When the Tax Cuts and Jobs Act (TCJA) was signed into law in 2017, it substantially altered the U.S. income tax landscape that existed since 1986.  Many of these changes, however, were temporary and will automatically be reversed for tax year’s beginning on or after January 1, 2026 in the absence of an Act by Congress.  Because deep divisions exist in the current Congress, the risk is high that Congress will fail to take action the that would be needed to prevent the reversal of the temporary TCJA changes.  Therefore, you should prepare for the possibility that temporary TCJA changes will be reversed and plan accordingly.  This Client Alert highlights the more significant temporary TCJA provisions impacting income tax for individuals that are scheduled to be reversed for tax year’s beginning on or after January 1, 2026 and provides tax planning suggestions to reduce the impact these changes would otherwise have on your finances.

Less Favorable Marginal Tax Rates

The TCJA reduced the marginal tax rates for most tax brackets.  This means that individual tax rates are scheduled to rise for many taxpayers in 2026, reverting to pre-TCJA rates. The highest tax rate would return to 39.6%, from its current 37%.

Because these tax rates apply to distributions from retirement accounts, you may want to convert some or all of your pre-tax accounts — 401(k)s, 403(b)s and traditional individual retirement accounts (IRAs) — to a Roth IRA before the end of 2025.  Income tax would be due on conversion, but the marginal rate at which you will be taxed may be less than the marginal rate that is scheduled to apply after 2025.  In addition to this tax benefit, the converted funds would grow tax-free, and, unlike other retirement accounts, Roth IRAs have no required minimum distributions (RMDs) during the lifetime of the account owner.  For Roth IRAs that are held for at least five years, owners aged 59.5 or older would be allowed to take withdrawals that are completely free of tax or penalties.

Before doing a Roth conversion, you should consider whether the higher adjusted gross income (AGI) resulting from the conversion would reduce the benefits of other tax provisions that phase out at certain thresholds.  If you are over 65, you should also consider to what extent the higher AGI would impact your Medicare insurance premium.

Lower Child Tax Credit

Currently, a child tax credit of $2,000 is allowed per qualifying child who has not turned 17 years old by year-end, subject to phaseout at certain thresholds.  After 2025, this credit is scheduled to be reduced to $1,000 per child and would be phased out at much lower thresholds.

Lower Standard Deduction

The TCJA nearly doubled the standard deduction.  In 2025, the standard deduction for taxpayers filing jointly with their spouse will be $30,000 and, for single filers, will be $15,000.  In 2026, the standard deduction is scheduled to be roughly half, which means that if your tax situation otherwise remains unchanged, your taxable income would increase by the difference in the standard deduction. 

The impact of the lower standard deduction can be mitigated by itemizing your deductions.  Itemized deductions include, among other expenses, mortgage interest, state taxes, charitable contributions, medical expenses above a certain threshold, gambling losses, and certain casualty and theft losses.  Maintaining proper documentation to support these deductions is critical to being allowed to take them.

Changes to Itemized Deductions

Please note that the rules for taking itemized deductions are scheduled to be different in 2026 than presently for several of the itemized deduction categories. 

You can currently take a deduction of up to 60% of AGI for a cash contribution made to a public charitable organization.  This deduction ceiling is scheduled to be reduced to 50% of AGI for tax years after 2025.

The deduction for state and local taxes paid, which is currently capped at $10,000, is scheduled to no longer be subject to a cap for tax years after 2025.  State and local taxes include property tax paid and the greater of income tax or sales tax paid.  It may be beneficial to push a property tax payment into January 2026 that would normally be paid in December 2025, especially if your other state taxes paid in 2025 are already in excess of the $10,000 cap.

The amount of debt treated as acquisition indebtedness for purposes of taking a home mortgage interest deduction is scheduled to increase from $750,000 to $1,000,000 for loans incurred after December 15, 2017.  Additionally, a deduction for interest paid on home equity indebtedness of up to $100,000 that was incurred for any reason is scheduled to again be allowed.  Home equity indebtedness is any debt (other than acquisition indebtedness) secured by your qualified residence, to the extent the aggregate amount of the debt does not exceed the residence’s fair market value less any acquisition debt on the residence.  Currently, this deduction is disallowed except to the extent the debt was used to buy, build or substantially improve the qualified residence that secures the debt.  Given these changes, it may be beneficial to push a mortgage payment into January 2026 that would normally be paid in December 2025 if your mortgage service provider would allow you to do so.

Miscellaneous itemized deductions subject to the 2%-of-AGI floor, which are currently not allowed, are scheduled to be allowed again in 2026.  This includes most “nonbusiness” expense deductions—e.g., ordinary and necessary expenses that, though not connected with a taxpayer’s trade or business, are paid or incurred for the collection or production of income; the management, conservation or maintenance of property held for the production of income; or the determination, collection or refund of any tax.  Accordingly, you may realize tax savings by paying these expenses in 2026, so payment of these expenses should be pushed out to 2026 if possible.

Personal casualty and theft losses of an individual are currently deductible only to the extent they are attributable to a federally declared disaster.  After 2025, taxpayers may claim an itemized deduction for personal casualty and theft losses regardless of whether the loss resulted from a federally declared disaster.

Qualified Business Income Deduction

Under the TCJA, Taxpayers with sole-proprietorships, disregarded entities, partnerships, and S corporations may currently deduct up to 20% of the “qualified business income” passed through to them from these businesses.  The primary purpose of this qualified business income deduction is to reduce the tax rate difference between C corporations and non-C corporations following the enactment of the TCJA as the TCJA reduced the tax rate for C corporations to 21%.  After 2025, the qualified business income deduction is scheduled to no longer apply, so the tax rate difference on taxable income of a C corporation and a non-C corporation is scheduled to be as high as 18.7%.  Therefore, if you are currently operating your business under a non-C corporation structure, your structure should be evaluated to determine whether it would remain beneficial from a tax standpoint after 2025.

Moving Expenses

Prior to the TCJA becoming law, moving expenses were allowed as a non-itemized deduction for moves related to a change of employment if certain requirements were met or, if reimbursed by your employer, were excluded from your taxable income.  The TCJA suspended this benefit through tax year 2025, except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station.  For non-military taxpayers, this means that no deduction is currently allowed for moving expenses and reimbursed moving expenses by an employer are likely treated as taxable income.

For tax years after 2025, moving expenses are scheduled to be allowed as a deduction if you satisfy the distance and period-of-employment requirements.  Deductible moving expenses include the reasonable cost of moving household goods and personal effects, reasonable expenses of travel (including lodging but not meals) from your old residence to the new and reasonable lodging expenses for the day you arrive in the new area.

If you are exploring a job opportunity that would require a move, it would be beneficial from a tax standpoint to make the move after tax year 2025.

Other expiring TCJA Provisions Impacting Individuals

There are other expiring TCJA provisions impacting individuals that were not described above.  These provisions are included in the attached table summarizing expiring TCJA provisions impacting individuals.

Act Now

Additional tax-planning strategies are available to help you leverage favorable TCJA provisions while they last.  Do not delay your planning, though – CPAs, attorneys and other experts will have their calendars full as the expiration date draws near and more taxpayers scramble to adjust to the potentially changed landscape.

TABLE: Expiring TCJA Provisions Impacting Individuals

For more information, contact Michael Loesevitz at [email protected] or your ORBA advisor at 312.670.7444.