The Tax Cuts and Jobs Act of 2017, marking significant tax reforms for both individuals and corporations, includes provisions set to expire by the end of 2025, affecting tax rates, deductions, and exemptions
The most sweeping tax changes in modern history, the Tax Cuts and Jobs Act (TCJA) of 2017, impacted both individual and corporate tax rates, deductions, exemptions, and credits. However, only some of TCJA changes are permanent and more than 20 provisions are set to expire by the end of 2025, if Congress doesn’t act to extend them or make them permanent. As tax firms work with clients during the 2024 tax season, it may be prudent for tax professionals to think about the provisions that are coming due in order to make any changes part of clients’ tax strategy.
Of the provisions that will expire by the end of 2025, many are related to individuals and businesses. For tax strategist, it is not only important to review clients’ past activities that may have tax implications but also take into consideration what lies ahead and how clients should plan or prepare for whatever impact expiring provisions of the TCJA could have on them financially.
An overview of some of the expiring tax provisions
For individual taxpayers
Under the TCJA, individual income tax rates were lowered across the board, with the impact of the new rates determined by income level, filing status, and deductions. Individuals living in high-tax states with high property values, for example, did see a significant increase in taxes paid, beginning in 2019. And for these top earners, their income tax rate decreased from to 37%, dropping 2.6 percentage points; but now, these new lower rates will expire on December 31, 2025, and starting after that, these marginal tax rates will return to their pre-TCJA levels.
And since almost every taxpayer was impacted by the changes in the individual income tax rates, it’s imperative that tax professionals help clients understand what the expiring marginal rate would mean for their tax obligations after 2025 and how and what personal financial decisions should be considered for the near term.
Another significant change for individual taxpayers with the TCJA was the severity and restrictiveness on itemized deductions beginning in the 2018 tax year. This meant that for those taxpayers who benefited from itemization, it may have become no longer beneficial. Instead, these taxpayers had to claim the standard deduction, which for some result in increased tax liabilities. This provision also is set to expire in December 2025, and beginning in 2026 individual taxpayers can go back to itemized deductions if they find them to be more tax-favorable.
Finally, it worth noting that on the state and local level there was a tax cap on deductions under the TCJA, under which individuals could only deduct state and local taxes paid up to $10,000. However, this cap created a higher federal income tax burden for individuals residing in states with high income and property tax rates. Barring new legislation, in 2026, individuals will be able to itemize and deduct state and local taxes in full.
For business taxpayers
It’s no secret that many businesses were greatly impacted by the changes resulting from the 2017 Tax Cuts and Jobs Act. Of the provisions expiring soon, full expensing of short-lived capital investments is a major one. It allowed companies to take a 100% deduction of the cost of certain short-lived assets, including equipment and machinery in the year they are made, basically treating such items as an expense. This provision will expire December 2026.
For tax professionals, it will be crucial to alert business owners who maybe considering acquiring new equipment and machinery in the short-term to this pending change and how such purchase can impact their tax situation for the coming year.
Another change that will affect businesses is the Net Operating Loss (NOL) Deduction. Prior the enactment of the TCJA, net operating losses were fully deductible and could be carried back two years and forward 20 years. Under the TCJA, it was then limited to 80% of taxable income, and was no longer allowed to be carried back. It also lifted the 20-year limit on carry-forwards (however, this was temporarily suspended during to the pandemic), essentially making such carry-forwards indefinite. This provision will actually expire at the end of 2028.
Another significant provision that is expiring is Section 163(j) of the TCJA, which impacts the deductibility of business interest and imposes a limitation that removed the addback of depreciation, amortization, and depletion of adjusted taxable income. This too is set to expire December 2025; however, there is a current bipartisan proposal to extend the allowance of depreciation, amortization or depletion when determining the limitation of business interest.
One other significant provision worth mentioning is that involving taxes on estates and gifts. Under the TCJA, estate and gift tax exemptions more than doubled their previous threshold. Currently, for example, exemptions of $13.9 million per person were allowed, beginning this year. However, starting on January 1, 2026, the exemption returns to $5 million. Also, the current maximum 40% gift and estate tax rate will increase to 45% in 2026.
The expiration of these impactful TCJA provisions could have significant implications for clients — both individual taxpayers and businesses. Tax professionals need to develop tax-planning strategies that consider the potential changes that will come after certain provisions of the TCJA expire after 2025. It’s also possible that future legislation could extend or modify these provisions, so staying informed and advising clients accordingly is paramount to being a trusted tax advisor.
