The tax landscape is shifting. Major provisions from the Tax Cuts and Jobs Act are set to sunset, Congress is debating new legislation, and inflation adjustments are changing brackets and deductions. Here is what matters most for your 2025 and 2026 tax planning.
TCJA Provisions Sunsetting After 2025
The Tax Cuts and Jobs Act of 2017 made sweeping changes to the individual tax code, but most of those changes were designed to expire after December 31, 2025. Unless Congress acts, the following provisions revert to pre-2018 rules starting in 2026: individual tax rates return to seven brackets with higher rates (the top rate goes from 37% back to 39.6%), the nearly doubled standard deduction shrinks back to roughly half its current level, personal exemptions return, and the expanded child tax credit drops from $2,000 back to $1,000 per child.
The estate and gift tax exemption, which was doubled under TCJA to approximately $13.6 million per individual for 2024, would drop to roughly half that amount. The qualified business income deduction under Section 199A, which allows eligible pass-through businesses to deduct up to 20% of qualified income, would also expire. These changes would affect nearly every taxpayer, making 2025 a critical year for tax planning.
Standard Deduction and Bracket Adjustments
For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly, reflecting annual inflation adjustments. Tax brackets have also shifted upward. The 10% bracket covers the first $11,925 of taxable income for single filers, the 12% bracket covers income up to $48,475, and so on. These adjustments help prevent bracket creep, where inflation pushes you into a higher bracket without a real increase in purchasing power.
If TCJA provisions sunset, 2026 will look very different. The standard deduction would revert to a lower base amount (adjusted for inflation from the pre-TCJA level), but personal exemptions -- worth roughly $5,000 per person -- would return. For larger families, the return of personal exemptions could partially or fully offset the lower standard deduction. For single filers or childless couples, the net effect is likely a higher tax bill.
SALT Cap and Itemized Deduction Changes
The TCJA capped the state and local tax (SALT) deduction at $10,000 per return, a provision that hit taxpayers in high-tax states like New York, New Jersey, California, and Connecticut especially hard. If the TCJA sunsets, this cap disappears and taxpayers can once again deduct unlimited state and local taxes on their federal returns.
However, legislative negotiations may result in a modified cap rather than full repeal. Proposals have ranged from raising the cap to $20,000 or $80,000 to phasing it out at higher income levels. If you are in a high-tax state and currently take the standard deduction because of the SALT cap, the sunset could make itemizing worthwhile again. Other itemized deductions that were suspended or limited by TCJA -- like the miscellaneous itemized deduction for unreimbursed employee expenses -- would also return.
Child Tax Credit and Family Provisions
The child tax credit has been one of the most debated provisions. Under current TCJA rules, the credit is $2,000 per qualifying child under 17, with up to $1,700 refundable. If TCJA sunsets, the credit drops to $1,000 per child, the refundable portion shrinks, and the income phase-out thresholds decrease significantly.
Various proposals in Congress have sought to expand the credit further -- some to $3,000 or $3,600 per child, as was temporarily enacted for 2021 under the American Rescue Plan. Whether any expansion passes depends on broader budget negotiations. For planning purposes, families should model scenarios at both the current $2,000 level and the potential $1,000 reversion to understand the impact on their tax situation.
What to Do Now: Planning for Uncertainty
With the TCJA sunset looming and new legislation uncertain, 2025 is a year to be proactive. Consider accelerating income into 2025 if you expect rates to rise in 2026 -- for example, exercising stock options, converting traditional IRA funds to Roth, or taking capital gains while rates are lower. If you have a large estate, 2025 may be your last year to take advantage of the doubled estate tax exemption through gifting strategies.
On the deduction side, if you expect to itemize in 2026 due to the SALT cap removal, you might defer certain deductible expenses into next year. Charitable contributions, in particular, can be timed strategically across years. The key principle is flexibility: do not lock yourself into a plan that only works under one scenario. Build a tax strategy that adapts to whichever direction Congress takes, and check back as legislation evolves.