change how many households pay taxes, particularly high-earners.

Don’t let tax season catch you by surprise. Start planning how you will manage your taxes and file them early, and avoid the April 14 scramble.
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