What Happens if Current Tax Laws Expire

The Tax Cuts & Jobs Act (TCJA) was passed by Congress and signed into law by President Trump in 2017.

The TCJA expires in 2025, which means one of three things: Congress and the President could work together to develop a new law, act to extend the current law, or let it expire, meaning the tax laws would revert to their 2017 levels.

With tax day behind us, I thought it might be interesting to see what the law might be like if it expired and the laws reverted, except for an inflation adjustment to current price levels.

I won’t cover everything—just the highlights that would likely impact you. For simplicity, I’ll refer to married filing jointly returns and ignore other types. Also, we all know that the tax code is an exercise in exceptions, and I’ll hit the high points and ignore all of the caveats.

If the TCJA expires, the number of tax brackets will remain the same, but the tax rates and dollars that create the brackets will differ.

For example, the top tax bracket under the TCJA in 2024 is 37 percent for income over $731,200. In the post-TCJA with inflation-adjusted numbers, the top tax bracket is 39.6 percent for income over $583,750. That’s right—the rate is higher on less income.

Although the TCJA does not provide personal exemptions, the standard deduction is much different. In 2024, the standard deduction was $29,200. In the post-TCJA scenario, there is a personal exemption of $10,100, but the standard deduction is $15,750.

Itemized deductions change as well. The 2024 TCJA allows for a state and local tax (SALT) deduction of $10,000 and mortgage interest up to a loan balance of $750,000 (with some exceptions). The post-TCJA would allow for unlimited SALT deductions and mortgage interest on loans up to $1 million.

Some deductions are subject to a two percent floor, phase-outs of some itemized deductions, tweaks to the child tax credit, and other adjustments.

Long-term capital gains taxes remain largely unchanged. The bracket amounts differ, but they aren’t significant. For example, the top tax bracket for long-term capital gains would be $583,750 at 20 percent in either scenario.

Perhaps the largest difference (but affecting the smallest number of people) is the difference in the estate and gift tax lifetime exemption. Under 2024 TCJA rules, a couple can each pass $13.6 million onto their heirs without any estate tax. In the Post-TCJA era, the exemption falls to $6.8 million per person.

Of course, it almost goes without saying that all of this is up in the air until after the election, so this data only tells you what’s at stake from a tax perspective.

Perhaps tax simplification will take a greater role this time…