Leading up to the recent election, there was much uncertainty about the fate of the Tax Cuts and Jobs Act (TCJA) of 2017 and how to plan for the potential expiration of the personal income tax and estate tax provisions at the end of 2025. With a Republican sweep of the presidency, the Senate, and the House, it is widely expected that the newly elected government will extend provisions of the TCJA beyond 2025.

While we have more clarity on the direction of tax policy, what remains unclear are which provisions will be extended, how long they will be extended, and which new proposals offered up on the campaign trail could become law. In this piece, we will discuss some of the more significant TCJA provisions that could be considered for extension, the process to extend cuts and add others, and how individuals should plan accordingly.

Major TCJA Provisions

Starting in 2018, the TCJA brought about significant changes in tax law, including:

• Lower marginal income tax brackets (with the highest bracket dropping from 39.6% to 37%)
• A higher child tax credit (increasing from $1,000 to $2,000)
• A higher standard deduction. (As of 2025, this stands at $15,000 for single filers and $30,000 for those married filing jointly (MFJ))
• Changes to itemized deductions, including:
  • $10,000 limit to the State and Local Tax (SALT) deduction
  • Elimination of miscellaneous itemized deductions
  • Elimination of income phaseouts for itemized deductions
• Increased exemption amount on Alternative Minimum Tax (AMT)
• New business tax provisions such as:
  • A 20% deduction on qualified business income (QBI) for pass-through entities
  • Bonus depreciation increased to 100% from 50% (and gradually being phased out starting in 2023 and phased out completely in 2027)
  • Amortization of research and development (R&D) expenses over five years rather than deducting them immediately
• Doubling of the lifetime gift and estate tax exemption (as of 2025 stands at $13.99 million per person)

Campaign Proposals

During the presidential campaign, several tax provisions not included in TCJA were proposed.¹ These include:

• Eliminating or raising the SALT deduction limit from $10,000
• Further increasing the child tax credit
• Further reducing the corporate tax rate from 21% to 20% (and 15% for companies that make their products in the U.S.)
• Eliminating Federal tax on tip income, overtime pay, and Social Security benefits
• Creating an itemized deduction for auto loan interest
• Restoring 100% bonus depreciation for businesses
• Reinstating immediate deductions for R&D expenses for businesses

Obstacles & Uncertainty

While a Republican majority government makes the extension of these TCJA elements more probable, there are obstacles to a wholesale extension of the TCJA. With a narrow majority in the House and Senate, Republicans will likely employ the reconciliation process, which permits budget-related bills to be passed using a simple majority and was used to pass the TCJA in 2017.

 

With reconciliation, the greatest obstacle is that any tax cuts are required to be offset with corresponding funding provisions. With bills that increase the Federal deficit, as extended tax cuts would, the Byrd Rule limits the budget window to a 10-year period and restricts changes to the Social Security program.² According to the May 2024 Congressional Budget Office report, the estimated cost of extending the expiring provisions of the TCJA for a 10-year period would be $4.6 trillion, of which the majority of the cost comes from the extension of individual income tax provisions ($3.3 trillion), such as the lower individual tax brackets, the higher standard deduction, the higher child tax credit, the QBI deduction, and the AMT exemption.³

 

If additional tax cuts are included, the cost of funding these provisions could increase. Ultimately, Republicans will need to come to a consensus on what provisions to prioritize, the length of any extensions, and the budget offsets needed.

 

While there is uncertainty about the fate of the provisions and length of extension, the most likely outcome is that some foundational pieces of the TCJA will be extended for up to 10 years, specifically the lower individual tax brackets, higher standard deduction, increased child tax credit, and the increased estate tax exemption amount which has a relatively low cost compared to other provisions. The fate of other TCJA provisions remains more uncertain, especially as Republicans seek offsets. Additional proposals such as lifting the cap on the SALT deduction will get more attention but may be hard to fit in, given the estimated cost of $1.2 trillion over the next 10 years.⁴ Unfortunately, for Social Security recipients, the elimination of tax on their benefits is unlikely due to the constraints imposed by the Byrd Rule on changes to the Social Security program.

