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On the minds of many tax-conscious Americans is the looming December 31, 2025 expiration of the Tax Cuts and Jobs Act (the “TCJA”) provisions.  The TCJA was passed by a Republican Congress and signed into law by President Donald Trump in 2017.  Since its enactment, the Act has significantly reduced taxes for individuals at the expense of significantly increasing the national deficit.

The TCJA Provisions Set to Sunset:  

The TCJA provisions that are currently set to expire on December 31, 2025 include:

Individual Provisions:

• Marginal Tax Rates.[1] Under the TCJA, marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Upon the expiration of the TCJA, the marginal rates will revert to pre-TCJA rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Additionally, these tax brackets will apply over different ranges of taxable income.  Tax rates on capital gains and dividends were unchanged by the TCJA and will remain as they are.
• Standard Deduction.[2] Under the TCJA, the 2018 basic standard deduction amounts were raised to $12,000 for single filers, $18,000 for head of household filers, and $24,000 for married joint filers. These amounts were annually adjusted for inflation.  The 2024 basic standard deduction amounts are $14,600, $21,900, and $29,300, respectfully.  Upon the expiration of the TCJA, the basic standard deduction will revert to pre-TCJA levels, adjusted for inflation.  If the TCJA had never been enacted, the 2018 basic standard deduction amounts would have been $6,500, $9,550, and $13,000, respectively.
• Personal Exemptions.[3] Under the TCJA, the personal exemption was suspended.  Upon the expiration of the TCJA, personal exemption will revert to its pre-TCJA level, adjusted for inflation.  If the TCJA had never been enacted, the 2018 personal exemption amount would have been $4,150.
• Child Tax Credit.[4] Under the TCJA, a taxpayer can reduce their income tax liability by up to $2,000 per qualifying child.  For lower income taxpayers with little or no income tax liability, some or all of the credit may become refundable.  This amount is equal to 15% of earned income, up to $1,400 per child, adjusted for inflation.  The credit amount phases down as a taxpayer’s income increases, and phases out completely if income exceeds $200,000 for unmarried taxpayers and $400,000 for married taxpayers.  Upon the expiration of the TCJA, the maximum credit per child will become $1,000 per child. For lower income taxpayers, the refundable portion of the credit will be equal to 15% of earned income above $3,000, up to a maximum of $1,000 per child.  The phaseout threshold will be $75,000 for unmarried taxpayers and $110,000 married taxpayers.
• Credit for Other Dependents.[5] The TCJA created the credit for other dependents, which allows taxpayers to reduce their income tax liability by $500 for each dependent that is ineligible for the child tax credit.  The $500 amount is not adjusted for inflation and the credit is non-refundable.  The credit is subject to the same phaseout as the child tax credit.  Upon the expiration of the TCJA, the credit will expire.
• Moving Expense Deduction.[6] Under the TCJA, only members of the Armed Forces can claim an above-the-line deduction for moving expenses incurred as a result of obtaining work at a new location.  All other taxpayers are ineligible for the deduction.  Upon the expiration of the TCJA, any eligible taxpayer will be able to claim an above-the-line deduction for moving expenses incurred as a result of obtaining work at a new location, subject to conditions related to the individual’s employment status and the distance of the move.  Members of the Armed Forces will not be subject to the same employment status and moving distance conditions.
• Charitable Contributions Deduction.[7] Under the TCJA, itemized deductions for cash donations made to public charities were limited to 60% of the taxpayer’s adjusted gross income (AGI).  Upon the expiration of the TCJA, this limit will become 50% of AGI.
• State and Local Tax (“SALT”) Deduction.[8] Under the TCJA, taxpayers who itemize their deductions can deduct up to $10,000 in state and local income, sales and property taxes, and foreign income taxes.  A deduction for foreign real property taxes is not allowed.  Property taxes associated with carrying on a trade or business are not subject to the $10,000 cap.[9]  Upon expiration of the TCJA, the $10,000 cap will not apply.  Taxpayers will be able to deduct all eligible state and local income, sales and property taxes, and foreign income and real property taxes.
