Approaching the potential sunset of Tax Cuts and Jobs Act (TCJA) provisions
Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
- The Tax Cuts and Jobs Act of 2017 (the “TCJA”) remodeled several provisions of the U.S. tax code for individuals and businesses.
- However, many of the provisions included in the TCJA are set to expire at the end of 2025 or in the next several years unless Congress acts to extend or preserve them.
- As December 31, 2025, approaches, it’s important to understand and keep in mind that these provisions may expire and explore strategies to optimize potential impacts and utilize favorable rules while they are still available.
For individuals
The TCJA reduced the top marginal income tax rate from 39.6% to 37% and updated the income tax thresholds across several income tax brackets. In 2026, the top rate is set to revert to 39.6%. Taxpayers may consider accelerating income that would otherwise be included in 2026 or later into 2024 or 2025 or investing in a Roth IRA to mitigate the risk of rising ordinary income tax rates in 2026.
The standard deduction was nearly doubled under TCJA ($15,000 for individuals and $30,000 for those married filing jointly), and certain limitations were placed on itemized deductions, which made the standard deduction more attractive to many taxpayers. However, starting in 2026, the standard deduction would revert to pre-TCJA levels and limitations on the following itemized deductions are set to sunset: the state and local tax deduction, the mortgage interest deduction, moving expenses, and the miscellaneous deduction. Notably, the $10,000 cap on the deduction for state and local income taxes against federal taxes would be lifted and interest on mortgages up to $1,000,000 would be deductible (up from $750,000 under the TCJA). The expiration of these provisions will likely result in many taxpayers who may have been utilizing the standard deduction since the TCJA instead choosing to itemize deductions again in 2026.
In addition, the limit on the charitable deduction is set to revert from the TCJA’s limitation of 60% of adjusted gross income (AGI) for gifts of cash to public charities to a limit of 50% of AGI.
Under the TCJA, the child tax credit was increased from $1,000 to $2,000 per qualifying child and the income threshold for phase out of the credit was also increased to $400,000 for a married filing jointly couple. This credit would revert to the pre-TCJA amount of $1,000 in 2026, and the income threshold for phase out of the credit would be $110,000.
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Also, for high net worth individuals the TCJA nearly doubled the estate and gift tax exemption limits. For 2025, the lifetime exemption from estate and gift taxes is $13.99 million per person, and $27.98 million for a married couple. These exemption amounts are set to revert to pre-TCJA levels and, if so, would be around $7.25 million per individual and $14.5 million per married couple starting on January 1, 2026. The same sunset provisions also apply to the Generation Skipping Transfer Tax (GSTT) exemption. You might consider exploring your gift and estate planning options with a J.P. Morgan professional along with your estate attorney.
For businesses
The TCJA introduced the qualified business income deduction, also known as the Section 199A deduction, which allows qualifying business owners to deduct up to 20% of their qualified business income. If the qualified business income deduction sunsets business owners may lose this tax deduction which may increase their taxable income and it may also make operating a business through a “flow-through” entity such as a partnership or an “S” corporation relatively less appealing as compared to operating a business through a “C” corporation, particularly if C corporation tax rates are further reduced.
The TCJA allowed businesses to use 100% “bonus depreciation” to deduct 100% of the cost of certain qualified property in the year the property is placed in service, whereas prior to the TCJA, bonus depreciation was allowed at 50%. Permissible bonus depreciation is set to revert to 0% starting January 1, 2027. Business owners may wish to accelerate their capital expenditures before 2027 to utilize the favorable 100% bonus depreciation rule while it is still available.
The bottom line
This article describes some, but not all, of the key provisions of the TCJA that may expire in the near future, and we expect Congress to address some of these sunsetting provisions at some point in 2025. To read a more extensive overview of all the provisions set to expire, check out the full-length white paper here (PDF).
A J.P. Morgan professional can work with you and your estate and income tax planning attorney to help determine how best to plan in advance for these anticipated changes to the estate and income tax rules.
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Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
