TCJA Sunset 2025: The Provision-by-Provision Breakdown and Year-End Planning Checklist

The Tax Cuts and Jobs Act of 2017 represented the most significant overhaul of the U.S. tax code in three decades. The corporate provisions of TCJA were generally made permanent, but the individual income tax provisions — including the marginal rate reductions, standard deduction increases, child tax credit expansions, SALT cap, QBI deduction, and estate tax exemption increases — were enacted as temporary, scheduled to sunset on December 31, 2025.

Without legislative action, January 1, 2026 will bring the most significant set of tax changes since TCJA itself. Multiple legislative proposals to extend, modify, or replace TCJA provisions are circulating, but no comprehensive deal has emerged. Taxpayers should plan for both possibilities — and execute the most consequential planning moves before year-end 2025.

What Currently Sunsets at the End of 2025

Marginal Tax Rates

The current marginal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) revert to pre-TCJA levels (10%, 15%, 25%, 28%, 33%, 35%, 39.6%). The bracket thresholds also revert to pre-TCJA structure with inflation adjustments.

Practical impact: most taxpayers will see marginal rate increases of 1-3 percentage points. The top federal rate increases from 37% to 39.6% for income above approximately $400,000.

Standard Deduction

The current standard deduction ($30,000 joint for 2025) reverts to pre-TCJA levels (approximately $16,000 joint, indexed). This is partially offset by the return of personal exemptions (eliminated by TCJA), but most taxpayers will see net changes.

Personal Exemptions

TCJA eliminated personal exemptions ($4,050 per person in 2017). They return in 2026 at approximately $5,300 per person (inflation-adjusted), benefitting larger families.

Child Tax Credit

The current $2,000 per child credit reverts to $1,000. The income phase-out also drops dramatically (from approximately $400,000 joint MAGI to $110,000), affecting middle-income families significantly. The portion that is refundable is also reduced.

Section 199A QBI Deduction

The 20% deduction on qualified business income from pass-through entities expires entirely. This is one of the most impactful changes for small business owners — eliminating up to 7.4% of effective tax rate reduction on business income.

Estate and Gift Tax Exemption

The current $13.99M per-person exemption (2025) reverts to approximately $7M per person (inflation-adjusted from pre-TCJA $5M). This is the most consequential change for high-net-worth families and creates an urgent year-end 2025 planning window.

SALT Deduction Cap

The current $10,000 SALT cap expires. Unlimited state and local tax deductibility returns, eliminating the disproportionate burden on high-tax-state residents. The corollary: the pass-through entity tax (PTET) workaround becomes less critical.

Mortgage Interest Deduction

The current $750,000 acquisition mortgage debt cap reverts to $1,000,000. The home equity loan interest deduction restriction (limiting to acquisition or substantial improvement debt) is eliminated, restoring deductibility for general-purpose home equity loans.

Misc Itemized Deductions

The 2% floor miscellaneous itemized deductions return — including unreimbursed employee business expenses, investment management fees, and tax preparation fees. These deductions are subject to a 2% AGI floor.

Casualty Loss Deduction

The personal casualty loss deduction (currently limited to federal disaster declarations) returns to its broader pre-TCJA scope, deductible for unexpected and unusual losses regardless of disaster declaration.

Moving Expense Deduction

The deduction for unreimbursed work-related moving expenses returns. Currently this deduction is limited to active-duty military.

Alimony Treatment

For divorce or separation instruments executed before 2019, alimony continues to be deductible by the payer and includible in income to the recipient. For instruments executed in 2019 or later, the post-TCJA treatment (non-deductible/non-includible) remains — even after sunset.

What Stays in 2026 (Permanent Changes)

Corporate Tax Rate

The 21% federal corporate income tax rate is permanent and will not change.

Section 274 Entertainment Disallowance

The elimination of the entertainment expense deduction is permanent.

Like-Kind Exchange Restrictions

The narrowing of §1031 like-kind exchanges to real property only (eliminating equipment exchanges) is permanent.

NOL Limitations

The 80% taxable income limitation on NOL deductions is permanent.