• Mortgage Interest Deduction.[10] Under the TCJA, taxpayers who itemize their deductions may deduct interest paid on a certain amount of mortgage debt.  This amount is the first $750,000 of mortgage debt incurred for married taxpayers and the first $375,000 of mortgage debt incurred for single taxpayers.  No deduction is allowed for interest paid on home equity debt if the debt is used for purposes unrelated to the property securing the loan.  Upon the expiration of the TCJA, the $750,000 limitation will increase to $1 million.  Additionally, taxpayers who itemize their deductions will be allowed a deduction for interest paid on the first $100,000 of home equity debt they incur, regardless of whether the debt is used for purposes unrelated to the property securing the loan.
• Personal Casualty and Theft Loss Deduction.[11] Under the TCJA, taxpayers who itemize their deductions can claim a deduction for personal casualty and theft losses that are associated with a federally declared disaster.  These casualty losses are deductible if they exceed $100 per casualty and are only deductible to the extent the aggregate net casualty losses exceed 10% of the taxpayer’s AGI.  Upon the expiration of the TCJA, taxpayers will be able to claim an itemized deduction for personal casualty and theft losses regardless of whether they are associated with a federally declared disaster.
• Wagering Losses Deduction.[12] Under the TCJA, taxpayers who claim an itemized deduction for gambling losses,[13] can include in that deduction expenses incurred in carrying on the gambling activity.  This inclusion is applicable for both recreational and professional gamblers.  Upon the expiration of the TCJA, the deduction for gambling losses will no longer include expenses incurred in carrying on the gambling activity.  However, professional gamblers will be able to deduct these expenses if they are considered ordinary and necessary business expenses.[14]
• Itemized Deduction for Miscellaneous Expenses.[15] Under the TCJA, the itemized deduction for miscellaneous expenses was   Upon expiration of the TCJA, taxpayers who itemize their deductions will be able to deduct miscellaneous deductions to the extent such expenses collectively exceed 2% of their AGI.
• Overall Limitation on Itemized Deductions.[16] Under the TCJA, there is no limit to the total amount of itemized deductions a taxpayer can claim.  Upon expiration of the TCJA, the total amount of itemized deductions a taxpayer can claim will be reduced by 3% of the amount by which their AGI exceeds a certain threshold.  These thresholds will revert to pre-TCJA levels. If the TCJA had never been enacted, the 2018 thresholds would have been $320,000 for married taxpayers filing jointly and $267,700 for single taxpayers or married taxpayers filing separately.  However, the total reduction will be capped at 80% of the itemized deductions claimed.  Additionally, certain deductions will not be subject to these limitations.  The itemized deductions not subject to limitation include deductions for medical and dental expenses, investment interest, charitable contributions, casualty and theft losses, and wagering losses.
• Moving Reimbursement Exclusion.[17] Under the TCJA, only members of the Armed Forces can exclude from income employer reimbursements for moving expenses.  For all other employees, these benefits are considered wage income and are subject to income and employment taxes.  Upon the expiration of the TCJA, all employees will be able to exclude from income qualified moving expenses.
• Bicycle Commuter Reimbursement.[18] Under the TCJA, employees are subject to income and employment taxes on employer reimbursements for bicycle commuting expenses.  Upon the expiration of the TCJA, employees will be able to exclude from income up to $20 per month of employer reimbursements for bicycle commuting expenses.  These payments will not be subject to income or employment taxes.
• Alternative Minimum Tax (AMT) Exemption and Phaseouts.[19] The alternative minimum tax (AMT) is a back-stop tax scheme that imposes a 26% tax on a taxpayer’s alternative minimum taxable income (AMTI).[20] The AMT applies a higher 28% tax rate to the amount of a taxpayer’s AMTI above a certain threshold, subject to inflation.  Under the TCJA, for 2024, the higher 28% tax applies to a taxpayer’s alternative taxable income above $232,600.  The AMT exemption amounts for 2024 are $85,700 for single taxpayers and taxpayers filing head of household, and $133,300 for married taxpayers filing jointly.  Additionally, the AMT exemption phases down when a taxpayer’s income exceeds a certain threshold level.  These threshold levels for 2024 are $578,150 for single taxpayers and taxpayers filing head of household, and $1,156,300 for married taxpayers filing jointly.  The AMT exemption and phaseout thresholds are adjusted annually for inflation.

