As we approach 2025, one question is on the minds of many: What will Congress do about taxes? The expiration of several key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) is drawing closer, with these laws set to sunset at the end of 2025. With tax policy discussions heating up, there’s uncertainty about what will change. However, it’s clear that tax legislation will be a top priority for Congress in 2025, especially with Republicans regaining control of both chambers and the White House. In this blog, we’ll explore some of the key tax changes that could impact your finances and offer guidance on how to plan ahead.
The State and Local Tax (SALT) Deduction Cap
One of the most discussed provisions of the TCJA is the $10,000 cap on state and local tax deductions, which has particularly affected residents of high-tax states like California, New York, and New Jersey. Many lawmakers are pushing for this cap to be increased or eliminated entirely. With the new administration’s support, there’s a chance we could see movement on this front, but the future of the SALT deduction will depend on the broader negotiations around tax policy.
The Alternative Minimum Tax (AMT) Exemption
The AMT, a tax system designed to ensure that higher-income earners pay a minimum level of tax, was restructured under the TCJA to apply to fewer taxpayers. However, this change is set to expire, potentially pulling millions of taxpayers back into the AMT fold in 2026. If you’re one of the many who have benefitted from this change, you’ll need to stay informed as lawmakers consider whether to extend the exemption or allow it to lapse.
Miscellaneous Deductions and the Pease Limitation
Under current law, high-income earners benefit from a suspension of the Pease limitation, which caps the total amount of itemized deductions that can be claimed. If this provision isn’t extended, it could mean significant changes for those who rely on large deductions to reduce their taxable income. The return of the Pease limitation, along with the reinstatement of miscellaneous itemized deductions, could make tax planning more complex for high-income earners.
Mortgage Interest Deduction Changes
Currently, mortgage interest on loans up to $750,000 is deductible. However, this amount is scheduled to increase to $1 million in 2026. For homeowners with significant mortgage debt, this change could impact their tax bills, so it’s important to plan ahead and understand how this shift might affect your future finances.
Qualified Business Interest (QBI) Deduction
The QBI deduction allows owners of pass-through businesses to deduct 20% of their income, effectively lowering their tax rate. However, if the deduction expires, business owners could see their top tax rate jump from 29.6% to 37%, making this a key issue for entrepreneurs to watch. Given the current economic climate, it’s unclear whether this deduction will be extended, but it’s something business owners should keep in mind as they plan for 2026.
Top Income Tax Rate
Under current law, the top income tax rate is 37%, but it’s scheduled to rise to 39.6% in 2026. This increase could have significant implications for high-income earners, so it’s important to understand how this potential change could impact your personal tax liability and begin planning for it in the years ahead.
Estate and Gift Tax Exclusion Amounts
For those making substantial gifts or planning their estates, the current estate and gift tax exclusion amount is $13.61 million, but that’s set to drop to around $7.25 million in 2026 unless Congress acts. This dramatic reduction could impact estate planning strategies, making it more important than ever to consider gifting strategies before the exclusion amount decreases.
What Can We Expect in 2025?
While there’s considerable uncertainty surrounding specific tax changes, it’s clear that tax legislation will be a priority in 2025. Given historical precedents, major tax reform is unlikely to happen quickly, with significant legislation often taking months or even years to pass. As lawmakers navigate the complexities of the budget and try to balance fiscal concerns with political priorities, tax changes may not take effect until later in 2026. Still, it’s vital to stay proactive in managing your financial and estate planning.
Conclusion
With so many tax provisions set to expire in 2025, it’s essential for individuals and businesses to stay informed about what Congress may do. While we can’t predict the future of tax legislation, we do know that proactive planning can help mitigate the impact of any changes. Consult with your financial advisor and keep an eye on developments in Washington to ensure your strategies are aligned with the evolving tax landscape.