Excess Business Loss Limitation (§461(l))

The cap on business losses for individuals (currently $313,000 single / $626,000 joint for 2025) is currently scheduled to expire after 2028.

Year-End 2025 Planning Moves to Consider

1. Capture the Higher Estate Tax Exemption

For families above the post-sunset $7M per-person threshold, lifetime gifts using the additional exemption (between $7M and $14M per person) should be executed before December 31, 2025. SLATs, dynasty trusts, GRATs, and IDGT sales are common vehicles. (Detailed in our estate tax planning post.)

2. Maximize 199A QBI Deduction While Available

Pass-through business owners should optimize 2024 and 2025 income to maximize QBI deduction utilization. Strategies include income shifting between years, retirement plan contributions to manage taxable income near the SSTB threshold, and aggregation elections for related businesses.

3. Roth Conversions Before Rate Increases

Converting traditional IRA balances to Roth in 2025 locks in current marginal rates. Even if 2026 rates rise modestly, the Roth conversion permanently shelters future growth from tax. Particularly valuable for retirees in lower current brackets and high earners expecting future legislation to raise top rates.

4. Accelerate Income Into 2025 If Beneficial

For taxpayers expected to face higher 2026 rates, accelerating income recognition into 2025 (selling appreciated assets, exercising stock options, taking bonuses) can lock in lower rates. This must be modeled against the time value of paying tax earlier.

5. Defer Deductions Into 2026 If Beneficial

Conversely, deferring deductions into 2026 when rates may be higher provides greater tax savings. This is particularly relevant for charitable contributions, business expense timing, and other discretionary deductions.

6. SALT Deduction Planning

For high-tax-state residents currently using PTET to work around the SALT cap, the post-2025 environment may eliminate the need for PTET. However, PTET elections typically lock in for the year and may have multi-year implications. Coordinate with CPA before changing approach.

7. Estate Plan Review

Beyond the federal estate tax exemption changes, review:

• Beneficiary designations on retirement accounts (SECURE Act 10-year rule implications).

• State estate tax exposure if relocating.

• Lifetime gifting strategies including annual exclusion gifts.

• Charitable planning including QCDs and charitable remainder trusts.

8. Business Entity Review

The expiration of §199A may shift the calculus for entity choice. Some pass-through businesses may benefit from C-corporation conversion if §199A disappears. Run the numbers carefully — C-corp conversion has significant ongoing implications.

9. Capital Gains Harvesting

For taxpayers in the 0% long-term capital gains bracket (taxable income under $96,700 joint for 2025), realizing gains in 2025 can reset basis at no federal tax cost. The 0% bracket may be modified post-sunset.

10. Charitable Bunching

For taxpayers near the standard deduction threshold, "bunching" multiple years of charitable contributions into 2025 (potentially via a donor-advised fund) can generate itemized deduction benefits before the post-sunset standard deduction structure changes.

Legislative Outlook

Multiple bills have been introduced to extend, modify, or replace TCJA provisions. Common themes across proposals:

• Permanent extension of marginal rate cuts (likely with modifications for top brackets).

• Extension or permanent enactment of QBI deduction (potentially with modifications).

• Modification or extension of SALT cap (highly contested politically).

• Extension of estate tax exemption increases (subject to political negotiation).

• Possible modifications to corporate rate, capital gains rates, and other corporate provisions.

The likely path is partial extension through legislative action in 2025 — but the scope and timing remain uncertain. Taxpayers should plan for both scenarios.

Common Mistakes

• Waiting for legislative clarity before executing year-end planning (window may close before legislation is finalized).

• Failing to use the additional estate tax exemption before sunset.

• Not modeling 2025 vs 2026 marginal rates for income/deduction timing decisions.

• Missing the §199A optimization window for pass-through businesses.

• Failing to coordinate Roth conversions with marginal rate planning.

• Overlooking state tax implications of TCJA sunset (varies by state).

Bottom Line

The TCJA sunset represents the most consequential set of tax changes since 2017. The planning window is 2024 and 2025 — and many of the most powerful strategies (particularly estate tax planning) require months of execution time. Every taxpayer with significant income, wealth, or business interests should be in active planning conversations with their CPA before mid-2025. The cost of inaction may be permanent.