Planning in the Face of Uncertainty

Over the past several years, many tax planning conversations have centered around the anticipated sunset of TCJA. Because the sunset would raise tax rates back to 2017 levels adjusted for inflation, many strategies focused on purposefully realizing taxes ahead of 2026 to take advantage of the lower rates currently in place. Some examples of these strategies include funding Roth instead of traditional 401(k) accounts and making Roth IRA conversions.

 

Presuming an extension of TCJA-established marginal income tax brackets, the window for realizing income taxes to leverage lower rates may be extended but not indefinitely. The unsustainable trajectory of the federal deficit may demand that the federal government raise taxes to help balance the budget in the future. Therefore, a second sunset provision will likely be part of a TCJA extension.

 

While a likely extension of the TCJA’s lower tax rates reduces urgency to make specific moves in 2024 and 2025, tax policy is just one factor to consider with income tax planning. Individual goals, overall net worth, tax characterization of accounts, cash flow, and life stage all play an important part. Realizing income now may still be beneficial in certain situations to minimize overall lifetime taxes.

 

When purposefully realizing additional income for tax reasons, remember to consider not just the marginal tax brackets but also other taxes and costs that may apply at higher income levels. These include the Net Investment Income Tax, phaseouts for credits and deductions based on Adjusted Gross Income (AGI), and other income related adjustments like increased Medicare premiums, that are triggered when exceeding certain income thresholds.

The Fate of the Estate Tax Exemption

Among the TCJA provisions set to potentially sunset, the reduction of the estate tax exemption from $13.99 million in 2025 ($27.98 million for a couple) to approximately $7 million created the most urgency to act and for good reason. As an example, should the sunset take place, the estate tax on a deceased individual’s estate valued at $13.99 million would increase from zero if they died in 2025 to $2.8 million if they died in 2026.

 

Based on the election results, it seems likely that the current estate tax exemption will be extended beyond 2025. The strategy and response to this probable extension depends largely on your net worth.

 

For high-net-worth individuals and couples who will have an estate tax liability regardless of what happens with the estate tax exemption in 2025 (over $13.99 million for individuals and $27.98 million for couples), you may still want to consider using the exemption amount now via outright gifts or gifts in trust. The Spousal Lifetime Access Trust (SLAT) and the Intentionally Defective Grantor Trust (IDGT) are common strategies to use the exemption amount now and to move appreciating assets out of one’s estate.5 While transfer strategies that use the exemption amount now may be appropriate, you should weigh the risks of making irrevocable transfers during your lifetime. Because these transfers limit access to your assets, it is important to ensure that the transfer does not unnecessarily compromise your lifestyle and cash flow needs.

 

For those with a net worth below the above-mentioned thresholds, the drawbacks of larger irrevocable gifts—such as reduced cash flow and the potential loss of a step-up in basis on transferred assets—make SLATs and IDGTs less advantageous. Therefore, for the time being, individuals in this group should not be looking at these strategies solely for the benefit of locking in the exemption amount.

What to Do Now

While we have a better idea of the direction of tax law in the coming year, how it all takes shape remains unclear. Taxpayers should keep an eye on developments in tax policy to understand the potential effect on their personal taxes. Your Goelzer Wealth Advisory team will be following updates closely in the coming months. If you have questions about these changes or need guidance, do not hesitate to reach out to your Goelzer advisor.

 

¹ Erica York et al., “Donald Trump Tax Plan Ideas: Details and Analysis,” October 14, 2024, taxfoundation.org/research/all/federal/donald-trump-tax-plan-2024.

 

² Richard Kogan and David Reich, “Introduction to ‘Budget Reconciliation,’” May 6, 2022, www.cbpp.org/research/introduction-to-budget-reconciliation.

 

³ Congressional Budget Office, “Budgetary Outcomes Under Alternative Assumptions about Spending and Revenues,” May 2024, www.cbo.gov/publication/60271.

 

⁴ Howard Gleckman, “Repealing the SALT Cap Would Overwhelmingly Benefit Those with High Incomes,” September 24, 2024, taxpolicycenter.org/taxvox/repealing-salt-cap-would-overwhelmingly-benefit-those-high-incomes.

 

⁵ For more details on SLATs and IDGTs, see our August 2023 Insights piece “The Tax Cuts & Jobs Act of 2017: Gazing into the Sunset”.

 

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