Could tax changes lie ahead? Key TCJA provisions to watch

by Chris Powers, CPA

With the 2024 election behind us, it’s likely we will see several tax changes in the coming year. One potential change at the top of everyone’s mind has to do with the Tax Cuts and Jobs Act of 2017 (TCJA).

Many of the TCJA’s provisions are set to expire, or sunset, on December 31, 2025. Although the president who signed the TCJA into law is now our president-elect, we do not know for certain which provisions Congress will allow to expire and which will be extended.

Getting caught off guard by a tax law change rarely leads to a successful outcome. For this reason, we’re encouraging you to begin thinking about potential changes now, so you can be prepared to pivot if needed.

Here are a few key TCJA tax provisions set to expire in 2025 that we’ll be watching in the coming months.

For business owners:

20% qualified business income (QBI) deduction

One of the most tax-advantageous TCJA provisions for business owners has been the 20% QBI deduction. This deduction allows owners of passthrough entities, such as S corporations and partnerships, to deduct up to 20% of QBI from their personal income taxes. Allowing this provision to sunset would eliminate the deduction in 2026.

Used property qualifying for additional first-year bonus deprecation

Prior to the TCJA, only new property qualified for the additional first-year bonus depreciation deduction. The TCJA changed this, allowing used property (except for property purchased from related parties) to qualify.

Additionally, the TCJA changed the applicable percentages of the cost basis of qualified property placed in service during the year to the following. Since 2017, these percentages have been phasing out. If this provision expires, the percentages will hit 0% (bonus expires) for property placed in service after December 31, 2026, and used property may no longer qualify.

Increased estate and gift tax exclusion

The estate and gift tax basic exclusion was significantly increased (more than doubled) by the TCJA. Currently, the estate and gift tax basic exclusion amount is set $12.92 million per taxpayer ($25.84 million for married couples filing jointly) in 2023.

If this provision sunsets at the end of 2025 as planned, the exclusion would revert to its pre-TCJA amount, which would be about half.

One provision not expiring in 2025: the flat 21% corporate tax rate

Prior to the TCJA, the top corporate tax rate was 35%. The TCJA permanently changed the corporate tax rate structure and lowered the top rate to a flat 21% (i.e., applies regardless of the amount of a business’ corporate taxable income). While it’s possible this top rate could be lowered by the new administration, it cannot be increased per the provision.

For individuals:

$12,000 standard deduction

The TCJA nearly doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. If this provision expires, the standard deduction would revert to its pre-2018 amount, which would be approximately half of its current amount (adjusted for inflation).

$10,000 cap on the state and local tax (SALT) deduction

The sunset of this provision could significantly impact taxpayers in high-tax states such as Minnesota. Taxpayers could see more benefit from deducting taxes, including state or local income taxes, real estate taxes, and personal property taxes, paid during the calendar year.

Limitation of the mortgage interest deduction

Per the TCJA, the home mortgage interest deduction was limited to the first $750,000 of debt (for married filing jointly) for loans originating on or after December 16, 2017. The TCJA also suspended the home equity loan interest deduction.

If this provision goes away, taxpayers will see the mortgage interest deduction return to its pre-TCJA status in 2026. This means taxpayers would be able to deduct interest on the first $1 million in home mortgage debt.

This provision’s sunset would bring back the home equity loan deduction as well, allowing taxpayers to deduct interest on the first $100,000 in a home equity loan.

Elimination of miscellaneous itemized deductions

Itemized deductions such as legal fees, unreimbursed employee expenses, and investment and advisory fees (not exceeding 2% of the taxpayer’s adjusted gross income) went away when the TCJA was signed into law. A sunset of this provision would bring these deductions back in 2026.

Suspension of personal exemptions

If this provision were to expire, the pre-TCJA personal exemption rules would return: $2,000 per taxpayer and qualified dependents, adjusted for inflation. (Keep in mind the personal exemption would phase out at higher income levels.)

Increase of the exemption and phaseout of alternative minimum tax (AMT)

This TCJA provision served to reduce taxpayers’ AMT burden. If it expires, the AMT exemption would return to pre-TCJA amounts in 2026.

Don’t be caught off guard.

Taking steps now to prepare for potential changes can position you to maximize your tax savings—regardless of what the future holds. At Abdo, we’ll be keeping an eye on these key TCJA provisions as we head into 2025.

If you’re unsure of how you could be impacted or what steps to take, we’re here to help. Our advisors can guide you through this time of uncertainty, giving you the visibility you need to make the best decisions for you and your business.

To learn more about how we can be your guiding light, contact us today.