Planning for the Expiration of TCJA:

Top Issues for Individuals

Written By: Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

In April, we discussed how the expiration of the Tax Cuts and Jobs Act (TCJA) of 2017 potentially expiring after 2025 might impact business owners. This month, we’ll explore how it might impact individuals.

As a reminder, a significant portion of the TCJA is set to expire after 2025, unless Congress acts to either extend some or all the legislation. Absent action by Congress, tax rates increase and the standard deduction along with the child credit get smaller. There will also be some tax cuts, such as the deduction for state and local taxes expands, as will the mortgage deduction on larger loans. The personal and dependent exemptions will come back. In most cases, taxes will increase by more than the higher deductions will offset. The expansion of the premium tax credit will also expire.

Let’s review some of the potential changes most likely to impact the largest number of taxpayers.

Increase in Tax Rates

Below are the current income tax brackets and rates vs. the projected brackets in 2026 assuming the TCJA expires.

Once taxable income is in the 22/25% bracket, you will start to see meaningful changes. Not only do tax rates increase for all levels except the 10% bracket, but those higher brackets start at lower levels of income.

Fortunately, there are very minor changes that will be made to the long-term capital gain tax brackets. The differences will result in a negligible change in the tax calculation. The rates are unchanged.

Changes to the Standard Deduction and Eligible Expenses for Itemized Deductions

The standard deduction is set to be cut roughly in half in 2026. The current standard deduction amount is $14,600 for single filers and $29,200 for joint filers. In 2026, it will drop to about $7,850 (plus inflation) for singles, and $15,750 for joint filers. The lower deduction will mean more people will be able to itemize their deductions.

The types of expenses included in the itemized deduction calculation will expand in 2026, as well.

– Miscellaneous itemized deductions, which include investment advisory fees, tax prep fees, legal fees, and unreimbursed employee expenses return. They will only be deductible once they exceed 2% of your adjusted gross income (AGI).

– The $10,000 cap on the deduction for state and local/property taxes (SALT) will be lifted. Starting in 2026, the full amount of those expenses can be included in the itemized deduction calculation.

– More mortgage interest becomes deductible. The mortgage interest deduction will revert to pre-TCJA levels, meaning mortgage interest on the first $1 million in mortgage debt and $100,000 in home equity loans is deductible, up from the current levels of $750,000 and $0.

The limit on cash donations to charity will drop back to 50% of AGI instead of the current 60% limit.

Return of Personal Exemptions

Also returning in 2026 is the ability to claim personal exemptions for yourself, your spouse, and your dependents. The personal exemption will be $2,000, adjusted for inflation. The inflation adjusted amount in 2026 is projected to be $5,050 per person.

Phaseouts for Itemized Deductions and Personal Exemptions

The Personal Exemptions Phaseout (PEP) reduces each personal exemption by 2% for every $2,500 of AGI above the threshold, which is anticipated to be $389,150 for married taxpayers filing jointly, and $324,300 for single filers.

The Pease Limitation reduces the amount of itemized deductions you’re allowed to claim. The same AGI threshold as PEP ($389,150 MFJ/$324,300 single) is used and itemized deductions are reduced by 3% of the amount by which your AGI exceeds that threshold. The maximum reduction is 80%.

Ultimately, the PEP essentially adds a 1.3% surtax per exemption on any additional income within the phaseout range, while the Pease limitation adds an additional 1% surtax on all income above the threshold until the maximum 80% reduction in itemized deductions has been reached.

The Return of the Alternative Minimum Tax (AMT)

The Alternative Minimum Tax will impact more taxpayers in 2026. The AMT exemption and phaseout amounts will drop to their pre-2018 levels. In the past, Congress would annually increase these amounts for inflation, but there’s no guarantee they would continue to do this. The lower AMT thresholds can make tax planning much more complicated.

Expanded Premium Tax Credit

While not officially part of the TCJA, the expanded premium tax credit for people who purchase health insurance from the Marketplace is set to expire in 2025. The enhanced credit increased the amount of the credit available at already eligible income levels and extended the income ranges that qualified.

If the enhanced credit is not extended, the out-of-pocket cost for health insurance for those enrolled in the Marketplace will increase.

Estate and Gift Tax Exclusion

The TCJA effectively doubled the estate and gift tax basic exclusion and adjusted each subsequent year for inflation. The 2024 exclusion amount is $13.61 million per person ($27.22 million for married couples).

At the end of 2025, this tax provision will sunset, cutting the exclusion roughly in half. While still a relatively large exemption historically, it’s important to keep this planning point in mind as you look at your long-term picture to ensure you can avoid estate tax if you expect to be over the exemption amount.

While this is not an all-encompassing list, it does cover many of the provisions most likely to impact clients of Shakespeare Wealth Management. If you’d like to discuss how these tax changes might impact your own situation, contact your Shakespeare Financial Advisor.