The Sunset of Key TCJA Provisions: What You Need to Know for Tax Planning

As we approach the end of 2024, several significant provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are either in the process of phasing out or will sunset completely. These changes will impact both individuals and businesses, potentially increasing tax liabilities across the board. Here’s a breakdown of the provisions that are sunsetting and what you need to prepare for as 2026 approaches.

Effective in 2023: Bonus Depreciation Phase-Out

One of the more generous tax benefits for businesses has been the bonus depreciation provision. Under the TCJA, businesses were allowed to deduct 100% of the cost of qualifying equipment in the year it was purchased and placed into service. However, this provision began to phase out starting in 2023, and it will continue to do so until 2026:

• In 2023, bonus depreciation dropped to 80%.
• In 2024, it will drop to 60%.
• In 2025, it will be 40%.
• Finally, in 2026, bonus depreciation will drop to 20% before expiring altogether.

Effective in 2026: Major Changes to Watch

1. Individual Income Tax Rates Will Increase

One of the most impactful provisions sunsetting in 2026 is the reduction in individual tax rates. Currently, the highest tax bracket is 37%, but starting in 2026, this will increase to 39.6%, the pre-TCJA rate. This will affect high-income earners in particular.

2. Standard Deduction Reverts to Pre-TCJA Levels

To offset the suspension of the personal exemption, the standard deduction was nearly doubled under the TCJA. However, this provision will expire at the end of 2025, and the standard deduction will revert to its pre-TCJA level. For many taxpayers, this could mean a smaller deduction and a higher taxable income.

3. Personal Exemptions Return

Personal exemptions, which were eliminated under the TCJA, will return in 2026. However, these exemptions will be subject to income phase-outs for higher earners. The elimination of the personal exemption has been one of the more unpopular provisions, so its return could offer some relief.

4. Expiration of the Child Tax Credit Doubling

The TCJA expanded the child tax credit by doubling the credit and making it refundable. This, along with the introduction of a $500 credit for other dependents, will expire in 2026, and the credit will return to its original, lower value.

5. State and Local Tax (SALT) Deduction Limits Expire

One of the more controversial provisions of the TCJA was the cap on State and Local Tax (SALT) deductions. Currently, taxpayers can only deduct up to $10,000 for married couples filing jointly (or $5,000 for single filers). Starting in 2026, this cap will disappear, allowing taxpayers who itemize their deductions to deduct the full amount of their state and local taxes once again.

6. Alternative Minimum Tax (AMT) Reduction Expires

The TCJA increased the exemption amounts for the Alternative Minimum Tax (AMT), reducing the number of taxpayers subject to it. However, these exemption amounts will decrease back to their pre-TCJA levels in 2026, which means more taxpayers, particularly those in the middle-income brackets, may once again be affected by the AMT.

7. 199A Pass-Through Deduction Expires

One of the more popular, though complex, provisions of the TCJA is the 20% Qualified Business Income (QBI) deduction for pass-through businesses (Section 199A). This provision allows owners of pass-through entities, such as sole proprietorships, partnerships, and S corporations, to deduct 20% of their qualified business income. Unfortunately, this deduction is set to expire at the end of 2025.

8. Estate Tax Exemption Reverts

The estate tax exemption was significantly increased under the TCJA, from $5 million indexed to inflation to $10 million indexed to inflation. This means that fewer estates have been subject to estate tax over the past several years. However, in 2026, the exemption will revert to its pre-TCJA amount, which will likely be between $6 to $7 million after inflation adjustments. This could subject more estates to taxation, so estate planning will become a critical focus for high-net-worth individuals.

What Does This Mean for You?

The expiration of these key TCJA provisions will likely increase tax burdens for individuals and businesses alike. Business owners should prepare for the reduction and eventual elimination of bonus depreciation and the pass-through deduction, while individuals should anticipate higher tax rates, smaller standard deductions, and the return of certain exemptions. High-net-worth individuals, in particular, will need to address the lower estate tax exemption.

Next Steps: Plan Now to Minimize Your Tax Burden

We delved deeper into strategies for estate planning and tax mitigation in our Webinar with Todd Hudgins, JD, CPA, LLM. Feel free to watch the it here.

With the sunset of these TCJA provisions on the horizon, tax planning has never been more important. Now is the time to review your financial and tax strategies to mitigate potential tax increases starting in 2026. Whether it’s adjusting your estate plan, optimizing your business’s depreciation strategy, or preparing for higher individual tax rates, early planning will be key.

If you’d like to learn more about how this could impact your tax planning strategy, we invite you to reach out to our team. Schedule a FREE introductory call through our Contact Us page and let us help you navigate these important changes to maximize your financial future. We’re here to ensure you have the information and guidance you need to make informed decisions.

This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. Provident CPAs assumes no responsibility for actions taken based on the information provided in this post.