As 2025 approaches, the Tax Cuts and Jobs Act are set to end. Congress will be faced with some very serious choices. The average taxpayer should undeniably hope that this gets extended. Here is a summarized list of all that could change without a continuation of the TCJA rules:

Significant Changes to the U.S. Federal Tax Code for the 2026 Tax Year

The 2026 tax year will see several significant changes to the U.S. federal tax code, primarily due to the expiration or reversion of provisions under the Tax Cuts and Jobs Act (TCJA) and other legislative updates. Below is a detailed summary of these changes:

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1. Expiration of Individual Tax Provisions Under the TCJA

The TCJA, enacted in 2017, introduced temporary tax cuts for individuals, which are set to expire at the end of 2025. Key changes include:

a. Income Tax Brackets and Rates

• The current seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) will revert to pre-TCJA rates and thresholds. The top tax rate will increase to 39.6%.

b. Standard Deduction

• The standard deduction will decrease significantly:
  • Single filers: From $15,000 (2025) to approximately $6,500.
  • Married filing jointly: From $30,000 (2025) to approximately $13,000.

c. Personal Exemptions

• Personal exemptions, which were eliminated under the TCJA, will be reinstated.

d. Child Tax Credit

• The Child Tax Credit will decrease from $2,000 per qualifying child to $1,000, and the refundable portion will be reduced.

e. State and Local Tax (SALT) Deduction

• The $10,000 cap on SALT deductions will expire, allowing taxpayers to deduct the full amount of state and local taxes paid.

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2. Estate and Gift Tax Exclusion

• The estate and gift tax exclusion amount will revert from the inflation-adjusted $13.99 million (2025) to approximately $5 million, adjusted for inflation.

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3. Business Tax Provisions

a. Section 199A Deduction for Pass-Through Entities

• The 20% deduction for qualified business income (QBI) will expire, increasing the effective tax rate for pass-through businesses to 43.4%.

b. Full Expensing of Capital Investments

• The 100% bonus depreciation for qualified property will phase out completely by 2026, reverting to the Modified Accelerated Cost Recovery System (MACRS).

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4. Alternative Minimum Tax (AMT)

• The AMT exemption amounts, which were increased under the TCJA, will revert to lower thresholds, impacting more taxpayers.

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5. Research and Development (R&D) Amortization

• Businesses will no longer be able to fully expense R&D costs in the year incurred. Instead, these costs must be amortized over five years.

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6. Corporate Tax Rate

• The corporate tax rate, which was permanently reduced to 21% under the TCJA, will remain unchanged unless new legislation is enacted.

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7. Opportunity Zones

• The deferral of capital gains invested in Qualified Opportunity Funds will end on December 31, 2026.

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8. Digital Asset Reporting

• New reporting requirements for digital asset transactions will take effect, requiring brokers to issue Form 1099-DA for sales and exchanges.

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9. Inflation Adjustments

• Tax brackets, standard deductions, and other thresholds will continue to be adjusted for inflation using the Chained Consumer Price Index (C-CPI).

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Conclusion

The expiration of TCJA provisions will result in higher taxes for many individuals and businesses starting in 2026. Taxpayers should plan accordingly and consult with tax professionals to mitigate potential impacts.

For further details, please refer to the cited sources.