Key provisions of the Tax Cuts and Jobs Act (TCJA) are scheduled to sunset at the end of 2025.
These changes will impact the pocketbooks of average Americans as well as many owners of closely held businesses and Americans with significant wealth.
Given today’s low tax rates and the current political climate, now is the time to start planning.
When it passed in 2017, the Tax Cuts and Jobs Act (TCJA) was the largest overhaul to the U.S. tax code in decades. Today, many American taxpayers enjoy the benefits of this legislation. But the clock is now ticking on the law’s many temporary provisions, which are scheduled to sunset at the end of 2025 unless Congress intervenes.
The changes will be substantial for most Americans and even more so for business owners and Americans with significant wealth. Whether it’s contributing to certain tax-advantaged accounts while rates are low or putting more advanced estate plans in place, there are several opportunities to work with your Northwestern Mutual financial advisor before the sunset. But the time to act is now.
11 TCJA Provisions Expiring in 2025
Here are 11 key tax changes that will occur at the end of 2025 and who will be affected by each should the TCJA sunset as planned.
1. Income Tax Rates
Who is affected? All individual taxpayers earning $11,600 per year or more (or $23,200 per year or more if married filing jointly) will experience an increase in income tax rates.
What’s changing? The TCJA lowered individual income tax rates for nearly all Americans, but only temporarily. These rates are set to revert to the higher pre-TCJA rates at the end of 2025, resulting in as much as a 4 percent income tax rate increase in some brackets.
The following table highlights today’s income tax rates and projections for 2026:
2. Standard Deduction
Who is affected? Anyone who claims the standard deduction, which includes an estimated 90 percent or more of U.S. taxpayers under the TCJA, including many affluent individuals and couples.
What’s changing? Under current law, the standard deduction for individuals is set to $14,600 (or $29,200 if married filing jointly). After the sunset, the standard deduction will be reduced by approximately 50 percent.
Want more? Get financial tips, tools, and more with our monthly newsletter.
3. State and Local Tax (SALT) Deduction
Who is affected? Taxpayers who itemize when filing federal taxes and deduct property tax, state income tax and/or sales tax.
What’s changing? The TCJA capped the SALT deduction at $10,000. After the sunset, the cap goes away and pre-TCJA eligibility phaseouts (adjusted for inflation) come back into effect. In 2017, those thresholds were $261,500 for individuals and $313,800 if married filing jointly.
4. Personal Exemption
Who is affected? All taxpayers who cannot be claimed as a dependent on someone else’s tax return.
What’s changing? The personal exemption was eliminated under the TCJA, but after the sunset it’ll be back at $4,050 per taxpayer and qualified dependent. The applicable income phaseout thresholds will revert to the higher pre-TCJA levels, adjusted for inflation. Back in 2017, those were set to $261,500 for individuals and $313,800 if married filing jointly.
5. Child Tax Credit
Who is affected? Taxpayers with qualifying dependents.
What’s changing? The TCJA increased the child tax credit from $1,000 to $2,000 per qualifying child under age 17 (it also offers a $500 credit for other dependents) with phaseouts beginning at $200,000 for individual filers and $400,000 for those who are married filing jointly. After the sunset, the child tax credit will revert to the pre-TCJA level of $1,000, and phaseouts will begin at $75,000 for individual taxpayers and $110,000 for those married filing jointly.
6. Mortgage and Home Equity Interest Deduction
Who is affected? Homeowning taxpayers who itemize deductions on their federal returns.
What’s changing? Under the TCJA, the mortgage interest deduction was limited to interest on $750,000 of debt, and the deduction for home equity interest was eliminated unless the debt was incurred to buy or improve the property. After the sunset, the mortgage interest deduction limit will increase to $1 million of indebtedness, and the home equity interest deduction will be available for interest on up to $100,000 of indebtedness (regardless of use).
7. Charitable Contribution Deduction Limitation
Who is affected? Charitably minded taxpayers who itemize deductions on their federal returns.
What’s changing? Under the TCJA, gifts of cash to public charities are 100 percent deductible, up to 60 percent of your adjusted gross income (AGI). After the sunset, the cap will revert to the pre-TCJA level of 50 percent of AGI.
