Tax policy has returned to the forefront of public discussion since the lead-up to and completion of November’s elections. With Republicans now holding a “trifecta” of the White House and majorities in the Senate and House of Representatives, it appears likely that the incoming 199th Congress will look to pass a tax bill, making changes more likely than they were before the election.

What should individual taxpayers know, and what changes should they watch for? What planning can be done now given the numerous potential changes ahead?

What TCJA provisions for individuals might be extended?

The Tax Cuts and Jobs Act (TCJA), passed in 2017, was the largest change to the tax code since 1986. This bill was passed through a process called “budget reconciliation,” which allowed for passage with just 50 senators instead of the usual 60 required. However, reconciliation comes with restrictions on what a bill may include and what the cost may be. 

To pass the bill while also substantially cutting taxes, the individual, trust, and estate components of the TCJA were designed to sunset after 2025 to reduce the total projected cost of the bill. In other words, absent new legislation, the tax law related to individuals will revert to the pre-TCJA law. 

Some of the changes that would be most widely felt include:

• The return of pre-TCJA tax brackets, including a top rate of 39.6%
• The decrease of the standard deduction to pre-TCJA levels (roughly half of current levels)
• The return of the phase-out of itemized deductions (the Pease limitation)
• The return of personal and dependent exemptions
• The elimination of the $10,000 state and local tax (SALT) cap
• The return of miscellaneous itemized deductions subject to the 2% of AGI limitation, including portfolio (investment) deductions
• The increase of mortgage principal eligible for the mortgage interest deduction from $750,000 to $1 million
• The return of the deductibility of interest on the first $100,000 of home equity loans
• The decrease of the adjusted gross income (AGI) deduction for cash donations to public charities from 60% of AGI to 50% 
• The decrease of bonus depreciation on eligible business assets from 60% in 2024 to 40% in 2025, 20% in 2026, and 0% in 2027
• The elimination of the qualified business income deduction (QBID) for sole proprietors and owners of pass-through entities
• The decrease of alternative minimum tax (AMT) exemptions
• The decrease of the lifetime gift/estate tax exemption by roughly half, to approximately $7 million per person

The TCJA is considered one of the signature policies of the first Trump administration. As such, conventional wisdom is that a second Trump administration would not allow it to sunset. Relative to before the election, it is less likely that the TCJA will be allowed to expire. 

What other individual tax changes are expected?

Throughout the campaign, President-elect Trump and Republican leadership endorsed numerous potential further changes to the tax code, including:

• Decreasing the corporate tax rate from 21% to 20%
  • Further decreasing the corporate tax rate to 15% for companies producing goods domestically. The mechanism to get to the 15% corporate rate is expected to be akin to the former Domestic Production Activities Deduction (DPAD), which provided for a 9% deduction applied to the lesser of income derived from domestic production activities or taxable income.
• Restoring 100% bonus depreciation
• Restoring immediate expensing of research and development (R&D) costs for U.S.-based expenses. No specific policy proposal has been made, but President-elect Trump has advocated for “expanded research and development credits.”
• Exempting tip and overtime income from tax
• Exempting Social Security income from tax
• Allowing a deduction for interest paid on auto loans
• Allowing an increased or unlimited deduction for SALT
• Limiting or eliminating green energy credits, including the electric vehicle credit
• Modifying the child tax credit and other family credits 
• Increasing tariffs on foreign-produced goods

It is difficult to say with certainty which of the above proposals may make it into a potential tax bill. Given the expected composition of Congress, it is likely that a tax bill will need to be passed via budgetary reconciliation (as it was in 2017), which could lead to restrictions on the cuts that could be made. 

Further complicating planning efforts is the fact that legislative text will not be released until the 119th Congress is seated and writes the bill. While Congress will be seated in January, it is not yet known whether the tax bill will be a top priority or will be preempted by other matters until later into the year. Without legislative text, many of the details of the above policy proposals are not clear. For example, would the policy exempting tips and overtime from taxes apply solely to federal income tax, or also to payroll taxes? Would there be income limitations on the new income exemptions?Would there be any limitations on auto loan interest deductions based on loan principal, as there is on mortgage interest?

Individual tax planning techniques worth considering for year-end 2024 and 2025

Given the high likelihood of tax law changes, tax planning with precision is challenging. That said, many common planning techniques remain powerful even in this uncertain environment. For example:

• Consider donating appreciated stock to charity. Publicly traded stock held more than one year can be donated for a deduction equal to fair market value (subject to limitations based on AGI) without realizing the gain on sale.
• Consider “bunching” two years of charitable donations into one year to maximize the benefit of donations given the high standard deduction.
• Consider moving high growth potential assets out of your estate via gift or contribution to a trust to minimize the use of the lifetime gift and estate exemption. While this is no longer as urgent as it was when it looked like the increased exemption would sunset, it remains more efficient to get high growth assets out of an individual’s estate while the present fair market value is low. Remember that discounts for marketability and/or minority interests may further reduce the current fair market value and therefore reduce the use of the lifetime exemption.

Some traditional advice may not hold true in this environment. As an example, conventional wisdom says to accelerate expenses. However, miscellaneous itemized deductions subject to the 2% of AGI limitation are suspended as itemized deductions under the current law. Accelerating the deduction would be of no benefit on the federal level (though it could be for state tax). It’s possible that a new tax bill would reinstate the deduction for portfolio deductions. As such, deferring this expense into 2025 (if possible) could be advantageous even though it goes against conventional wisdom.

In light of potential changes, some planning techniques to consider include:

• Consider paying personal income taxes and real estate taxes in early 2025 rather than late 2024 (assuming there is no penalty for doing so) to maximize the potential deduction under an increased SALT limitation.
• Consider waiting until 2025 rather than December 2024 if first starting to take Social Security to take advantage of the potential new exclusion on Social Security income.
• If in the market for a new electric vehicle, consider purchasing in 2024 rather than 2025 to make use of existing credits that may be ended under a new tax bill.
• Consider changes to business structures. Once the tax bill has been written and it becomes clear what changes may be made to tax rates and credits, evaluate whether it makes sense to make a “check the box” election or other changes to make your business structure more tax-efficient.

Additionally, keep an eye on your state’s tax laws. Some states will conform to federal changes while o thers will decouple, meaning that you may have different rules on the federal and state levels. Consider both the federal and state tax implications of any potential changes to your finances.

What does CohnReznick think?

Every taxpayer’s personal finance and income situation is different. As such, there is no “one size fits all” model for planning. Consult your tax advisor to make sure you are appropriately addressing your concerns.