The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, brought significant changes to both individual and business tax provisions. While many provisions were made permanent, several key individual tax provisions are set to expire at the end of 2025 and 2026, reverting to pre-TCJA rules unless Congress acts. Below is a detailed breakdown of several tax provisions set to expire at the end of 2025 and 2026.

Individual Tax Provisions Expiring in 2025

1. Lower Individual Income Tax Rates

2. Standard Deduction Increases

3. Personal Exemptions

• Current (TCJA): Personal exemptions were eliminated.
• Post-2025 (Reversion): Personal exemptions will be reinstated (adjusted for inflation).

4. Capped State and Local Tax Deduction (SALT Cap)

• Current (TCJA): Deduction for state and local taxes is limited to $10,000.
• Post-2025 (Reversion): The SALT deduction cap will be eliminated, allowing taxpayers to deduct the full amount of state and local taxes paid.  One potential side effect is individuals may pay more in AMT tax.

5. Child Tax Credit (CTC)

• Current (TCJA):
  • Credit is $2,000 per qualifying child.
  • Phaseout starts at $200,000 (single) and $400,000 (married filing jointly).
• Post-2025 (Reversion):
  • Credit reverts to $1,000 per qualifying child.
  • Phaseout thresholds return to lower pre-TCJA amounts: $75,000 (single) and $110,000 (married filing jointly).

6. Other Family Tax Credits

• Current (TCJA):
  • A nonrefundable $500 credit exists for dependents other than qualifying children.
• Post-2025 (Reversion): This credit will no longer be available.

7. Alternative Minimum Tax (AMT) Exemption

• Current (TCJA): AMT exemption amounts were increased significantly:
  • $81,300 for singles (2023),
  • $126,500 for married filing jointly (2023).
• Post-2025 (Reversion): Exemption amounts will decrease to pre-TCJA levels, increasing the likelihood of taxpayers being subject to AMT.

8. Mortgage Interest Deduction

• Current (TCJA): Deduction is limited to interest on the first $750,000 of mortgage debt.
• Post-2025 (Reversion): Limit goes back to $1,000,000 of mortgage debt.

9. Medical Expense Deduction Threshold

• Current (TCJA): Medical expenses exceeding 7.5% of adjusted gross income (AGI) are deductible.
• Post-2025 (Reversion): Threshold reverts to 10% of AGI.

10. Wagering Losses Deduction

• Current (TCJA): Taxpayers who itemize their deductions can deduct gambling losses, provided those losses do not exceed gambling winnings included in gross income. Gambling losses include deductible expenses incurred in carrying on the gambling activity, for both recreational and professional gamblers.
• Post-2025 (Reversion): Gambling losses will no longer include expenses incurred in carrying on the gambling activity. Professional gamblers will be able to deduct ordinary and necessary non-wagering business expenses.

11. Personal Casualty and Theft Losses

• Current (TCJA): Only allowed for losses incurred in a federally declared disaster zone.
• Post-2025 (Reversion): Taxpayers who itemize their deductions can deduct any loss not compensated by insurance, subject to certain limits.

12. Miscellaneous Itemized Deductions

• Current (TCJA): Miscellaneous itemized deductions (e.g., unreimbursed job expenses, tax preparation fees, safe deposit box, investment fees/expenses and certain other expenses) were suspended.
• Post-2025 (Reversion): These deductions will be reinstated.

13. Estate and Gift Tax Exemption

• Current (TCJA): Estate and gift tax exemption is $13.61 million per individual (2024).
• Post-2025 (Reversion): Exemption reverts to pre-TCJA levels of approximately $5.49 million per individual (adjusted for inflation).

14. 20% Qualified Business Income (QBI) Deduction

• Current (TCJA): A 20% deduction for pass-through business income (e.g., partnerships, sole proprietorships, S corporations) is allowed.
• Post-2025 (Reversion): This deduction will no longer be available.

15. Additional First-Year Depreciation for Qualified Property (Bonus Depreciation)

• Current (TCJA): The TCJA temporarily allowed full expensing (i.e., 100% bonus depreciation) through 2022, before phasing down ratably through the end of 2026.
• Post-2026 (Reversion): Businesses will generally capitalize the cost of property used in a trade or business or held for the production of income and recover such cost over time through annual deductions for depreciation or amortization without the use of bonus depreciation.

16. Election to Invest Capital Gains in Qualified Opportunity Zones

• Current (TCJA): Opportunity zones provide several tax benefits to those who invest in these areas, including:
  • A temporary deferral of capital gains taxation if gains are reinvested in a qualified opportunity fund.
  • An increase in the investment basis if specific holding periods are met.
  • A permanent exclusion of the capital gains from income if investments in a qualified opportunity fund are held for at least 10 years (hence, these capital gains are not subject to taxation).
  • No election for deferral of gain is allowed after December 31, 2026.

• Post-2026 (Reversion): Investments in opportunity zones will not be eligible for deferral, adjustments to basis, or exclusions on gains.

We expect the new administration will extend certain components of the law and other components will expire. The thought is the new administration and Congress will work together to pass new tax laws during 2025.

If you have specific concerns or need help with potential strategies to mitigate the impact of these changes, feel free to reach out to your Polk relationship manager and visit our website for further updates.

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.