As the end of 2025 approaches, Americans are bracing for significant changes to their tax structures due to the expiration of the Tax Cuts and Jobs Act of 2017 (TCJA). If Congress does not act to extend these provisions, the changes, set to occur at midnight on December 31, 2025, will impact various aspects of taxation including tax brackets, income tax rates, child tax credits, state and local tax deductions, and mortgage interest deductions. These shifts will essentially revert tax settings to their pre-2017 status, affecting nearly every taxpayer in the country.
Mark Steber of Jackson Hewitt warns that this shift could represent “the Super Bowl of tax law changes,” with an undeniable increase in tax rates for everyone. The TCJA, initiated under President Donald Trump, provided broad tax relief by lowering rates and adjusting income thresholds. For example, a married couple with a net income of $250,000 saw their tax rate decrease from 33% in 2017 to 24% in 2024. Similarly, the tax rate for an individual earning $39,000 dropped from 25% to 12% during the same period.
Financial advisors are suggesting strategies to mitigate the impact of these looming increases. Nayan Lapsiwala of Aspiriant recommends that retirees consider withdrawing more than the minimum required distributions in 2024 and 2025, and others might look into Roth conversions to capitalize on lower tax rates. Moreover, Evan Morgan of Kaufman Rossin advises that deferring deductions, like those for charitable contributions, might be wise if higher tax rates are anticipated in 2026.
The standard deduction, which nearly doubled as a result of the TCJA, allowing more taxpayers to benefit from it rather than itemizing deductions, will revert to previous levels. This change will necessitate a return to itemization for many, making the tracking and reporting of deductible expenses more critical.
The child tax credit, which was increased to $2,000 per child under the TCJA, will revert to $1,000 per child if the provisions are allowed to sunset. This change will directly affect families’ finances, reducing the amount of credit available for children under 17 years old.
Further, the cap on mortgage interest deductions will shift, allowing for deductions on mortgage indebtedness up to $1 million, up from $750,000, potentially benefiting new home buyers considering the current economic landscape.
For those who relocate for work, the return of the moving expense deduction (which was eliminated except for military personnel during the TCJA years) could reduce the financial burden of moving.
The alternative minimum tax (AMT), which was restructured under TCJA to affect fewer individuals, might ensnare more taxpayers once again if the changes are reversed. This tax ensures that higher-income earners pay a minimum amount of tax if their deductions are exceptionally high.
Moreover, the limitation on the state and local tax (SALT) deduction, which is currently capped at $10,000, will be lifted. This is particularly relevant for residents in high-tax states like California and New York, where the deduction is highly valued.
The looming tax changes are not just a matter of personal finance adjustments; they could have broader implications for the U.S. economy, including potential impacts on the deficit and economic growth. Taxpayers are advised to stay informed and possibly consult with tax professionals to navigate this complex landscape effectively.
