The 2018 Tax Cuts and Jobs Act (TCJA) introduced several provisions, many of which are set to expire or "sunset" in 2025. Here are some of the key components that may sunset:
Individual Tax Rate Reductions: The TCJA reduced tax rates across most income brackets. These lower rates are scheduled to revert to pre-2018 levels in 2026.
Standard Deduction Increase: The TCJA nearly doubled the standard deduction. For single filers, it increased to $12,000, and for married couples filing jointly, it increased to $24,000. These increases are set to expire in 2025.
Child Tax Credit Increase: The TCJA increased the Child Tax Credit from $1,000 to $2,000 per child and introduced a $500 credit for other dependents. These changes are scheduled to sunset in 2025.
State and Local Tax (SALT) Deduction Cap: The TCJA capped the SALT deduction at $10,000. This cap is set to expire after 2025.
Mortgage Interest Deduction Cap: The TCJA limited the mortgage interest deduction to the first $750,000 of mortgage debt, down from $1 million. This cap is also set to expire in 2025.
Medical Expense Deduction Threshold: The TCJA temporarily lowered the threshold for deducting medical expenses from 10% of adjusted gross income (AGI) to 7.5% for 2017 and 2018, and this was later extended. It is set to revert to 10% after 2025.
Estate Tax Exemption Increase: The TCJA doubled the estate tax exemption amount to $11.2 million per individual (indexed for inflation). This increase is set to sunset in 2025, returning the exemption to pre-TCJA levels.
Qualified Business Income Deduction: The TCJA introduced a 20% deduction for qualified business income for pass-through entities (e.g., S corporations, partnerships, and sole proprietorships). This deduction is scheduled to expire after 2025.
Individual Alternative Minimum Tax (AMT) Exemption Increase: The TCJA increased the AMT exemption amounts. These increases are set to expire after 2025.
Doubling of the Gift Tax Exclusion: The TCJA temporarily doubled the gift tax exclusion amount, which is also set to revert to previous levels in 2026.
These sunset provisions mean that, unless Congress acts to extend or make them permanent, these changes will revert to their pre-2018 status after 2025. Check with your financial professionals to ensure you are being proactive with any of these issues that may affect your financial picture.
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