Tax Cuts and Jobs Act (TCJA) Sunset: How to prepare

Learn how the Tax Cuts and Jobs Act (TCJA) sunset could impact individuals and businesses in 2025. We'll cover what happens to existing tax brackets after the TCJA expires, key changes to note, and how to prepare yourself and your business.

What is the Tax Cuts and Jobs Act (TCJA)?

The Tax Cuts and Jobs Act passed at the end of 2017 and had a major impact on the tax system. At its core, the TCJA was designed to reduce taxes and stimulate the economy.

Some of the key provisions include:

• Tax cuts for individuals: Lowered tax rates for most Americans.
• Lowered corporate tax rate: Permanently slashed the corporate tax rate from 35% to 21%.
• A bigger standard deduction: The standard deduction almost doubled, simplifying the tax process for many filers.
• Changes to itemized deductions: Several itemized deductions were limited or eliminated, such as the cap on state and local tax (SALT) deductions.

These adjustments were intended to increase consumer spending and business investments, helping to boost overall economic activity. However, many of the changes were temporary and will expire at the end of 2025.

When will the TCJA sunset in 2025?

Many provisions in the TCJA will expire on December 31, 2025, unless Congress steps in with new legislation. This "sunset" clause means the tax code will revert to its pre-2017 state, bringing back old rules and higher rates for many taxpayers.

These changes have the potential to create big shifts in how much individuals and businesses owe in taxes moving forward.

TCJA provisions set to expire

For individuals

• Lower income tax rates: Current tax brackets are set to revert to their pre-TCJA levels, which would mean higher marginal tax rates across income levels. The top tax rate would increase from 37% to 39.6%.
• Increased standard deduction: The nearly doubled standard deduction ($29,200 for married couples filing jointly and $14,600 for single filers in 2024) is set to revert to pre-TCJA levels, which would reduce the deduction available to many taxpayers.
• Increased Alternative Minimum Tax (AMT) exemption: The higher AMT exemption amount under the TCJA meant more taxpayers could take advantage of other deductions and tax breaks. If this provision expires in 2026, the AMT exemption for married couples filing jointly will be approximately $86,200 compared to the current $133,300.
• Child tax credit: If the expanded child tax credit ($2,000 per child) expires, it would decrease it to its pre-TCJA amount of $1,000 per child, reducing the benefit for families.
• State and local tax (SALT) deduction cap: If the $10,000 cap on the SALT deduction expires, taxpayers may be able to deduct more than $10,000 in state and local taxes. If you live in a high-tax state, you’ll be able to deduct more of your state and local taxes, which could lower your tax bill.
• Mortgage interest deduction cap: The TCJA limited the deduction for mortgage interest to loans up to $750,000. If the sunset occurs, the pre-TCJA limit of $1 million would be restored. If you have a mortgage between $750,000 and $1 million, you’ll be able to deduct more of your mortgage interest, which could reduce your taxes.
• Estate and gift tax exemption: If the estate and gift tax exemption sunsets, it will be reduced from $13.61 million per person (2024) to less than $5 million per person (pre-TCJA levels). If you’re passing on significant wealth, more of it could be taxed starting in 2026, meaning you’ll want to plan ahead if this affects you.

For businesses

• Corporate tax rate: Unlike individual tax cuts, the reduction of the corporate tax rate from 35% to 21% is permanent and is not subject to the sunset provisions. Even though it is permanent, policymakers may revise the rate to pay for other investments and offsets. While it is too early to tell, companies may consider taking advantage of this low rate in the event it rises.
• Pass-through business income deduction (Section 199A): The 20% deduction for qualified business income from pass-through entities—such as limited liability companies (LLCs), S-corporations, and sole proprietorships—is set to expire at the end of 2025. Congress may extend this treatment, but no guarantees. If you’re a small business owner or partnership owner, this means you may lose a big tax break after 2025 and could face higher taxes on your earnings.
• Bonus depreciation: The TCJA phased out the ability to immediately deduct 100% of the cost of qualifying property (bonus depreciation). This means you’ll lose the ability to write off big purchases, like equipment or machinery, all at once. You’ll have to spread those deductions out over several years instead. Congress is likely to revisit this and enable immediate deduction, but nothing is done yet.
• Interest deduction limitation [Section 163(j)]: The TCJA limited the deduction for net interest expenses to 30% of adjusted taxable income. After 2025, this provision is set to revert to its pre-TCJA form, likely allowing for more interest expense deductions, which could lower your overall tax bill.
• Limits on net operating loss (NOL) deductions: The TCJA limited businesses' ability to carry back NOLs to offset income from previous years and restricted how much NOL could be used to offset taxable income in future years. If this provision expires, the pre-TCJA rules could be reinstated, allowing more flexibility for businesses to carry back losses to previous years and offset taxable income more effectively.

What happens to tax brackets after the TCJA expires?

One of the most noticeable effects of the TCJA’s expiration will be the shift in tax brackets. Here's a comparison of the Internal Revenue Services (IRS) 2024 unmarried individual taxpayer brackets and the projected post-2025 brackets:

2024 Tax Year Individual Tax Brackets (TCJA)

Projected Post-2025 Individual Tax Brackets (Post-TCJA Sunset)

Key changes to note:

1. The 12% bracket will increase to 15%, affecting lower to middle-income earners.
2. The 22% and 24% brackets will be replaced by higher 25% and 28% brackets.
3. The 32% bracket will increase to 33%.
4. The top tax rate will rise from 37% to 39.6%, applying at a lower income threshold.
5. Individual income tax ranges for each bracket will shift, generally compressing higher tax rates into lower income levels.

If tax brackets revert to pre-TCJA levels, a single filer earning $50,000 would owe $8,153.75 in taxes compared to $6,939.50 under the current law—an increase of $1,214.25. A married couple filing jointly with $150,000 in taxable income would see their tax bill rise from $24,879 to $28,807.50, meaning they'd owe $3,928.50 more. For higher earners, such as a single filer with $250,000 in income, annual taxes would jump from $61,689.50 to $67,803.75, resulting in an additional $6,114.25 owed.

How to prepare for the TCJA sunset

Luckily, there are tax planning steps you can take now to brace for the possible tax changes:

• Consider estate planning: If you anticipate being impacted by the lower estate tax exemption, now might be a good time to explore gifting strategies or setting up trusts.
• Accelerate income: If you expect your tax rate to increase, it could make sense to accelerate certain types of income, like bonuses or capital gains, while the lower rates are still in place.
• Maximize current tax deductions: Take full advantage of any deductions and credits that may go away, like the expanded child tax credit or the 20% pass-through business deduction.

As always, it’s wise to work closely with a tax advisor to tailor a strategy that suits your financial situation. They can help you identify the best ways to mitigate any potential tax increases after 2025.