The Tax Cuts and Jobs Act (TCJA) of 2017 changed several provisions to both income tax and estate and gift tax law. The TCJA is scheduled to “sunset” (revert to pre-2018 law) if Congress fails to act between now and the end of 2025.

Much has been made of the impact a sunset would have on the estate and gift tax lifetime exemption, which is the maximum amount that can be gifted tax-free during one’s life or at death.

Recall that the TCJA doubled the then-existing estate and gift tax lifetime exemption from $5,490,000 in 2017 to 11,180,000 in 2018. Since then, annual inflation adjustments have continued to raise the exemption to its current level of $13,610,000 (2024). We project that 2025 will see another inflation-driven increase. And in 2026, existing law directs a reduction of this tax-free gift limit to somewhere around $7,000,000.

The big question is whether the sunset will happen. On one hand, members of Congress have shown little inclination to work together on tax matters, which makes changes to the law difficult and therefore unlikely. On the other hand, in the history of the modern estate tax, the exemption has NEVER gone down. As such, it’s anyone’s guess what the future holds for the lifetime exemption.

More at stake

While a possible reduction of the lifetime estate and gift tax exemption is big news, there is far more at stake. Several income tax law changes are in store if Congress does not extend (temporarily or permanently) the TCJA. What follows is a brief list of some of the most impactful potential changes ahead.

1. Marginal tax rates

While tax brackets would stay the same with the sunsetting of the TCJA, the tax rates applied to those brackets would increase:

TCJA tax rates	Pre- and post-TCJA tax rates
10%	10%
12%	15%
22%	25%
24%	28%
32%	33%
35%	35%
37%	39.6%

2. Standard deduction

The TCJA nearly doubled the standard deduction and the child tax credit, while also eliminating the personal exemption. All will revert to pre-TCJA levels at the end of 2025.

	2017	2018	2024	2026
Single taxpayer	$6,350	$12,000	$14,400	Pre-TCJA
Married filing jointly	$12,700	$24,000	$29,200	Pre-TCJA
Head of household	$9,350	$18,000	$21,900	Pre-TCJA

3. Itemized deductions

Many more itemized deductions were available to taxpayers before the TCJA became law, and those deductions varied in application. Key changes to these deductions post-TCJA include:

• Deductibility of cash contributions to charity will be reduced from 60% of adjusted gross income (AGI) to 50% of AGI.
• The $10,000 cap on deductibility of State and Local Taxes (“SALT”) will be eliminated.
• Taxpayers will again be able to deduct more itemized deductions exceeding 2% of their AGI on Schedule A, including investment expenses, unreimbursed employee business expenses, and tax compliance expenses.
• The $750,000 limitation on deductibility of mortgage interest on acquisition debt will increase to $1,000,000, and the deductibility of $100,000 of home equity debt will resume.

4. Business provisions

To raise revenues to offset certain tax cuts and use the tax code to promote small business, the TCJA created/expanded on certain tax benefits for many corporate and non-corporate business owners, including:

• The 199A deduction will expire and pass-through business income will be deductible at individual income tax rates, which means deductions for qualified business income will no longer be available.
• Two-year net operating loss (NOL) carrybacks and 100% NOL carry-forward rules will once again apply.
• Excess business loss (EBL) limitations – which were delayed until 2021 due to the CARES Act of 2020 – will expire, but not until 2028 due to legislative changes. When this provision expires, there will be no EBL limitation.

With the potential sunset of the TCJA in Congress’ hands, taxpayers at all income levels should be invested in the outcome of the upcoming election. While most of the news will be dominated by the Presidential candidates, it is the members of the Senate and the House of Representatives (not the President) who make the laws we live by.

Preparations for potential tax law changes should begin early to position investors to take maximum advantage of existing tax law and accommodate for potential changes. Although no one knows exactly what the future holds, in the end, just as we preach diversification of investor portfolios, we must also preach diversification of income and estate tax strategies.

A total of 468 seats in the U.S. Congress are up for election this fall. If you want a say in the future of income and estate tax laws, you MUST vote in November.

Information in this article is drawn from Congressional Research Services (CRS) Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act,” and from Ballotpedia “United States Congress Elections, 2024.”

The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. Federal and state laws and regulations are complex and subject to change.  Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.