TCJA Sunset Implications: The Current Standing of the Tax Cuts and Jobs Act

Ryan Anderson
January 22, 2025

The Tax Cuts and Jobs Act (TCJA), which was passed in 2017 during President Trump’s first term in office, is set to expire at the end of 2025. Under this legislation many changes were made that significantly impacted taxpayers. Unless Congress extends the TCJA (or passes new legislation), these changes will revert back to the pre-TCJA laws. While Republicans won the House, Senate, and Presidency, this is no guarantee they will be able to come to an agreement to vote on an extension. A few of the key changes, should sunset occur, that would have a significant impact on high net worth and high-income earning households include:

  • Reduction of the gift & estate tax exemption
  • Increased income tax rates
  • Removal of the cap on SALT deductions
  • Removal of the 20% qualified business income pass-through deduction

Estate Tax Exemption

In 2017, prior to the gift and estate tax exemption increasing, the total amount an individual could remove from their estate during their lifetime (or at death) without incurring gift and estate taxes was $5.49 million. In 2025 the exemption amount is $13.99 million per individual. This increase opened the door for significant planning opportunities for wealthy individuals and families. The potential reduction of the exemption to pre-TCJA levels (adjusted for inflation) could create urgency for impacted taxpayers to act now to take advantage of the currently higher exemption amount. Additionally, there may be planning opportunities not only for families whose net worth currently exceeds the exemption, but also for families whose net worth is below the current exemption or who expect their assets to appreciate substantially in the future. While it is still uncertain what the exemption amount would revert to in 2026, for illustrative purposes we will assume $7 million per individual.

Example

Currently, a family with a net worth of $20 million would not need to worry about paying the estate tax if they were to pass in 2025 because each spouse could use up to their full exemption amount of $13.99 million ($27.98 million total). If, however, the current legislation sunsets and the total exemption between the two dropped to $14 million, $6 million would then be subject to estate tax. All other things being equal, this would result in a $2,400,000 tax bill ($6 million multiplied by 40%). This dynamic makes it prudent for families to review their current financial situation now to determine if there is any action they should take in 2025.

Tax Rates and Brackets

Another TCJA change that directly impacted taxpayers was the increase in income limits to reach various tax brackets, and the lowering of the highest marginal tax rate.

2016 Marginal Tax Brackets

Marginal Tax Bracket Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 to $9,275 $0 to $18,550 $0 to $9,275 $0 to $13,250
15% $9,276 to $37,650 $18,551 to $75,300 $9,276 to $37,650 $13,251 to $50,400
25% $37,651 to $91,150 $75,301 to $151,900 $37,651 to $75,950 $50,401 to $130,150
28% $90,151 to $190,150 $151,901 to $231,450 $75,951 to $115,725 $130,151 to $210,800
33% $190,151 to $413,350 $231,451 to $413,350 $115,726 to $206,675 $210,801 to $413,350
35% $413,351 to $415,050 $413,351 to $466,950 $206,676 to $233,475 $413,351 to $441,000
39.6% $415,051 and higher $466,950 and higher $233,475 and higher $441,001 and higher

2025 Marginal Tax Brackets

Marginal Tax Bracket Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 to $11,925 $0 to $23,850 $0 to $11,925 $0 to $17,000
15% $11,926 to $48,475 $23,851 to $96,950 $11,926 to $48,475 $17,001 to $64,850
25% $48,476 to $103,350 $96,951 to $206,700 $48,476 to $103,350 $64,851 to $103,350
28% $103,351 to $197,300 $206,701 to $394,600 $103,351 to $197,300 $103,351 to $197,300
33% $197,301 to $250,525 $394,601 to $501,050 $197,301 to $250,525 $197,301 to $250,500
35% $250,526 to $626,350 $501,051 to $751,600 $250,526 to $375,800 $250,501 to $626,350
39.6% $626,351 or more $751,601 or more $375,801 or more $626,351 or more

Example

A couple (Married Filing Jointly) with taxable income of $210,000 would currently fall in the 24% marginal income tax bracket. Pre-TCJA this same level of income would have put the couple in the 28% marginal income bracket.

SALT Deductions

The future of the State and Local Tax (SALT) deduction is unclear. Prior to the TCJA, the amount of State and Local Tax (i.e. property tax, income tax, sales tax) eligible for federal income tax deduction was unlimited. Under the TCJA, the SALT deduction is capped at $10,000. The reason the future here is uncertain is that, if the TCJA expires, the cap will be removed. If the TCJA is extended as is, the cap will remain in place. However, President Donald Trump has proposed eliminating the cap as part of the extension of the TCJA, making it especially unclear what the result will be surrounding this aspect of the law.

Example

An individual who lives in California earned $1 million. Their state income taxes could be over $100,000. Under pre-TCJA rules, because this $100,000 of state taxes could be used as a deduction from taxable income, the taxpayer could potentially save roughly $40,000 from federal income taxes owed. Barring any potential state rules, under the TCJA, the amount currently deductible from taxable income in this example would be limited to $10,000, resulting in a roughly $4,000 reduction in federal income taxes owed.

Pass-Through Business Income Deduction

Another change currently in place is the pass-through business income deduction. This allows qualifying business owners, whose business is structured as a pass-through entity, to deduct up to 20% of their qualified business income from their taxable income. Like all changes in the TCJA, the applicability of the QBI deduction varies from person to person. If the TCJA expires, business owners will no longer be able to utilize this deduction.

Miscellaneous

A few additional items worth noting should a sunset of the TCJA occur include:

  • Reduced deductibility for cash donations to qualified charitable organizations
  • The amount of home mortgage indebtedness for which interest is deductible
  • The return of miscellaneous itemized deductions subject to the 2% of AGI threshold

Under the TCJA, cash donations to qualified charities are deductible up to 60% of AGI. Were a sunset to occur, this would return to the pre-TCJA level of 50% of AGI. The amount of home mortgage indebtedness for which interest paid is deductible would rise from the current $750,000 back to $1,000,000. And, lastly, the 2% miscellaneous itemized deduction would return, opening up opportunity for additional itemized deductions.

Conclusion

As can be seen, there are many potential outcomes with the upcoming expiration of the TCJA. Financial professionals are keeping a close eye on developments. Ultimately, whether the current legislation sunsets, gets extended in its entirety, or certain aspects are retained/extended, clients should consult their tax and legal professionals to begin planning now. As with all financial planning, it is better to be proactive rather than reactive and a thorough review of the potential impact on your personal situation is warranted.

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