You will want to keep an eye on the November election (as if you could miss it), as it is possible that we will get a sense of if our tax rates will stay the same or perhaps increase come 2025/2026.

Most of you are aware of the sunset provision of the 2017 Tax Cuts and Jobs Act (TCJA). In case you don’t know (or need a refresher):

Many favorable positions enacted back in 2017 are set to expire (“sunset”) on December 31, 2025.

Estate and Gift Tax:
The TCJA doubled the 2011 estate and gift tax exemption of $5 million, which is adjusted for inflation to slightly over $11 million for single filers and $22 million for couples. In 2023, the federal estate and gift tax threshold was $12.92 million per individual and $25.84 million for couples. These numbers have been further adjusted for 2024, with the exemption increased to $13.61 million for individuals and $27.22 million for couples. However, in 2026 the estate and gift exemption will revert back to pre-TCJA levels, effectively reduced by half, and is expected to be in the ballpark of $6.8 million per individual and close to $14 million for a married couple.

Income Tax:
Additionally, the expiration of income tax cuts enacted by the TCJA could also directly affect many Americans. With the sunset, tax brackets will revert back to pre-TCJA levels, which means many taxpayers will see their tax rate increase. For example, the top individual, estate and trust income tax bracket would go back up to 39.6 percent from the current rate of 37 percent.

With a potentially higher tax environment on the horizon, it could be wise to explore ways to take advantage of the current lower brackets, including accelerating income where possible such as a Roth IRA conversion.

Deductions:
The TCJA also repealed personal exemptions, but increased the standard deduction, which in 2024, is $29,200 for couples filing jointly and $14,600 for individuals. For families with dependents, it replaced the dependent exemptions with an increased child tax credit, by doubling the maximum per child credit amount and extending it to higher-income families by substantially increasing the income thresholds for the benefit phase out.

The TCJA removed the phase out for the overall allowable itemized deduction impacting filers above certain adjusted gross income (AGI) thresholds, but also changed the structure of several major itemized deductions. Under prior tax law, those who itemize could claim deductions for all state and local property taxes (SALT) and the greater of income or sales taxes (subject to various limits on itemized deductions). The TCJA limited the itemized deduction for total state and local taxes to $10,000 annually, for both single and joint filers, and did not index that limit for inflation.

The mortgage interest deduction also changed. Prior to the TCJA, taxpayers could deduct interest on mortgage payments associated with the first $1 million of indebtedness incurred to purchase (or substantially renovate) a primary and secondary residence plus the first $100,000 in home equity debt.

For taxpayers taking new mortgages after the effective date, the TCJA limited the deductibility to the interest on the first $750,000 of home mortgage debt and suspended the deductibility on home equity up to $100,000 of indebtedness on loans unless they are used to buy, build or substantially improve the taxpayer’s home. All of these deductions will revert back to pre-TCJA levels for 2026.

Charitable Giving:
In general, a tax deduction for charitable donations was preserved by the TCJA. In fact, for 2018 through 2025, the annual deduction limit for cash contributions to public charities increased from 50 percent of AGI to 60 percent of AGI, and will sunset back to 50 percent in 2026. This means for certain individuals that are considering making significant charitable contributions, they may be able to deduct a larger amount (or 10 percent more of their AGI) from their taxable income in the year of the contribution, if made before 2026.

Of course, as well all know, legislation can change. There is always the potential for there to be new tax legislation before the sunset.

As always,  we are ready to be your advisors for these and all tax matters. Please let us know if you have any questions or concerns regarding this matter.