The Tax Cuts and Jobs Act (TCJA) brought significant changes to the US tax code in 2017. Among them was the sunset provision of certain TCJA provisions at the end of 2025, which could potentially lead to a rise in taxes. The individual income tax cuts, increased estate and gift tax exemptions, and enhanced bonus depreciation rules for businesses are some of the provisions that will expire at the end of 2025, unless Congress extends them.
If these provisions expire and new legislation is not passed, tax rates for individuals will go up in 2026. The federal tax brackets and rates will change as follows:
- The first bracket of 10% will remain the same, the 12% bracket will become 15%, the 22% bracket will become 25%, the 24% bracket will become 28%, the 32% bracket will become 35%, and the 35% bracket will become 39.6%.
The standard deduction will also revert back to pre-TCJA levels, which means that fewer taxpayers will be able to claim the larger current standard deduction. Additionally, the estate and gift tax exemptions will revert back to their pre-TCJA levels, which means that estates valued at more than $5 million (per-individual, indexed for inflation) will be subject to estate taxes.
Businesses will also be impacted by the sunset of certain TCJA provisions. The enhanced bonus depreciation rules for certain assets will expire, which means that businesses will no longer be able to immediately write off the cost of certain assets. Additionally, the QBI deduction will also sunset which allows most businesses and rentals to deduct 20% of their qualified business income or rental income.
The sunset of these provisions is not set in stone, and Congress could extend or change the tax code before they expire. However, given the current political climate, it’s uncertain if Congress will act. The sunset of these provisions could have significant implications for the US tax system, and taxpayers should stay informed about any potential changes that could impact their tax liability. It’s important to keep in mind that planning ahead can help individuals and businesses prepare for any potential changes in the tax code and minimize their tax burden.
*Information provided should not be relied upon for tax, legal, or accounting advice, as it is intended for informational purposes only. You should consult your own tax, legal, and accounting professionals before engaging in any transactions.