TCJA Rules: What Changes as Provisions Expire?

The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, overhauled the U.S. tax code. The legislation introduced widespread changes affecting individuals, families, and businesses by altering tax rates, deductions, and credits. While some changes are permanent, many affecting individual taxpayers are scheduled to expire after December 31, 2025, unless extended by Congress.

Key Changes for Individual Taxpayers

The TCJA reconfigured the seven marginal income tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for each bracket were also adjusted, which lowered the overall tax liability for many taxpayers.

A central change was the increase in the standard deduction. For tax year 2025, the inflation-adjusted amounts are $15,000 for single filers, $22,500 for heads of household, and $30,000 for married couples filing jointly. Concurrently, the law suspended the personal exemption.

The law placed new limitations on itemized deductions, including a cap on the state and local tax (SALT) deduction. Taxpayers are limited to deducting a maximum of $10,000 per household for any combination of state and local property taxes and either income or sales taxes.

Adjustments to itemized deductions also affected the mortgage interest deduction. For new mortgages taken out after December 15, 2017, interest can only be deducted on loan amounts up to $750,000. The TCJA also suspended all miscellaneous itemized deductions that were subject to the 2% of adjusted gross income (AGI) floor, which includes unreimbursed employee expenses and tax preparation fees.

The Child Tax Credit was doubled to $2,000 per qualifying child, with up to $1,700 being refundable for some lower-income families. The income phase-out thresholds were also increased to $200,000 for single filers and $400,000 for married couples.

The TCJA addressed the Alternative Minimum Tax (AMT). The law raised the AMT exemption amounts and the income levels at which the exemption begins to phase out. This change meant that far fewer individuals were subject to the AMT.

The TCJA eliminated the penalty associated with the Affordable Care Act’s (ACA) individual mandate. The law reduced the shared responsibility payment for not maintaining health insurance coverage to zero, starting in 2019.

Major Provisions for Businesses

The TCJA reduced the corporate income tax rate from a top graduated rate of 35% to a permanent flat rate of 21%.

The TCJA introduced a tax benefit for owners of pass-through entities, which include sole proprietorships, partnerships, and S corporations. The Section 199A Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income.

For taxpayers with income above certain thresholds, the QBI deduction may be limited based on the type of business. The rules distinguish between a regular trade or business and a “specified service trade or business” (SSTB), such as those in health, law, and consulting. For SSTBs, the deduction phases out for higher-income owners, while for other businesses, the deduction may be limited by W-2 wages or the basis of qualified property.

The law enhanced depreciation rules, allowing for more immediate cost recovery on investments. It expanded bonus depreciation to allow for 100% first-year expensing of the cost of qualified new and used property acquired and placed in service after September 27, 2017.

The TCJA also increased the maximum amount a business could expense under Section 179. For tax year 2025, the maximum deduction is $1,250,000, and the phase-out threshold begins at $3,130,000. This provides businesses flexibility to deduct the full cost of certain property in the year of purchase.

A limitation was placed on the deductibility of business interest expense under Section 163. The deduction for net business interest expense is limited to 30% of the business’s adjusted taxable income (ATI). Small businesses with average annual gross receipts of $25 million or less are exempt.

The rules for Net Operating Losses (NOLs) were modified for losses arising after December 31, 2017. The NOL deduction is limited to 80% of taxable income. The option to carry back NOLs was eliminated, but losses can now be carried forward indefinitely.

International and Estate Tax Reforms

The TCJA shifted the U.S. international tax system from a “worldwide” to a “territorial” model. The new system exempts most foreign-source income from U.S. taxation.

A component of this new system is the participation exemption, which provides a 100% deduction for certain foreign-source dividends received by U.S. corporations from their foreign subsidiaries. This allows companies to repatriate foreign earnings to the United States without incurring additional U.S. tax.

To prevent companies from shifting profits to low-tax jurisdictions, the TCJA introduced the Global Intangible Low-Taxed Income (GILTI) provision. GILTI rules subject a U.S. shareholder’s portion of a foreign subsidiary’s high-return income to immediate U.S. taxation, regardless of whether it is distributed. This acts as a global minimum tax, discouraging profit shifting to tax havens.

As part of the move to the new system, the law imposed a one-time transition tax on the untaxed foreign earnings that U.S. companies had accumulated overseas. This mandatory repatriation tax was set at 15.5% for cash and cash equivalents and 8% for non-cash assets, payable over eight years.

Understanding TCJA Sunsetting Provisions

A defining feature of the TCJA is that many of its provisions are not permanent. Congress is considering legislation to address these expiring provisions. Unless extended, tax laws for individuals will largely revert to their pre-2017 state, adjusted for inflation, after December 31, 2025.

Expiring provisions for individuals and pass-through businesses include:

• The lower marginal income tax rates
• The increased standard deduction and the suspension of personal exemptions
• The $10,000 cap on the state and local tax (SALT) deduction
• The current rules for the mortgage interest deduction
• The suspension of miscellaneous itemized deductions
• The expanded $2,000 Child Tax Credit
• The more generous Alternative Minimum Tax (AMT) parameters
• The 20% Qualified Business Income (QBI) deduction

In contrast, most business provisions enacted by the TCJA were made permanent. The 21% flat corporate tax rate, the business interest deduction limit, and the NOL rules are permanent. However, the 100% bonus depreciation began a phase-down in 2023. For property placed in service in 2025, the rate is 40% before being eliminated after 2026.

The federal estate and gift tax exemption is also temporary. The TCJA doubled the exemption amount, which for an individual who dies in 2025 is $13.99 million. This provision, which reduced the number of estates subject to the 40% federal estate tax, is scheduled to revert to its lower, pre-TCJA level after December 31, 2025.