As we approach the end of 2025, the Tax Cuts and Jobs Act (TCJA) is set to usher in significant changes for individual taxpayers. Below is an overview of key provisions and insights into what lies ahead.
Expiring Provisions: Potential Opportunities and Challenges
Many of the TCJA’s tax benefits affecting individuals are scheduled to sunset, potentially leading to higher taxes unless Congress intervenes. Key provisions include:
- State and local tax (SALT) deductions. The current $10,000 cap on SALT deductions is set to expire, returning to pre-TCJA rules that allow unlimited deductions. This is good news for taxpayers in high-tax states.
- Child and dependent tax credits. The $2,000 per child credit (with higher income phase-out thresholds) will revert to $1,000 per child. The $500 credit for non-child dependents will expire.
- Standard deduction and personal exemptions. The generous standard deduction amounts will decrease, and personal exemptions will return, potentially creating mixed results depending on your tax profile.
- Home mortgage interest. Debt limits for mortgage interest deductions will increase to $1 million from the current $750,000, and interest on home equity loans will become deductible again.
- Miscellaneous itemized deductions. Deductions for expenses like investment fees and unreimbursed employee expenses will return, providing more opportunities for itemizing.
Permanent Changes: Long-Term Adjustments
While some provisions are expiring, others introduced by the TCJA are here to stay:
- Limits on 1031 exchanges. Tax-deferred exchanges are now limited to real property, permanently excluding personal property exchanges.
- Alimony taxation. Alimony payments required by post-2018 divorce agreements remain non-deductible for payors and non-taxable for recipients.
- Roth conversion reversal ban. The elimination of Roth IRA conversion reversals is a permanent change, requiring more strategic planning before converting.
Key Areas of Mixed Impact
Charitable deductions. Limits for cash contributions to public charities will revert from 60 percent to 50 percent of adjusted gross income, but more taxpayers may benefit from itemizing if the standard deduction decreases.
Income tax rates. Lower tax rates under the TCJA are set to expire, bringing back higher rates for many taxpayers and shifting thresholds for higher brackets.