On December 31, 2025, a substantial number of key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) will expire. As 2024 has just begun, it is a good time to consider how businesses and individuals can make decisions in advance of the sunsetting of these key provisions.
Expiring TCJA provisions impacting businesses
While the TCJA permanently lowered corporate tax rates and created a single flat rate of 21%, most businesses in the U.S. are family owned or closely held, and structured as pass-through entities that exist as S corporations or partnerships for U.S. tax filing purposes. For those entities, significant benefits that were included in the legislation have either started to phase down or will expire at the end of 2025.
A key business provision of the TCJA that has already started to phase down is the initial first year deduction that can be claimed on depreciable property placed in service. The TCJA significantly enhanced the ability of businesses to accelerate cost recovery on qualifying business assets that were placed in service by allowing for 100% bonus depreciation on both new and used property. Prior to the TCJA, used property was ineligible for first year bonus depreciation. Starting in 2023, the 100% first-year bonus depreciation phased down to 80%, with subsequent declines to 60%, 40%, 20%, and 0% in 2024, 2025, 2026, and 2027 respectively. For those businesses looking to make significant capital investments, they can claim 60% bonus depreciation in 2024 and 40% in 2025.
While the TCJA lowered the corporate tax rate to a flat 21%, pass-through entities, which pass through their earnings to their shareholders and partners, saw their top tax rate drop from 39.6% to 37%. To create a benefit for the owners of those business entities, a qualified business deduction provides up to a 20% deduction on the pass-through earnings of a qualifying business. This provision will also expire at the end of 2025, unless there is an extension from Congress.
Implications for individuals as TCJA provisions end
Beginning in 2026, the top marginal tax rate for individuals will revert to the pre-TCJA rate of 39.6%. Other significant changes for individuals under TCJA included a doubling of the standard deduction, which prompted many taxpayers to move from itemizing their deductions to claiming the standard deduction. This was compounded by the cap or loss of certain itemized deductions. Those included the state and local tax (SALT) deduction, capped at $10,000, the lower ceiling on the amount of acquisition mortgage indebtedness interest incurred after December 16, 2017, that could be deducted (including a suspension on home equity interest deductions), and the elimination of the deduction for most miscellaneous itemized deductions. After December 31, 2025, these temporary provisions will sunset, and the pre-TCJA provisions will apply. This will mean the removal of the SALT cap, the ability to claim interest deductions on $1,000,000 of mortgage interest indebtedness and $100,000 of home equity debt that was in place prior to the TCJA, and the ability to claim those miscellaneous itemized deductions that were temporarily suspended. With the sunsetting of these provisions, unless there is an extension by congress, taxpayers should start to plan for how they may be affected by some of these changes and the possibility that they may move from claiming a standard deduction back to itemizing. Impacted taxpayers should consider the timing of certain payments to maximize their ability to claim deductions. This may include when they make charitable contributions or payments of property taxes.
Estate and gifting considerations for expiring TCJA provisions
One of the most significant changes of the TCJA was the doubling of the lifetime estate and gift tax exclusion from approximately $5.5 million in 2017 to the 2024 inflation-adjusted amount of $13,610,000 million per person. Without any action by congress, the provision will sunset, and the exclusion will revert to the pre-TCJA level, as adjusted by inflation. Taxpayers may want to consider completing gifts before the higher exemption amount sunsets or look at utilizing other strategies, such as a spousal lifetime access trust (SLAT), which will provide the ability to complete a transfer at the higher estate tax exclusion amount, while having the trust assets available for spousal support.
There are several changes to be aware of as key TCJA provisions expire. Citrin Cooperman’s tax professionals closely monitor these developments and are equipped to help you make informed decisions based on how you may be affected. For more information, reach out to Citrin Cooperman’s Managing Partner, South Florida Offices Joshua Rader at email@example.com.
Our specialists are here to help.
Get in touch with a specialist in your industry today.