Expiring Tax Provisions on the Horizon: What You Need to Know

The Tax Cuts and Jobs Act (TCJA) of 2017 was a significant overhaul of the U.S. tax code, which aimed to stimulate economic growth by reducing tax rates for individuals and C corporations. Now that we are half-way through 2024, it’s time to consider the number of significant provisions set to expire after 2025. While it is still uncertain whether Congress may step in to extend some of the provisions or make some permanent, taxpayers cannot afford to waste any time planning their tax savings strategies.

To help you understand which sunsetting provisions will impact you or your company, here are some noteworthy changes that will take effect on January 1, 2026:

Marginal tax rates for individuals

Tax brackets will revert to pre-TCJA levels, topping out at 39.6%. While the exact ranges at which the marginal tax rates increase have yet to be announced, pre-TCJA brackets took less income to reach the higher brackets than using the TCJA brackets. This revision will likely lead to most individuals being in a higher tax bracket than they are used to, due to the quicker increase in tax rates, as well as the lower thresholds at which each new tax bracket kicks in.

Changes to standard deduction and itemized deductions

The standard deduction amount is set to revert to approximately half of what has been allowed under TCJA, adjusted for inflation. The change in standard deduction amount, coupled with the changes to the itemized deduction rules, will most likely lead more people to itemize deductions. The expiration of the state and local tax (SALT) cap in particular is significant. Taxpayers in states with high income tax and/or high property tax will benefit from this change the most. This change will also call into question whether the passthrough entity tax regimes enacted by many states should or can be utilized going forward, as the purpose was to make up for the lost deduction caused by the SALT cap.

Alternative minimum tax (AMT)

AMT rates are 26% or 28% of alternative taxable income, with an exemption allowed. The AMT exemption amount and phase-out of the exemption will be lowered in 2026. These lower amounts for calculating AMT will lead to more taxpayers being subject to the AMT. Coupled with the lower threshold for when the higher 28% rate kicks in and the expiration of the SALT cap, this change could be significant for many taxpayers, increasing the number of taxpayers subject to AMT from approximately 200,000 to more than 5 million.

Deduction for passthrough business income (IRC 199A)

The TCJA permanently lowered the corporate tax rate. The 199A deduction was an attempt to equalize rates between a corporate business structure and a passthrough entity structure. When the 199A deduction expires, there will no longer be a deduction of 20% of qualified business income allowed for owners of passthrough entities. Passthrough income will be taxed at the owner’s individual tax rate. Business owners may want to consider converting from a passthrough structure to a corporate structure, but this is a complex issue, and the tax implications should not be the only consideration.

Estate and gift tax exclusion

The reduction in estate and gift tax exclusion will result in more taxable estates and gifts. By doing estate planning now, including strategic gifting as well as utilizing trusts, taxpayers can take advantage of the higher exclusion, but only through the end of 2025. Business owners considering family succession should consider having business valuations done now to take advantage of this huge planning opportunity.

For a more comprehensive overview of the changes coming in 2026, we’ve created a one sheet that you can view here: Major Tax Changes Starting in 2026 One Sheet.

There are many details to consider when tax planning, such as economic and political influences, so we strongly encourage you to talk to your accountant, financial advisor, and legal counsel before making any decisions. A member of the Ellin & Tucker tax team is always prepared to answer your questions and guide you in the right direction.