Tax Laws That Sunset at Year-End 2025: Take Advantage Now

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The Tax Cuts and Jobs Act (TCJA) tax law changes will sunset on Dec. 31, 2025. And although this may seem far off, it’s never too soon to plan. You and your accountant may be able to set up mechanisms now to avoid some of the higher taxes that are coming.

But what exactly will change in 2026, and how will the sunset of these taxes affect you?

Tax Cuts and Jobs Act

President Donald Trump signed the TCJA in 2017. It was a significant tax bill that affected many individuals and corporations. Because Democrats gave pushback on the bill, Republicans wrote in a sunset clause for many of the new taxes. This sunset will take place in December 2025.

After 2025, America will revert to the tax rates and miscellaneous taxes and deductions that were in place in 2017. In other words, American taxes will go up if Congress doesn’t act.

Households Affected by Sunset Tax Laws

The tax burden will increase for many Americans in 2026. This is because the TCJA lowered rates for the middle-, upper-middle, and the upper classes.

Although it was touted as tax breaks for the wealthy, the middle class also benefited. For example, under the TCJA, middle-class households with an average income of $49,000–86,000 had their taxes reduced by $800. That was a 1.4 percent decrease after taxes savings. The upper class with incomes of $308,000–733,000 had a 3.4 percent tax decrease.

These lower taxes will disappear in 2026.

Alternative Minimum Tax Thresholds Increase

The alternative minimum tax (AMT) is a separate tax system. It requires some taxpayers to calculate their tax liability twice. Once they calculate both the AMT and ordinary tax rules, they pay the total that’s the highest.

In 2017, the AMT exemption was at an adjusted gross income (AGI) threshold of $55,400 for individuals and an $86,200 threshold for joint filers. Currently, under the TCJA, the exemption is a $70,300 threshold for individuals and a $109,400 threshold for joint filers.

The current exemption disappears after 2025.

Estate Tax Thresholds Back to 2017 Levels

Estate taxes will take it on the chin in 2026. The estate tax threshold will be lowered by half.

Currently with the TCJA, the estate tax is at an $11.2 million threshold for single filers and a $22.4 million threshold for joint filers. This will return to the 2017 tax thresholds. It will revert to a $5.6 million threshold for single filers and an $11.2 million threshold for joint filers.

But the top rate of 40 percent will remain unchanged.

The positive is that you can still give $15,000 per person per year, which won’t affect the unified exemption amount. So, it doesn’t matter who you gift to; you'll still have the same exemption remaining.

Standard Deduction Lowered

Get ready for a significantly lower standard deduction. It’s also important to remember that the standard deduction totals are indexed for inflation.

The standard deduction will be lowered. Under the TCJA, the standard deduction is $12,000 for single filers and $24,000 for joint filers. But that won’t remain after 2025.

The standard deduction returns to 2017 and  will be $6,500 for single filers and $13,000 for joint filers. That’s a 54.2 percent reduction.

One result of this change is the potential for more Americans to itemize their taxes.

Out-of-Pocket Medical Deduction Increases

If you have medical bills or premiums, prepare to pay more. In 2017, taxpayers could only deduct out-of-pocket medical bills, including health insurance premiums, above 10 percent of the AGI.

The TCJA reduced that amount to 7.5 percent.

Corporate Taxes Remain Same

One tax rate that won’t be sunset in 2025 is the corporate tax rate. Prior to the TCJA, the corporate tax rate was 31 percent. The TCJA tax rate is 21 percent.

Pass-Through Deduction for Small Businesses Eliminated

As an offering to small businesses to create parity with the corporate tax reduction in 2018, the pass-through deduction was passed. This deduction affects small businesses that have structured their business as a pass-through. These are businesses like partnerships and sole proprietorships.

The pass-through deduction gave these businesses a 20 percent tax deduction on their business income. And it will expire in December 2025.

Preparing for TCJA Expiration

There’s no way to tell if Congress will act to keep the TCJA in effect. So, the best course of action is to prepare for tax increases.

It’s good to project your lifetime taxes with or without TCJA. Since elections have a way of changing the landscape, plan for worst-case scenarios and adjust accordingly. Talk to a financial advisor and an accountant and plot your tax strategy.

TCJA Will Sunset Without Action

If nothing is done in Congress between now and Dec. 31, 2025, tax laws will revert to what the rules were in 2017. Estate planning will be affected. And small-business owners will lose a money-saving deduction. So, put the mechanisms in place now and be proactive.

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