Which Major Tax Cuts Are Set to Expire?

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced widespread changes to the U.S. tax code. A key feature of this legislation was the inclusion of “sunset” provisions, meaning many of its alterations were designed to be temporary and are scheduled to expire at the end of 2025.

As the December 31, 2025, expiration date approaches, taxpayers face the prospect of federal tax laws reverting to their pre-TCJA state. Without new legislation from Congress to extend or modify these rules, the tax landscape for millions of Americans will change beginning in 2026.

Expiring Provisions Affecting Individual Taxpayers

The expiration of the TCJA will bring substantial changes to how individuals calculate their annual tax liability. The following are some of the most impactful provisions set to revert to pre-2017 rules in 2026.

• Income Tax Brackets: The current seven brackets with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% will be replaced. The new structure will have rates of 10%, 15%, 25%, 28%, 33%, 35%, and a top rate of 39.6%.
• Standard Deduction: This amount will be cut roughly in half. For 2025, the standard deduction is $30,700 for married couples filing jointly and $15,350 for single filers. These will revert to an estimated $16,700 for joint filers and $8,350 for single filers, adjusted for inflation.
• Personal Exemptions: Suspended by the TCJA, these exemptions will return, providing a deduction based on family size. Projections indicate the personal exemption will be valued at approximately $5,300 per person, for the taxpayer, their spouse, and each dependent.
• Child Tax Credit: The credit will decrease from $2,000 to $1,000 per qualifying child. The income level at which the credit begins to phase out will also drop from $400,000 to $110,000 for married couples filing jointly and from $200,000 to $75,000 for single filers.
• State and Local Tax (SALT) Deduction: The current $10,000 cap per household will be eliminated. This will allow taxpayers who itemize to once again deduct the full amount of their eligible state and local income, sales, and property taxes.
• Mortgage Interest Deduction: The deduction will revert to covering interest on up to $1 million of mortgage debt, up from the TCJA’s $750,000 limit. The law will also restore the ability to deduct interest on up to $100,000 of home equity debt.
• Miscellaneous Itemized Deductions: The ability to claim deductions for expenses like unreimbursed employee business costs and tax preparation fees will return. These will be deductible to the extent they exceed 2% of Adjusted Gross Income (AGI).
• Alternative Minimum Tax (AMT): The TCJA significantly increased AMT exemption amounts. With the expiration of these higher exemptions, the AMT will apply to a broader range of middle and upper-middle-income households.

Expiring Provisions for Business Owners

Owners of pass-through businesses, such as sole proprietorships, partnerships, and S-corporations, face the expiration of a tax deduction. The Qualified Business Income (QBI) deduction is set to disappear entirely after December 31, 2025. This provision has allowed eligible business owners to deduct up to 20% of their qualified business income.

The removal of the QBI deduction means that pass-through business income will be taxed at ordinary individual income tax rates without this reduction. The expiration will affect a wide range of businesses, from independent contractors to multi-partner firms, potentially increasing their effective tax rate.

Not all business tax changes are expiring. The TCJA made the 21% flat corporate tax rate for C-corporations a permanent feature of the tax code and it is not subject to the 2025 sunset. Another rule, the limitation on deducting excess business losses, was extended by subsequent legislation and is now scheduled to expire after 2028.

Changes to Estate and Gift Tax Rules

The rules governing federal wealth transfer taxes are set for a reversion at the end of 2025. The TCJA increased the federal estate and gift tax exemption, which is the amount an individual can transfer to heirs without incurring federal tax. This exemption was doubled from a base of $5 million to $10 million, with annual adjustments for inflation.

For 2025, the lifetime exemption is $14.33 million per person. On January 1, 2026, this exemption amount is scheduled to be cut by approximately half, reverting to the pre-TCJA level of $5 million, indexed for inflation. Projections estimate the new exemption will be around $7 million per individual, subjecting more estates to the 40% federal estate tax.

The Internal Revenue Service (IRS) has issued regulations to address concerns about a “clawback” of lifetime gifts. These rules confirm that individuals who take advantage of the higher exemption amounts for gifting before 2026 will not be penalized if the exemption is lower at the time of their death. This provides a window for strategic wealth transfer planning.

Tax Planning Considerations Before 2026

Given the scheduled reversion of tax laws, several strategies are worth considering before 2026.

• Accelerate Income: Consider recognizing income, such as bonuses or exercising stock options, in 2024 and 2025. This strategy aims to pay tax on that income at the current, lower marginal rates before they are expected to increase.
• Roth Conversions: Taxpayers can convert funds from a traditional, pre-tax IRA or 401(k) to a Roth IRA. This requires paying ordinary income tax on the converted amount in the year of the conversion, but allows for tax-free qualified distributions in retirement.
• Capital Gains Harvesting: This involves strategically selling assets to realize long-term capital gains. If a taxpayer anticipates being in a higher tax bracket in the future, realizing gains at current long-term capital gains rates could be advantageous.
• Gifting Strategy: The reduction in the estate and gift tax exemption makes gifting a timely consideration. Individuals can use the current high exemption to transfer wealth to heirs before the limit decreases. The annual gift tax exclusion ($19,000 per recipient for 2025) can also be used without tapping into the lifetime exemption.
• Business Structure Review: The expiration of the 20% QBI deduction necessitates a review of business structure. Since the 21% corporate tax rate is permanent, some pass-through businesses may find it more tax-efficient to convert to a C-corporation.