Know what tax laws sunset in 2025 and how you can plan ahead to reduce your income taxes
In 2017, Congress voted to pass the Tax Cuts and Jobs Act (TCJA), which dramatically changed the U.S. Federal tax system. The TCJA provisions lowered taxes for individuals in the lower and middle classes and reduced some corporate taxes while increasing others.
Many provisions of the TCJA are set to sunset, or expire, at the end of 2025. However, if Republican Presidential candidate Donald Trump wins the 2024 election, it’s possible Congress will vote to extend provisions of the TCJA. With President Joe Biden withdrawing from the race, endorsing his Vice President Kamala Harris as the presumptive Democratic nominee, at this point it is still anybody’s guess as to who will win the election.
Trump was leading Biden by a slim margin in recent polls prior to Biden withdrawing from the nomination ballot on July 21, 2024. That margin increased following the assassination attempt on Trump at a Republican rally in Butler, Pennsylvania. But two polls gave Harris, if she becomes the Democratic candidate, a 3% edge over Trump, according to Forbes.
With all of this in mind, it’s a good idea to prepare for the tax law sunset. Speaking to a tax advisor now is a good way to prepare.
If you are facing back taxes you can’t afford, reach out to Alleviate Tax to help you settle your tax debt for less than you owe through many of the tax relief programs available to taxpayers.
Tax Laws Sunsetting in 2025
Start strategizing now to reduce your taxes in 2026 and beyond by understanding how tax laws will change after provisions of the TJCA expire in 2026.
Marginal Tax Rates
Under the TCJA, the IRS changed marginal tax rates. At the end of 2025, the higher tax rates for most tax brackets will return. Refer to the chart to see the pre-TCJA tax rates and current tax rates.
| Pre-TCJA | Current Tax Rates |
| 10% | 10% |
| 15% | 12% |
| 25% | 22% |
| 28% | 24% |
| 33% | 32% |
| 35% | 35% |
| 39.60% | 37% |
It’s important to understand the difference between your marginal tax rate and your average tax rate. Your marginal tax rate is your highest tax bracket, or the highest percentage of tax you will pay on your last dollar earned.
For example, in 2024, if you are a single filer earning $45,000, your marginal tax rate is 12%. If you are part of a married couple with combined taxable income of $200,000, your marginal tax rate is 22%. With the same income in 2025, your marginal tax rate will rise to 25% if the TCJA expires.
Child Tax Credit
The Child Tax Credit will also revert to pre-TCJA levels, with parents or guardians able to claim just $1,000, instead of $2,000 for each dependent child under the age of 17 who meets the IRS requirements. The $500 tax credit for other dependents will also expire after the TCJA sunset.
Standard Deduction
The TCJA doubled the standard deduction for taxpayers. The goal of this change was to make tax compliance easier. With a larger standard deduction, fewer people had a reason to itemize their taxes. Itemized deductions can help with tax avoidance, which is a way to legally reduce your tax bill. But they also open doors to tax evasion, or illegally declaring deductions you don’t deserve.
In 2026, the standard deduction is expected to drop to $8,300 for individual filers and $16,600 for married couples, filing jointly, according to data from the CATO Institute.
Itemized Deductions
Along with increasing the standard deduction, the TCJA limited the types of itemized deductions taxpayers can claim. This further encouraged taxpayers to take the standard deduction rather than itemizing returns. The plan accomplished the goal of reducing itemized deductions, with only 17 million taxpayers itemizing returns under TCJA, compared to 47 million prior to the new tax laws, according to statistics from the Bipartisan Policy Center.
If you itemized your deductions prior to 2018, it might be in your best interests to start itemizing again when TCJA tax laws sunset. Speak to a tax professional you trust who can help you maximize your deductions in 2025 to potentially reduce your overall tax bill.
