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

The Tax Cuts and Jobs Act (TCJA) of 2017 was a significant piece of U.S. tax reform legislation. Its primary goals were to simplify the tax code for individuals and enhance the competitiveness of American businesses in the global market. The law aimed to achieve this by lowering tax rates for both individuals and corporations, modifying deductions and credits, and making structural changes to how income is taxed.

Major Tax Changes for Individuals

The TCJA restructured the individual income tax system by lowering tax rates and adjusting the income thresholds for most brackets. For example, the top marginal rate was reduced from 39.6% to 37%. These changes were designed to reduce the tax liability for many, though the specific impact varied based on a person’s income level and filing status.

A central change for individuals was the near-doubling of the standard deduction. For the 2025 tax year, the standard deduction is $30,000 for married couples filing jointly and $15,000 for single filers. This significant increase simplified tax filing for many, as it made taking the standard deduction more advantageous than itemizing. By claiming the higher standard deduction, taxpayers could reduce their adjusted gross income (AGI) without the need to track numerous individual expenditures.

In a corresponding move, the TCJA eliminated personal exemptions. Previously, taxpayers could deduct a set amount for themselves, their spouse, and each dependent, which lowered their taxable income. The removal of this provision was offset by the larger standard deduction and enhancements to other family-oriented tax benefits.

The law also brought significant modifications to itemized deductions. One of the most discussed changes was the new $10,000 limit on the deduction for state and local taxes (SALT), which includes property, income, and sales taxes. This cap affected taxpayers in areas with higher local tax burdens. The TCJA also altered the mortgage interest deduction by lowering the amount of new mortgage debt on which interest could be deducted.

To further support families, the TCJA expanded the Child Tax Credit (CTC). The maximum credit was doubled from $1,000 to $2,000 per qualifying child. The law also increased the income thresholds at which the credit begins to phase out. A portion of the credit, up to $1,700 per qualifying child, was made refundable, meaning eligible families could receive it even if they owed no income tax. The act also introduced a new, non-refundable $500 credit for other dependents, such as older children or elderly relatives.

Significant Tax Changes for Businesses

One of the most prominent business provisions in the TCJA was the reduction of the corporate income tax rate. The law replaced the previous graduated corporate tax structure, which had a top rate of 35%, with a single, flat rate of 21%. This change was intended to make the U.S. a more attractive place for businesses to operate and invest.

The TCJA introduced a new tax benefit for pass-through entities, such as sole proprietorships, partnerships, and S corporations, through the Qualified Business Income (QBI) deduction. This provision allows eligible owners to deduct up to 20% of their qualified business income. The deduction was created to provide a tax cut to non-corporate businesses that was comparable to the reduction in the corporate tax rate. The full deduction is subject to limitations based on the owner’s taxable income, the type of business, and other factors like the amount of W-2 wages paid by the business.

Another significant change was the enhancement of bonus depreciation. Bonus depreciation allows a business to immediately deduct a large percentage of the purchase price of eligible assets, rather than writing it off over many years. The TCJA initially increased the bonus depreciation allowance to 100% for qualified property, a provision that applied to both new and used assets. This incentive for business investment is now phasing down, with the rate for qualified property placed in service in 2025 set at 40%.

The rules for Net Operating Losses (NOLs) were also modified. An NOL occurs when a company’s tax-deductible expenses exceed its revenues in a given year. Before the TCJA, businesses could carry these losses back to offset profits from the prior two years. The TCJA eliminated the ability to carry back most NOLs but allowed them to be carried forward indefinitely, limiting the NOL deduction in any single year to 80% of taxable income.

Understanding the Sunset Provisions

A defining feature of the TCJA is that many of its provisions are not permanent. This temporary nature is a result of the legislative process used to pass the bill, which required it to meet specific budgetary constraints. Because of these rules, a majority of the tax changes for individuals were written to expire automatically at the end of 2025 in a process known as a “sunset.”

Unless Congress acts to extend them, several provisions affecting individuals will revert to their pre-TCJA status on January 1, 2026. These changes include:

• The lower individual income tax rates reverting to higher, pre-2017 levels.
• The standard deduction being cut by about half, and personal exemptions being reinstated.
• The expiration of the $10,000 cap on the SALT deduction.
• The expiration of the expanded Child Tax Credit.

In contrast to the temporary individual changes, most core business provisions were made permanent. The most significant of these is the flat 21% corporate income tax rate, which does not have an expiration date. While some business provisions, like the 100% bonus depreciation, are scheduled to phase down, the central corporate rate change remains fixed.