The Tax Cuts and Jobs Act (TCJA), passed in 2017, introduced sweeping changes to the U.S. tax code. Many of these provisions are set to expire at the end of 2025, leaving taxpayers wondering what the landscape will look like in 2026 and beyond. With President-elect Trump set to take office in January, there’s speculation about how his administration will influence upcoming tax policy. Below, we explore the most notable areas of potential change and their implications.
Individual Tax Brackets
Individual Tax Brackets
Likelihood of Changes: Low
No significant changes have been proposed to individual tax brackets. The brackets are expected to continue adjusting for inflation, preserving the current structure established by the TCJA.
Standard Deduction
Standard Deduction
Likelihood of Changes: Low
Similarly, no proposed changes to the standard deduction have been introduced. Inflation adjustments will likely remain in place to keep the deduction aligned with economic conditions.
State and Local Tax (SALT) Deduction Cap
State and Local Tax (SALT) Deduction Cap
Likelihood of Changes: High
The TCJA introduced a $10,000 cap on SALT deductions. SALT deductions refer to the federal tax deduction for state and local taxes paid during the year. This deduction allows taxpayers to reduce their taxable income by the amount they paid in certain state and local taxes, such as:
- State and Local Income Taxes: The taxes withheld from your paycheck or paid through estimated tax payments.
- Sales Taxes: An alternative to deducting state and local income taxes. Taxpayers can deduct the amount paid in sales tax instead, which can be beneficial in states without income tax.
- Real Estate Property Taxes: Taxes paid on owned property, including your home or land.
- Personal Property Taxes: Taxes assessed on items like vehicles or boats, based on their value.
The limit disproportionately affected taxpayers in high-tax states. President-elect Trump has proposed eliminating the cap entirely, while other potential changes include raising the limit, adjusting it for inflation, or doubling the cap for joint filers. Changes to this provision are among the most likely, given its broad impact and strong lobbying from affected states.
Itemized Deductions
Itemized Deductions
Likelihood of Changes: Medium
The TCJA significantly curtailed itemized deductions by eliminating many common deductions and raising the standard deduction, reducing the incentive to itemize. Potential changes include the reintroduction of the investment fee deduction and a newly proposed deduction for auto loan interest. Both could appeal to taxpayers who would benefit from expanded itemized options.
Child Tax Credit
Child Tax Credit
Likelihood of Changes: Medium
The child tax credit, which provides families with a credit for each qualifying child, was expanded under the TCJA. Possible changes include reducing the phaseout threshold and increasing the maximum credit.
Alternative Minimum Tax (AMT)
Alternative Minimum Tax (AMT)
Likelihood of Changes: Medium
The AMT ensures high-income taxpayers pay a minimum level of tax by limiting certain deductions and exemptions. The TCJA raised the income threshold for AMT applicability, reducing its impact on many taxpayers. Possible changes could include further tweaks to the thresholds, reducing the exemption, or other reforms to streamline this system. The changes could be tied to SALT limit negotiations.
Section 199A Deduction for Qualified Business Income (QBI)
Section 199A Deduction for Qualified Business Income (QBI)
Likelihood of Changes: Medium
The TCJA introduced a 20% deduction for QBI (Qualified Business Income) for pass-through entities such as sole proprietorships, partnerships, and S corporations. President-elect Trump’s campaign proposed increasing the deduction percentage if corporate tax rates are reduced, providing further benefits to small business owners.
Other Business Deductions
Other Business Deductions
Likelihood of Changes: Medium
Two key business deductions could see modifications:
- Immediate Expensing for R&D Costs: The ability to immediately deduct research and development expenses may be reinstated.
- Bonus Depreciation: This provision, which allowed businesses to accelerate depreciation on certain assets, could also be reintroduced.
Both proposals align with the incoming administration’s stated goal of fostering business growth and innovation.
Estate Tax
Estate Tax
Likelihood of Changes: Low
The TCJA raised the estate tax exemption significantly, allowing larger estates to avoid some taxation. This higher exemption is expected to remain in place, with minimal likelihood of major changes to estate tax policy.
Other Proposed Tax Cuts
Other Proposed Tax Cuts
Likelihood of Changes: Medium
President-elect Trump’s campaign has suggested several new tax cuts, including the elimination of taxes on:
- Tips and Overtime Pay: Aimed at reducing tax burdens for hourly workers.
- Social Security Benefits: A proposal to eliminate taxation on benefits, though its feasibility may be challenged due to budgetary concerns.
Whether Congress will approve these measures remains uncertain, given the need to address the growing federal deficit and national debt.
Clean Energy Credits
Clean Energy Credits
Likelihood of Changes: Medium
The future of clean energy tax credits, including incentives for solar installations, home energy efficiency upgrades, and electric vehicles, is uncertain. Reductions or eliminations of these credits could align with the administration’s focus on traditional energy sectors, though such changes may face pushback from environmental advocates and industries reliant on these credits.
None of the Changes are Certain
None of the Changes are Certain
As the TCJA’s expiration approaches, the potential for significant tax policy changes looms. While some areas, such as individual tax brackets and the standard deduction, are likely to remain stable, other provisions — especially the SALT deduction cap and business deductions — are ripe for reform. The next few years will provide greater clarity as legislation is proposed and debated. In the meantime, staying informed and working with a financial planner and tax advisor to plan for potential changes will be crucial.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in digital assets or cryptocurrencies.
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