8. Miscellaneous Itemized Deduction
Who is affected? Taxpayers who itemize deductions on their federal returns.
What’s changing? The TCJA cut the miscellaneous itemized deduction, but after the sunset it will return. The miscellaneous itemized deduction will be available once deductions exceed 2 percent of AGI.
9. Alternative Minimum Tax (AMT)
Who is affected? High-income taxpayers.
What’s changing? Changes to the AMT exemption amount and income phaseout under the TCJA means few taxpayers pay AMT. The exemption amount is currently set to $85,700 for individual taxpayers or $133,300 for those who are married filing jointly, while the income phaseout is set to begin at $609,350 for individuals and $1,218,700 for those who are married filing jointly. After the sunset, these amounts will drop, causing many more taxpayers to be subject to AMT.
10. Lifetime Gift and Estate Tax Exemption
Who is affected? Individuals with at least $5 million in net worth or couples with at least $10 million in net worth. Younger taxpayers who have high income(s) and/or high asset growth potential with a current individual net worth of $3 million (or $6 million as a couple) may also be affected as their estates grow in the future.
What’s changing? With the enactment of the TCJA, the lifetime gift and estate tax exemption doubled and today is set to $13.61 million for individuals and $27.22 million for couples. Once the sunset takes effect, the lifetime estate and gift exemption will be cut in approximately half. The value of an estate that exceeds the applicable exemption amount is subject to a flat tax of 40 percent, while amounts below that threshold do not incur tax at all.
If you are an individual or part of a couple with substantial wealth and believe you may be affected by this tax change, we can’t stress enough that now is the time to begin planning. And here’s why:
- Potential to save millions – With the lifetime estate and gift tax exemption currently set at an all-time high, there is an opportunity to potentially save millions in transfer taxes by acting before the sunset.
- The clock is ticking – The sophisticated estate plans required for those with substantial wealth can take 12 to 18 months to execute, and just under 24 months remain until the sunset is expected to take effect.
- “Use it or lose it” opportunity – This is truly a “use it or lose it" opportunity that is unlikely to be available in the future.
Let’s take advantage of attractive opportunities while taxes are still at historic lows.
Our advisors can help you optimize your taxes through Roth conversions, proactive management of business income, implementation of a wealth transfer plan, and other financial strategies.Get started
11. Qualified Business Income (QBI) Tax Deduction
Who is affected? Owners of pass-through business entities (the vast majority of closely held businesses in the U.S.). Pass-through entities include sole proprietorships, partnerships (e.g., LPs, LLPs), S-corporations and limited liability companies (LLCs).
What’s changing? The QBI tax deduction created under the TCJA is going away at the end of 2025. The QBI tax deduction affords owners of certain pass-through business entities a 20 percent income tax deduction. Should this provision of the TCJA sunset as planned, the deduction will no longer be available, meaning owners of pass-through entities may end up paying a higher tax rate than C-corporations.
Now Is the Time to Plan; Northwestern Mutual Can Help
While the clock is indeed ticking on the TCJA sunset, by starting now you’ll have almost two full years to plan for and continue taking advantage of lower tax rates. And the good news is this kind of planning is where Northwestern Mutual financial advisors really excel. Our advisors combine firsthand knowledge of financial planning strategies with the resources of a Fortune 200 company to help clients like you achieve financial and life goals.
Equipped with proprietary financial modeling software as well as access to a dedicated team of estate, tax and business planning experts, Northwestern Mutual financial advisors can help you navigate the TCJA sunset with a multitude of tax optimization strategies. From Roth conversions to effective management of business income and the implementation of a tax-efficient wealth transfer plan, we’ve got you covered.
This publication is not intended as legal or tax advice. It is intended for information and educational purposes and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. This information was compiled by The Northwestern Mutual Life Insurance Company. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting, or tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.
As an attorney in Sophisticated Planning Strategies, I work with Northwestern Mutual financial advisors as they help clients achieve financial security.
Want more? Get financial tips, tools, and more with our monthly newsletter.