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Tax Cuts and Jobs Act: Preparing for the provisions set to expire

Ed Zollars, CPA, Kaplan Financial Education | June/July 2024 Footnote

Now that we are into the middle of 2024, it’s a good time to review the Tax Cuts and Jobs Act (TCJA) provisions scheduled to expire at the end of 2025 if no action is taken by Congress to extend them. 

A complete outline of the provisions can be found in the November 2023 Congressional Research Service publication Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97).[1] 

However, in this article, I’ll briefly highlight some of the more significant items scheduled to disappear from the law when we enter 2026.

The projected cost or revenue raising score for each provision calculated by the Congressional Budget Office (CBO) is provided, as these amounts may become a consideration in determining which of these provisions will be successfully extended and which will be allowed to expire as scheduled.

Individual provisions

Many of the changes made to individual tax provisions in the 2017 Act terminate at the end of 2025, restoring the pre-TCJA law to take effect in 2026. 

Some of those key items are:
  • Individual tax rates will revert to the old law levels of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2026. The CBO estimates the cost of making the TCJA rates permanent would be $1.8 trillion over the following ten years.[2]
  • Individual standard deductions will revert to their much lower pre-TCJA levels, though subject to inflation adjustment from the 2017 levels. Even with the inflation adjustments, the standard deductions will be far lower than if the TCJA law continued to apply. The 10-year cost for making this provision permanent is projected to be $1 trillion.[3]
  • Personal exemptions will return to personal income tax returns in 2026, though at the same time the child tax credit will revert to its lower pre-TCJA levels with a much earlier phaseout of the credit and there will be no tax credit for other dependents. Permanently extending the elimination of personal exemptions is projected to raise $1.6 trillion over 10 years, while permanently extending the TCJA child and dependent tax credit is projected to cost $592.5 billion.[4]
  • Changes to itemized deductions include the following items. If the TCJA changes are made permanent, it is estimated they would raise $908 billion in revenue (net).[5]
    • Charitable deductions to public charities for an individual will go back to being limited to 50% of adjusted gross income, rather than the 60% allowed under TCJA. 
    • State and local taxes allowed on Schedule A would no longer be capped at $10,000 beginning in 2026.
    • A less restrictive home mortgage interest deduction will be restored beginning in 2026, with the amount of first and second home acquisition debt on which interest can be claimed returning to $1 million from the TJCA $750,000 limit. Taxpayers will once again be able to deduct interest on up to $100,000 of home equity debt as well.
    • Personal casualty and theft losses will return to being deductible even if the loss is not related to a federally declared disaster.
    • Taxpayers will once again be able to claim a deduction for miscellaneous itemized deductions to the extent such expenses exceed 2% of adjusted gross income beginning in 2026.
    • A less welcome change for taxpayers will be the return of the overall limit on itemized deductions under IRC Section 68, with the deductions reduced by 3% of the amount that a taxpayer’s adjusted gross income exceeds the threshold, with the limitation capped at 80% of itemized deductions.
  • Alternative minimum tax rates, phaseouts and exemptions return to their pre-TCJA amounts (after updating for an inflation adjustment), all of which are less taxpayer friendly. The CBO estimated the 10-year cost of making this provision permanent to be more than $1 trillion. [6]
  • Taxpayers will also be once again allowed to exclude from their income qualified employer moving expense reimbursements. The projected 10-year additional revenue to be gained by the TCJA treatment that gives no exclusion permanent is $6.7 billion.[7]

Business provisions

While the 21% corporate rate is not scheduled to go away at the end of 2025, there are certain business provisions that will no longer remain in the law once 2026 arrives. Some key elements include:
  • The most significant business tax benefit found in the TCJA to disappear after 2025 is the deduction for qualified business income under IRC Section 199A which, unlike the lower corporate tax rate, was not made permanent as part of the Act. The CBO estimates the 10-year cost of making this provision permanent to be $548 billion.[8]
  • Bonus depreciation is already being reduced from the original 100% first-year rate allowed by TCJA, but it is scheduled to entirely leave the law at the end of 2026 (one year after most other TCJA provisions we are discussing expire). The CBO projects the 10-year cost of making this provision permanent to be $325 billion.[9]

Other tax provisions

There are a few other provisions that are set to expire at the end of 2025. Two of the key changes are:
  • The estate and gift tax exclusions will be reduced to their pre-TCJA levels of $5 million, after adjustment for inflation from their TCJA levels that were set at twice that amount before adjustment for inflation. The IRS in Reg. Section 20.2010-2 held that if a portability election is made for a spouse that dies before the end of 2026, the deceased spouse unused exclusion (DSUE) amount will not decrease for the estate of the surviving spouse even if that spouse lives beyond the end of 2025. The 10-year cost of making the higher exclusion amounts permanent is projected by the CBO to be $126.5 billion.[10]
  • The ability to use Qualified Opportunity Zone investments to defer gains already incurred and to exclude future gains on the Qualified Opportunity fund will no longer be eligible to be elected for gains incurred after Dec. 31, 2026 (one year later than most other provisions). The CBO projects the estimated 10-year measuring period cost of making these provisions permanent (thus meaning counting 9 years in the measurement) would be $67.3 billion.[11]

Planning for the future

Some taxpayers may have been waiting for legislation before filing to see whether the provisions will be extended. While Congress may act to extend some, it is still important for professionals and clients to understand which provisions impact their situation to prepare for change and maximize their tax savings if these provisions sunset as scheduled.
 
Ed Zollars, CPA, is an author, CPE instructor with Kaplan Financial Education and a partner in the CPA firm of Thomas, Zollars & Lynch, Ltd. He has 41 years of public practice experience, specializing in closely held business and individual tax issues. Ed also writes tax development articles that have appeared in various tax publications and is the primary author on the Current Federal Tax Developments website. Ed served on AICPA tax division committees and has spoken at conferences for the AICPA and several state CPA societies.
 

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[1] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, https://crsreports.congress.gov/product/pdf/R/R47846
[2] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 2
[3] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 2
[4] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 2-4
[5] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 4
[6] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 9
[7] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 8
[8] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 11
[9] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 12
[10] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 13
[11] Congressional Research Service, Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97), Nov. 21, 2023, p. 14