Upon the expiration of the TCJA, the threshold ATMI at which the 28% tax rate begins to apply, the AMT exemption amounts and phaseout thresholds will revert to pre-TCJA levels, adjusted for inflation.  If the TCJA had never been enacted, the 2018 ATMI threshold at which the higher 28% tax rate begins to apply would have been $191,500.  If the TCJA had never been enacted, the 2018 AMT exemption amounts would have been $55,400 and $84,200, respectively, and the phaseout thresholds would have been $123,100 and $164,100, respectively.

• Estate and Gift Tax.[21] The TCJA raised the unified estate and gift exemption statutorily to $10 million, which is adjusted annually for inflation.  For decedents who die in 2024, the exclusion amount is $13.61 million per decedent, and for decedents who die in 2025, the exclusion amount is $13.99 million per decedent.  Upon expiration of the TCJA, the unified estate and gift exemption will be statutorily reduced from $10 million to $5 million.  The $5 million exemption will be adjusted to reflect the inflation. The exemption is expected to be around $7 million for decedents who die in 2026.

Business-Related Provisions:

• Deduction for Pass-Through Business Income—“199A Deduction.”[22] Ordinarily, pass-through business income is taxed at a taxpayer’s ordinary income tax rates.  The TCJA allows taxpayers to take a deduction equal to 20% of qualified business income. This deduction is limited to the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of depreciable property.  Specified service trade or businesses generally may not claim the deduction in specific circumstances.  The deduction limitation and the “specified service trade or business” limitations do not apply if taxable income is less than a certain amount, adjusted for inflation. In 2024, this amount is $191,950 for single taxpayers or $383,900 for married taxpayers.  Additionally, the limitations are phased in over a range of income above these threshold amounts, and thus apply fully only if a taxpayer’s income is at or above a certain amount.  In 2024, the limitations phase in over an income range of $50,000 for single taxpayers and $100,000 for married taxpayers, so the limitations fully apply if a taxpayer’s income is above $215,950 and $483,900, respectively.  Upon the expiration of the TCJA, the 199A deduction will expire.
• Employer Credit for Paid Family and Medical Leave.[23] Under the TCJA, employers paying wages to employees on family and medical leave may be eligible for a tax credit.  Eligible employers are those that allow qualifying full-time employees at least two weeks of paid family and medical leave in addition to vacation, personal, or sick leave.  However, any such leave provided that is required by state or local law does not qualify for the credit.  The credit amount is calculated as a percentage of wages paid to a qualifying employee while on family and medical leave.  Upon the expiration of the TCJA, this credit will expire.

Trump’s Campaign Promises:

During his 2024 campaign, newly elected Donald Trump did not set forth a detailed tax plan. However, he did broadly propose making the TCJA provisions “permanent.”  Some of his other campaign proposals included (1) eliminating taxes on tip wages, overtime wages, and Social Security payments, (2) enacting a 20% corporate tax rate with a lower 15% corporate tax rate for those businesses that manufacture in the United States, (3) eliminating the TCJA limitation on the SALT deduction, and (4) enacting a series of broad tariffs on imports.

Scope of Tax Reform Not Clear and Any Tax Reform Enacted Likely to Sunset:  

Even with a Republican majority in both the Senate and the House, the path towards comprehensive enactment of Trump’s proposed tax reforms is uncertain.  The political climate today is different from the political climate that existed in 2017, when the TCJA tax cuts were originally enacted.  Further, the members of the House Ways and Means Committee and the Senate Finance Committee is vastly different today than it was in 2017.  While the state of the economy is still a concern, it is less of a concern than it was in 2017.  As such, there is a higher level of awareness of the rising national debt than there was in 2017, and the estimated cost of a full extension of the TCJA expiring provisions – an estimated $4.6 trillion over the next ten years – may raise concern with the Republican members of Congress.[24]

While Republican Idaho Senator Mike Crapo, the incoming leader of the Senate Finance Committee, and many Republican senators hold the view that tax cuts are self-financing,[25] other House Republicans are more sensitive to budget and financial deficit concerns.  Further, while the offsetting revenue from Trump’s proposed tariffs helps to offset that concern, the potential offset will likely fall short of fully offsetting the revenue loss from a full extension of the TCJA and enactment of Trump’s other proposed tax cuts.[26]  Thus, if House Republicans seek additional budgetary offset, it is unclear where that additional offset will come from.

