Tax Cuts and Jobs Act (TCJA) Sunset Impacts
July 29, 2024
The TCJA significantly altered the landscape of individual tax deductions. By doubling the standard deduction and eliminating several itemized deductions, it provided a net benefit to taxpayers who previously didn't itemize. However, for those who did itemize, the elimination or cap on deductions potentially increased their tax burden. As we approach the sunset of these provisions, and depending on which party will win the election, several key changes may come into effect. Let's take a look at a few of them.
Individual Income Tax Rates
| Current Individual Income Tax Rates | Post Sunset Individual Income Tax Rates |
|---|---|
| 10% | 10% |
| 12% | 15% |
| 22% | 25% |
| 24% | 28% |
| 32% | 33% |
| 35% | 35% |
| 37% | 39.6% |
Standard Deduction:
- The standard deduction for individual taxpayers under 65 is set to decrease from $14,600 to $8,300.
- For married taxpayers under 65 filing jointly, it will drop from $29,200 to $16,600.
State and Local Tax (SALT) Deduction:
- The $10,000 cap on SALT deductions imposed by the TCJA will be lifted, which will benefit taxpayers in states with higher income or property tax rates.
- However, the phase-out of itemized deductions for higher-income taxpayers will be reinstated, and increased SALT deductions may lead to more taxpayers being subject to the Alternative Minimum Tax (AMT).
Mortgage Loan Interest Deduction:
- The TCJA limited the deduction for interest on purchase-money mortgages to $750,000 and eliminated the deduction for home equity loan interest.
- After the sunset, interest on home equity loans up to $100,000 and purchase-money mortgages up to $1,000,000 will once again be deductible.
Charitable Deductions:
- Currently, cash donations to public charities are deductible up to 60% of the taxpayer's Adjusted Gross Income (AGI).
- Post-sunset, this limit will reduce to 50% of AGI.
Miscellaneous Itemized Deductions:
- The TCJA disallowed miscellaneous itemized deductions, such as investment advisory fees, legal fees, and out-of-pocket employee expenses.
- These deductions will be reinstated post-sunset to the extent they exceed 2% of the taxpayer's AGI.
Alternative Minimum Tax (AMT)
- The impact of the sunset on AMT should be carefully considered as the interplay with increased SALT deductions could result in more taxpayers being subject to AMT.
As these provisions sunset, taxpayers should review their tax situation and plan accordingly to minimize any negative impacts and take full advantage of reinstated deductions. Contact Cambaliza McGee LLP team for personal and business tax planning.