Looming Sunset to some provisions within Tax Cuts and Jobs Act (TCJA)

With the start of the new year, there arise the potential sunsetting of some provisions within the Tax Cuts and Jobs Act (TCJA) in 2025. Tax rules tend to change without adequate notice, and the treatment of certain rules are not guaranteed to stay constant. For example, some permanent provisions within the Act, such as reducing the corporate tax rate from 35 percent to 21 percent, along with most individual tax rate changes are not. If Congress does not act to renew all or part of this law passed in 2017, there may be changes on the horizon for taxpayers.

Current and Post-TCJA Comparison

The TCJA had multiple provisions, modifications, and new rules. If the law is allowed to sunset, untangling everything might create new complexities. To help you better understand what may change, here is a comparison of where things stand today and what could happen after the TCJA expires.

Changes That May Affect Some

• State and Local Tax (SALT) deduction no longer be capped at $10,000 annually and subject to phase-outs at higher income levels. Both state and local taxes vary widely depending on the state you reside within. Wealthy taxpayers are most affected by the cap in states with high tax rates, such as California, Illinois, New Jersey, and New York.
  

• Mortgage interest deduction would increase from $750k of debt to $1M plus $100k in home equity debt.
  

• Miscellaneous deductions likely to return. Pre-TCJA, several deductions were allowed for households, including investment expenses, moving expenses, tax preparation fees, and unreimbursed employee expenses exceeding 2 percent of adjusted gross income (AGI). A few taxpayers are likely to see these deductions return.

Changes That May Affect Others

• Depending on your family size and filing status, Standard deduction would return to Pre-TCJA level.
  

• More taxpayers may qualify for Alternative Minimum Tax (AMT). Initially created to ensure high-income earners pay more taxes, disproportionately, it affected a number of households over the years. The reason? It was never indexed for inflation. So if the law sunsets, the AMT is expected to return to prior levels.
  

• Business Owners and High-Net-Worth individuals ought to be aware that The unified lifetime exclusion for estates and gifts would be roughly reduced in half. 2024 will see this amount increase from $23,000 to $24,000 without notifying the Internal Revenue Service (IRS).

Potential Changes May Affect Business Owners

• TCJA created a 20% Qualified Business Income (QBI) deduction. A number of pass-through entities such as FLPs, LLCs, and S corporations will be affected with pass-through income taxed at tax-payers personal income tax rate.
  

• Five year capital investments likely to return to $500,000 as opposed to current $1,000,000 cap. Possible changes likely to sunset are as follows but not limited to: corporate AMT, deductibility of net interest and net operating loss carrybacks and carryforwards will certainly go away.

This blog is for information purposes only and is not a substitute for real-life advice. You ought to review any specific questions about the TCJA with a tax specialist (SharmaAccountingLLC) or legal professional.