Some deductions you may have itemized previously, that will return if the TCJA is not extended, include:
Charitable Giving
Prior to 2018, taxpayers who itemized deductions could claim cash contributions to public charities up to 50% of the taxpayer’s adjusted gross income. Under the TCJA, this limit increased to 60%. Then, in 2020 and 2021, the CARES Act allowed for deductions of up to 100% of a taxpayer’s AGI for charitable giving. This law sunsetted in 2023, along with a $600 deduction for charitable donations even if you don’t itemize deductions. If the TCJA is not extended, charitable giving deduction limits will likely drop back to 50% of your AGI.
If you plan to itemize deductions in 2026 as the standard deduction decreases, a charitable gift annuity might be one way to give back while reducing your tax bill.
Limits on Deductions for State & Local Taxes
One of the most controversial provisions of the TCJA, the law placed limits on state and local tax (SALT) deductions of $10,000. Taxpayers in states where property taxes on even a modest home may exceed this amount lost out on a substantial deduction under the TCJA. This provision primarily hurt middle-income families in states with high property taxes, such as New York and California. If you live in one of these states and plan to itemize deductions in 2026, you may be able to look forward to a larger tax refund or smaller tax bill since you can go back to deducting 100% of state and local tax payments if Congress does not vote to extend the TCJA.
Mortgage Interest Deduction
Like the SALT deduction limit, the mortgage interest deduction limit under TCJA hurt primarily middle-income families in states with a high cost of living. Under the law, you can deduct interest on up to just $750,000 of mortgage debt. In states like Hawaii and California, where the median home sale prices are $793,600 and $714,100, respectively, this can leave middle-income families looking to purchase a slightly higher-than-average priced home with a portion of their mortgage interest that they can’t deduct. When the tax law sunsets, the limit will return to $1 million.
Return of the Pease Limitation
The Pease limitation, named after the congressman who introduced it in 1991, places limits on itemized deductions that high-income taxpayers can take. The TCJA suspended the Pease act, lifting the limits on itemized deductions for those who choose to itemize. The Pease limitation will return in 2026, reducing the amount of deductions higher income taxpayers can claim. However, the Pease limitation is offset by higher limits for other tax deductions, which will also come back when TCJA sunsets.
Undoubtedly, taxes will get more complicated in 2026 for those who itemize. That’s why it’s important to have a qualified tax professional you can trust by your side to start tax planning today and help you file your returns in 2026.
Higher AMT Exemption Phase Out
The new tax laws for 2026 will bring a lower AMT (Alternative Minimum Tax) phase-out. More middle-income Americans may be subject to the AMT in 2026. When the AMT exemption was raised from $54,300 for single filers in 2017 to $81,300 in 2023, and from $84,500 for married couples filing jointly up to $126,500, fewer taxpayers were subject to this law. In 2018, when the TCJA first came into play, only 200,000 filers were subject to the AMT, compared to 5 million the year prior, according to TaxPolicyCenter.org.
Estate Tax Law Sunset 2025: Exemption Drops to $5 Million
Some of the most dramatic changes in tax laws affected estate taxes for the wealthy. The TCJA raised the unified estate and gift tax exemption amount to roughly $13.61 million in 2024. As the estate tax laws sunset, the exemption amount will drop to roughly $7 million, indexed for inflation, according to Forbes.com. You might be able to use an irrevocable trust to transfer assets to heirs, tax free, and reduce your taxable estate. Speak to a qualified expert about your estate plans so you can avoid leaving your loved ones with a high tax bill.
Conclusion
The 2024 election year brings a lot of uncertainty. Prepare now for a possible tax law sunset to minimize your tax bill in 2026.
PAA
What tax laws will sunset in 2025?
Many provisions of the Tax Cuts and Jobs Act, passed by Congress in 2017, will sunset in 2025 unless Congress votes to extend them. These include a higher standard deduction, limits on itemized deductions, and changes to estate taxes.
What will the federal estate tax exemption be in 2025?
The Federal Estate Tax Exemption is projected to rise to roughly $7 million, bringing it back to pre-TCJA limits, in 2025.
