TCJA Sunset 2025: How Your Taxes Will Change

The Tax Cuts and Jobs Act (TCJA) of 2017 was an overhaul of the U.S. tax code that introduced changes for individuals and businesses. A defining feature of this law is that many of its provisions will “sunset,” or automatically expire, at the end of 2025 without further action from Congress. As the December 31, 2025, deadline approaches, taxpayers should be aware that many tax rules are scheduled to revert to the laws in place before the TCJA. This shift will affect tax rates, deductions, and credits, creating a different financial picture for most Americans in 2026.

Key Individual Tax Provisions Expiring

One of the most direct impacts of the TCJA sunset will be the reversion of individual income tax brackets and rates. The 2017 law’s seven brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% will expire. The tax structure will return to the pre-TCJA framework, which had rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The top marginal rate will increase from 37% to 39.6%, and the income thresholds for each bracket will also change, potentially subjecting more income to higher taxation.

The TCJA nearly doubled the standard deduction, which for 2025 is projected to be approximately $15,000 for single filers and $30,000 for married couples filing jointly. This simplified tax filing for many by making itemizing deductions less necessary. Beginning in 2026, the standard deduction is set to be cut roughly in half, reverting to its inflation-adjusted 2017 level. With this change, more taxpayers will likely need to evaluate whether itemizing deductions is the better choice. Additionally, personal and dependent exemptions, which were suspended by the TCJA, will return and provide another way to reduce taxable income.

The TCJA capped the state and local tax (SALT) deduction at $10,000 per household, which is scheduled to disappear after 2025. This will allow taxpayers who itemize to again deduct the full amount of their state and local tax payments. The rules for the home mortgage interest deduction will also revert, with the limit on mortgage debt increasing from $750,000 back to $1 million. The deduction for interest on up to $100,000 of home equity debt will also be restored.

For high-income taxpayers, the benefit of these restored deductions may be partially offset by the return of the “Pease” limitation. This provision, suspended by the TCJA, reduces the total value of most itemized deductions once a taxpayer’s adjusted gross income surpasses a certain threshold. Its return means some high earners will face a limit on the overall tax benefit they receive from itemizing.

The TCJA increased the Child Tax Credit (CTC) from $1,000 to $2,000 per child and raised the income phaseout thresholds, making the credit available to more families. At the end of 2025, the CTC is set to revert to its prior form. The credit amount will be reduced back to $1,000 per child. The income thresholds for eligibility will also drop to $110,000 for married couples filing jointly and $75,000 for single filers, making many families who currently receive the credit ineligible.

The TCJA suspended most miscellaneous itemized deductions, such as those for unreimbursed employee business expenses and tax preparation fees. These deductions were previously available to taxpayers who itemized for expenses that exceeded 2% of their adjusted gross income (AGI). These deductions are scheduled to be restored beginning in the 2026 tax year.

Business and Estate Tax Sunsets

Owners of pass-through businesses, such as sole proprietorships and S corporations, benefited from the Qualified Business Income (QBI) deduction. This provision allows eligible owners to deduct up to 20% of their qualified business income. The deduction is subject to limitations based on the type of business, employee wages, and property costs. This deduction is set to expire completely after 2025. Beginning in 2026, income from pass-through entities will be taxed at the owner’s full ordinary income tax rates.

The TCJA increased the federal estate and gift tax exemption, which is the amount an individual can transfer to heirs without incurring the tax. For 2025, the exemption is expected to be approximately $14.6 million per individual. This high threshold means very few estates are currently subject to federal estate tax. This exemption amount will be cut by about half at the end of 2025. It is scheduled to revert to its pre-TCJA level of $5 million, adjusted for inflation, which is estimated to be around $7 million per person.

The Alternative Minimum Tax (AMT) is a parallel tax system ensuring high-income individuals pay a minimum amount of tax. The TCJA reduced the AMT’s reach by increasing its exemption amounts and the income levels at which those exemptions phase out. With the sunset, the AMT exemption amounts will revert to their lower, pre-2018 levels. This means more taxpayers, particularly those with higher incomes and large itemized deductions, will likely be subject to the AMT again starting in 2026.

Permanent TCJA Changes Remaining

While many individual tax changes are temporary, the TCJA’s corporate tax reform is permanent. The law replaced the tiered corporate income tax structure, which had a top rate of 35%, with a flat 21% tax rate. This 21% rate is not subject to the 2025 sunset. This creates a lasting distinction between C corporations paying the flat rate and pass-through businesses, whose owners face expiring deductions and higher individual rates.

Another permanent TCJA change is the method used to adjust tax provisions for inflation. The law switched the inflation measure from the traditional Consumer Price Index (CPI) to the Chained Consumer Price Index (C-CPI-U). The Chained CPI grows at a slower rate because it accounts for consumer substitutions when prices change. By using a slower-growing inflation measure, tax bracket thresholds and deduction amounts increase more slowly, resulting in “bracket creep,” where inflation pushes taxpayers into higher tax brackets more quickly over time.

Tax Planning Strategies Before 2026

With income tax rates scheduled to increase in 2026, one strategy is to accelerate income into 2024 and 2025 to take advantage of the current lower rates. This could involve realizing capital gains or taking bonuses before the end of 2025. Conversely, it may be beneficial to defer deductions until 2026 or later, as the lower standard deduction and other restored deductions could yield a greater tax benefit.

The years before 2026 present a window for converting funds from traditional IRAs or 401(k)s into Roth accounts. A Roth conversion is a taxable event, with the converted amount included in your ordinary income for that year. Paying the tax on these conversions before 2026 allows you to use the lower TCJA income tax rates. Once in a Roth account, funds grow tax-free, and qualified withdrawals in retirement are also tax-free. This can be advantageous for those who expect to be in a higher tax bracket in the future.

The scheduled halving of the federal estate and gift tax exemption makes the period before 2026 important for high-net-worth individuals. The current high exemption allows for substantial tax-free gifts to be made to family members or trusts. Making large gifts before the end of 2025 allows individuals to use the higher exemption amount before it decreases. This strategy can permanently remove assets from a taxable estate through methods like direct gifts or transfers into trusts.

Owners of pass-through businesses should aim to maximize the 20% Qualified Business Income deduction before it expires. Business owners can work with tax advisors to structure their income to receive the full deduction. This may involve optimizing W-2 wages or adjusting investments in qualified property to meet the deduction’s requirements. Planning that increases qualified income in 2024 and 2025 can result in direct tax savings before the deduction disappears.