This could lead to a congressional debate as to which TCJA provisions to extend and which to scrap.  If such a debate ensues, tax cuts affecting individuals and families may take precedence over business-related tax cuts, as individual tax cuts historically tend to carry more political capital among voters.[27]  Even among the expiring individual tax cut provisions, extending the higher estate tax exemption may face the chopping block. According to the non-partisan Congressional Research Service, an extension of the higher estate tax exemption would cost an estimated $126 billion over the next ten years, and compared to other individual tax cuts, such as an extension of the TCJA’s lower income tax rates, it does not affect as many voters.

Yet another path forward is to more comprehensively enact Trump’s proposed tax cuts but considerably limit the lifespan of the tax legislation enacted.  With a Republican Senate majority of only 53 to 47, the only procedural path towards enactment of tax legislation is through the budget reconciliation process.  The budget reconciliation process, through which the TCJA was enacted in 2017, requires the Republicans to have only a simple majority (often 51 votes) in the Senate rather than the 60 votes necessary to otherwise overcome a filibuster.  However, under the Byrd rule, tax legislation passed by budget reconciliation cannot add to the national deficit in periods beyond the end of the bill’s budget window, which is typically ten years.  This necessarily results in tax legislation with sunset provisions with an upper bound of ten years.  Choosing a shorter sunset period would lessen the legislation’s overall contribution to the national deficit.  Nonetheless, the question remains as to the timeframe Republicans will agree upon.  Keeping in mind the specter of the 2026 elections, in which Republicans may have a harder time keeping a Senate majority,[28] Republicans will likely insist that this period be longer than four years, as this would give them a greater chance of having a majority in the Senate in 2028 when the next tax reform comes knocking.

 

[1]           See I.R.C. § 1, 1(j).

[2]           See I.R.C. § 63, 63(c)(7).

[3]           See I.R.C. § 151, 151(d)(5).

[4]           See I.R.C. § 24, 24(h).

[5]           See I.R.C. § 24(h)(4).

[6]           See I.R.C. § 217, 217(k).

[7]           See I.R.C. § 170, 170(b)(1)(G).

[8]           See I.R.C. § 164, 164(b)(6).

[9]           See I.R.C. § 162.

[10]          See I.R.C. § 163(h), 163(h)(3)(F).

[11]          See I.R.C. § 165(h), 165(h)(5).

[12]          See I.R.C. § 165(d).

[13]          Generally, taxpayers who itemize their deductions can claim a deduction for gambling losses, provided those losses do not exceed gambling winnings included in gross income.

[14]          See I.R.C. § 162.

[15]          See I.R.C. § 67(g).

[16]          See I.R.C. § 68, 68(f).

[17]          See I.R.C. § 132, 132(g)(2).

[18]          See I.R.C. § 132(f).

[19]          See I.R.C. § 55.

[20]          The calculation of alternative minimum taxable income (AMTI) starts with taxable income, adds back certain items (including net operating losses, depreciation, passive losses, state and local taxes, miscellaneous business exemptions, and personal exemptions), and then subtracts an AMT exemption amount.

[21]          See I.R.C. § 2001, 2010, 2010(c)(3)(C).

[22]          See I.R.C. § 199A.

[23]          See I.R.C. § 45S.

[24]          The Congressional Budget Office estimates that extending the TCJA provisions would result in a tax cost of $4.6 trillion over ten years.

[25]          i.e., the revenue loss from the tax cuts is partially or wholly offset as a result of the economic growth resulting from the tax cuts.

[26]          The Tax Foundation estimates that Trump’s proposed tariffs could add $2 trillion to $3.3 trillion to revenue. However, even these estimates fall short of the estimated cost of fully extending the TCJA provisions. Further, Trump’s other proposed tax cuts would further add to the deficit rather than lessen it.

[27]          Republicans generally stand to improve their reelection chances more through the support of individual tax cuts than through the support of business tax cuts. Thus, in a debate focused on which TCJA provisions to extend, Republicans may favor extending those TCJA provisions that result in tax cuts for individuals over those that result in tax cuts for corporations.

[28]          In 2026, 20 Republican senators and only 13 Democratic senators are up for reelection.