Sunsetting of the Tax Cuts and Jobs Act: What to Expect

As 2025 unfolds, a major shift in the tax landscape is on the horizon. Many provisions of the Tax Cuts and Jobs Act (TCJA)—the sweeping tax reform passed in 2017—are set to expire at the end of the year. Keep in mind that President Trump campaigned on extending the provisions and that Congress may take action, so stay tuned for updates. However, without action, certain tax rates and rules will revert to their pre-2018 levels starting January 1, 2026.

This sunsetting would mean higher tax rates, reduced deductions, and significant estate tax changes for individuals, families, and business owners. Here’s what may be ahead, including steps to prepare.

Key Tax Changes Coming in 2026

The expiration of the TCJA would impact nearly every taxpayer, some positively and others not-so-positively. Some changes include:

Income Taxes

  • Higher Tax Rates: Tax brackets will revert to pre-TCJA levels, meaning many Americans will pay more in income taxes.

  • Lower Standard Deduction: The nearly doubled standard deduction will shrink, leading more taxpayers to itemize their deductions.

  • Return of Personal Exemptions: The personal exemption—eliminated under the TCJA—will return, which may benefit larger families.

  • Mortgage Interest Deduction: The deduction limit will drop, potentially impacting homeowners with large mortgages.

  • Alternative Minimum Tax (AMT): More taxpayers may be subject to the AMT due to lower exemption thresholds.

Estate and Gift Taxes

One of the most significant changes affects high-net-worth individuals and families.

  • Lower Estate and Gift Lifetime Tax Exemption: The exemption, currently at $13.99 million per individual for 2025, is expected to drop to around $7 million per person in 2026—roughly cutting it in half.

  • This means more estates would be subject to federal estate taxes, potentially increasing tax burdens on inherited wealth and family businesses.

What to Do Now: Proactive Strategies to Consider

1. Review Your Estate Plan

If your estate could be affected by the reduced exemption, consider talking to a financial advisor or estate planning attorney about gifting assets now while the exemption is still at its higher level. You may want to explore strategies such as:

  • Irrevocable trusts (e.g., spousal lifetime access trusts, irrevocable life insurance trusts)

  • Family business transfers (e.g., family limited partnerships)

  • Annual gifting to family members to reduce your taxable estate

2. Consider Accelerating Income into 2025

Because tax rates are scheduled to increase in 2026, it may make sense to pull forward taxable income into 2025 to take advantage of today’s lower rates.

  • If you’re retired, you might withdraw more from tax-deferred accounts now before higher rates kick in.

  • If you’re a business owner or freelancer, consider taking income sooner rather than later.

3. Re-evaluate Deductions and Contributions

If you expect to be in a higher tax bracket in 2026, deferring certain deductions—such as charitable donations or retirement contributions—until after 2025 could be beneficial. This way, they offset income that is taxed at a higher rate.

4. Explore Roth Conversions

A Roth IRA conversion allows you to shift money from a traditional IRA (which is taxed at withdrawal) into a Roth IRA (where withdrawals are tax-free).

  • By converting in 2025, you pay taxes at today’s lower rates instead of the potentially higher rates in 2026.

  • This strategy can be useful if you expect higher income later in retirement.

Final Thoughts

The sunsetting of the TCJA would represent a major shift in the tax landscape, impacting income taxes, deductions, and estate planning. Consider working with a fiduciary financial advisor to address the potential impacts of any changes on your financial plans and goals. At Northstar Financial Planners, we work with clients to anticipate changes like these while coordinating with their tax and legal professionals.

It’s possible that Congress will extend TCJA provisions, especially with tax reform being a major topic in 2025. However, tax and estate planning professionals are likely to be overwhelmed as the deadline approaches, making early action even more important.

This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.