In case you haven’t heard, there are some tax provisions set to expire in 2025 if Congress takes no action. August is upon us, and we have four months left in 2024. Take a look at what may expire and prepare accordingly.
The Tax Cuts and Jobs Act (TCJA) of 2017, signed into law, is set to sunset on December 31, 2025. Unless Congress renews the law, certain key tax provisions will expire at the end of next year. The TCJA impacts mainly high-net-worth individuals and corporations. However, some also affect regular taxpayers.
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Pay Attention to The Following
- Individual Tax Rates: The TCJA reduced individual income tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If Congress allows the TCJA to expire at the end of 2025, the 2026 income tax rates will revert to the higher pre-2017 rates of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
- Standard Deductions: Under the TCJA, the pre-2017 standard deduction increased to $24,000 for married couples filing jointly and $12,000 for individuals. However, if this component of the TCJA expires, the standard deduction will be cut in half, returning to pre-2017 rates (adjusted for inflation).
- State and Local Tax Deductions: State and local taxes deductions include state property, sales, and income taxes. The TCJA capped state and local tax deductions at $10,000, and this provision will expire when the TCJA does.
- Mortgage Interest Deductions: Because of the TCJA, married homeowners filing jointly could deduct interest paid only on the first $750,000 worth of home loan debt. (This provision only applied to home loans that originated on or after December 16, 2017.)
- The cap will increase after 2025: You can deduct interest accrued on $1 million worth of home loan debt.
- Home Equity Loan Interest: With the TCJA, homeowners could no longer deduct interest paid on home equity loans. If the TCJA expires, homeowners will once again be able to deduct home equity loan interest on loans up to $100,000.
- Child Tax Credits: As with standard deductions, the TCJA doubled the amount taxpayers could receive in child tax credits for their dependents. The law also raised the income threshold required to qualify for the benefit, meaning more higher-income families could take advantage of the tax credit.
- If this provision expires, the child tax credit will be cut in half starting in 2026, reverting to $1,000 per child from $2,000 per child.
- Miscellaneous Itemized Deductions: Along with limiting or changing some of the most common deductions (like SALT and mortgage loan deductions), the TCJA also eliminated deductions for miscellaneous expenses, such as unreimbursed employee expenses. If the law expires, you’ll once again be able to deduct miscellaneous items as long as those expenses come to over 2% of your adjusted gross income for the year.
- Personal Exemptions: The TCJA eliminated personal exemptions, which are set to return in 2026. Prior to the 2017 law, personal exemptions were limited to $2,000 for each individual and qualifying dependent. Adjusted for inflation, that amount will likely be closer to $4,700.
Job-Related Moving Expenses: Now, only members of the military get the break.
- Alternative Minimum Tax (AMT): The alternative minimum tax is a 1960s-era tax provision meant to stop the ultra-rich from exploiting tax deductions so they would pay even less in taxes than those in the lowest tax brackets. However, the AMT was never adjusted for inflation, so laws meant to ensure fair tax collection in the 1960s can now cause middle-income earners to pay more than they should. The TCJA instituted a higher earning threshold for the AMT, ensuring fewer individual citizens had to pay the AMT.
- Charitable Donations: Starting in 2018, the annual deduction for charitable cash donations to qualified charities was raised to 60% of your adjusted gross income (AGI) from 50%, which meant wealthy donors could benefit from higher deductions. If the TCJA expires, the deduction limit will decrease to 50%.
For those who have crypto digital assets, the IRS issued final regulations for reporting digital assets (T.D. 10000), These regulations provide guidance on information reporting and the determination of amount realized and the basis for certain digital asset sales and exchanges.
2025 is also the last year for two tax breaks not in the 2017 law: The expansion of the Obamacare health premium credit to more individuals who buy insurance through a marketplace. And, most student loan debt forgiven from 2021 through 2025 is exempt from federal income tax, which is an exception to the general rule that income from the cancellation of indebtedness is taxable.
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Stay Tuned Be Ready
Let’s see if the TCJA expires or if the 2025 Congress and administration decide to renew it or at least to renew certain provisions. Talk to your accountant about how to prepare for these potential changes and preserve what you can of your “net net” in the door.
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