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Sunset Provisions of 2025

Some of the significant tax law changes of The Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of 2025 unless Congress takes legislative action.

Below are some of the provisions set to expire

  • Estate and Gift Taxes: The unified lifetime exclusion is set to be reduced by about 50% compared to current levels of $12,920,000 per individual (inflation adjusted). This will signifincalty impact the taxation of estates and there should be consideration for gifting assets and other estate planning tools before the sunset.

  • Individuals: Deduction for Qualified Business Income often called QBI or IRC Section 199A deduction that provides up to 20% of the pass-through/business income. For example, before the sunset if you have qualified business income of $500,000 from a pass-through entity you can claim up to a $100,000 QBI deduction, but after the sunset you receive no deduction.

  • Individuals: The standard deduction will be reduced by half but will now allow personal exemptions. For example, the current standard deduction is at $27,700 for a married filing joint return and this would be reduced to $12,700, but it would allow for the personal exemption of about $4,000 per person.

  • Individuals: The state and local tax deduction for Federal is capped at $10,000 but after the sunset there is no cap. For example, before the sunset if you have $10,000 of real estate taxes and $10,000 of state taxes you are capped at deduction $10,000 for the state and local tax deduction. After the sunset you would be able to deduct $20,000.

  • Individuals: The mortgage interest deduction is limited to interest on the first $750,000 of qualified indebtedness, including home equity debt if used to purchase, substantially improve, or build a residence. After the sunset the limitation is increased to $1,000,000 and home equity debt is allowed up to $100,000 without regards to the use of the home equity debt.

  • Individuals: Cash contributions are limited to 60% of a taxpayer's adjusted gross income, but after the sunset the limitation reverts to 50%.

  • Individuals: The alternative minimum tax (AMT) exemption increased with TCJA., but after the sunset the AMT exemption will revert to lower levels and more taxpayers will be subject to AMT

  • Individuals: Tax rates for individuals were reduced for TCJA with the highest marginal tax rate at 37%, after the sunset the highest marginal tax rate will revert to to 39.6%.

Taxpayers should keep a careful watch on the legislative process to see if any of these provisions will be renewed and take steps to plan for the future.

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