These Tax Rules Will Expire in 2025

These Tax Rules Will Expire in 2025
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(This article originally appeared in the July 2024 edition of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)


The Tax Cuts and Jobs Act (TCJA) of 2017 was a sweeping tax overhaul that
made significant changes to individual income taxes and the estate tax. The standard deduction increased, the child tax credit doubled, marginal tax
rates fell, and the lifetime estate and gift tax exemptions increased, allowing people to pass on more of their assets without incurring estate or gift taxes.


Most of these changes are due to expire Dec. 31, 2025. While it’s possible they could be extended, the future of the TCJA is currently unclear. Here’s what you need to know as this act sunsets.


Income Tax Rates

The TCJA lowered tax rates for most income groups. The highest marginal tax rate is currently 37%, and then, depending on income, the rates are 35%, 32%, 24%, 22%, 12%, and 10%. In 2026, these figures are scheduled to go back to pre-TCJA rates: 39.6%, 35%, 33%, 28%, 25%, 15%, and 10%.


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With higher tax rates looming on the horizon, this means if you want to convert traditional accounts to Roth accounts, it could pay off to do so sooner rather than later.


Capital Gains Taxes

Long-term capital gains and qualified dividends have a preferential tax rate. That won’t change when the TCJA expires.


The 3.8% net investment income tax that some taxpayers with high modified adjusted gross income must pay will also stick around.


However, the TCJA separated the tax-rate income brackets for capital gains and dividend income from the tax brackets for ordinary income. Come 2026, that will no longer be the case, making for potentially higher capital gains taxes for some taxpayers depending on the tax bracket they fall in.


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If higher capital gains tax rates coming into play in 2026 could affect you, you might want to consider selling some of your highly appreciated securities now. While such a sale would produce a taxable gain, it could be less than it would be after TCJA sunsets.


Estate and Gift Taxes

The TCJA doubled the 2011 estate and gift tax exemption of $5 million. Since 2017, the exemption has been further adjusted for inflation. In 2024, the exemption is $13.61 million per individual and $27.22 million for couples.


In 2026, the estate and gift tax exemption is due to revert back to pre-TCJA, effectively cutting it in half.


If your taxable estate will come anywhere close to the new exemption amount, consider some estate planning strategies such as using the annual gift tax exclusion, which in 2024 allows each taxpayer to give anyone up to $18,000 per year without any tax consequences.


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Current law also lets you contribute up to five years of gifts to educational accounts for children and grandchildren, so you could potentially gift up to $90,000 to a person’s 529 education savings account in 2024.


While no one knows what will happen to tax law in 2026, it’s a good idea to be aware of potential changes. Discussing possible strategies with your tax professional or financial adviser can put you in a better position no matter what happens.


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About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.