Standard deductions sunsetting with tax rates Dec 2025

[CampingLife]

Good morning,

Thanks to all of you for providing retirement planning information. Wish we found you guys sooner.

From what I've read about the Tax Cut and Jobs Act passed in 2017, retirees using MFJ standard deductions for taxes, those standard deductions will revert to 2017 numbers (adjusted for inflation I think) Dec 31,2025? Tax rates go back up and standard deductions will get cut almost in half. Not sure about all the changes for state and local taxes.

Good to keep in mind if forecasting roth conversions using MFJ standard deductions...personally we're using our tIRA as a bridge to SS full retirement and will probably do roth conversions before RMD's.

John

[Tom_T]

Good morning,

Thanks to all of you for providing retirement planning information. Wish we found you guys sooner.

From what I've read about the Tax Cut and Jobs Act passed in 2017, retirees using MFJ standard deductions for taxes, those standard deductions will revert to 2017 numbers (adjusted for inflation I think) Dec 31,2025? Tax rates go back up and standard deductions will get cut almost in half. Not sure about all the changes for state and local taxes.

Good to keep in mind if forecasting roth conversions using MFJ standard deductions...personally we're using our tIRA as a bridge to SS full retirement and will probably do roth conversions before RMD's.

John

Yes, but don't forget that the personal exemption, eliminated in the Act, will return. And, the SALT deduction cap will be eliminated. A lot of moving parts. Who knows what will happen by that time, which makes forecasting a little tricky.

[tibbitts]

Good morning,

Thanks to all of you for providing retirement planning information. Wish we found you guys sooner.

From what I've read about the Tax Cut and Jobs Act passed in 2017, retirees using MFJ standard deductions for taxes, those standard deductions will revert to 2017 numbers (adjusted for inflation I think) Dec 31,2025? Tax rates go back up and standard deductions will get cut almost in half. Not sure about all the changes for state and local taxes.

Good to keep in mind if forecasting roth conversions using MFJ standard deductions...personally we're using our tIRA as a bridge to SS full retirement and will probably do roth conversions before RMD's

John

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

[jebmke]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

[JoMoney]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

The TCJA 'standard deduction' was higher than the combined 'standard deduction' + 'personal exemption' from the prior era.
The change to using "Chained-CPI" for inflation adjustments in taxes is likely to slowly push more money into higher brackets than what other inflation adjustments would have... and my understanding is that the change to using C-CPI is not set to automatically revert

[jebmke]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

The TCJA 'standard deduction' was higher than the combined 'standard deduction' + 'personal exemption' from the prior era.
The change to using "Chained-CPI" for inflation adjustments in taxes is likely to slowly push more money into higher brackets than what other inflation adjustments would have... and my understanding is that the change to using C-CPI is not set to automatically revert

One also has to examine how the rate/deductions/cap and sunsets thereof interact with state income taxes. In MD, if you want to itemize on the state return you must itemize on the Federal. It sometimes pays to itemize even if the total is less than the standard deduction. The TCJA changed this underlying math wrt the old regime -- although it sometimes still pays to itemize on FED with less than the standard.

[Stinky]

I'm not going to do a whole lot of additional work thinking about this until 2025.

Just think about early 2025 - we'll have a newly-elected President, a newly elected Congress, and a massive change in taxes (the expiration of the TJCA) happening in less than a year. Who knows what will come out of Washington in 2025, given that political environment?

I have my own speculations as to what might happen legislatively in 2025 (which I can't express due to Forum rules). But I'm not going to lose any sleep over this until the picture becomes much, much clearer.

[UpsetRaptor]

I understand that current law is that it'll sunset, but I wouldn't make any major financial decisions in advance of its expiration under the presumed assumption that all provisions of TCJA are allowed to fully expire. There's going to be a huge policy debate in 2025, and the range of possible outcomes is very wide. We can't speculate further, and if this already crosses the political line, apologies mods.

[the_wiki]

I agree we can't know what 2025 will bring, but I think that is what the OP is saying. We do know about 2023 and 2024. So if you don't want to introduce tax uncertainty into your upcoming decisions, sooner is better than later.

[RetiredCSProf]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

+1

Actually, my effective tax rate increased with TCJA because of SALT, even though my marginal tax rate decreased from 25% to 24%. I'm looking forward to lower taxes after TCJA sunsets, but no way to predict what other changes may come along.

[secondopinion]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

+1

Actually, my effective tax rate increased with TCJA because of SALT, even though my marginal tax rate decreased from 25% to 24%. I'm looking forward to lower taxes after TCJA sunsets, but no way to predict what other changes may come along.

Same here. I much rather that they do a 0% tax bracket than the standard deduction; everyone should get credit for donations and paying state taxes, no matter the amount.

But who knows the future?

[Ron Ronnerson]

I guess I'd assumed that both deductions and also exemptions would revert, along with the intermediate inflation adjustments to them that would have happened along the way if they'd remained in place all that time. I'm glad I don't have to do that math.

At the time, TCJA was a wash for us. I'd have to run numbers with new data for post-sunset but not worth the bother right now.

+1

Actually, my effective tax rate increased with TCJA because of SALT, even though my marginal tax rate decreased from 25% to 24%. I'm looking forward to lower taxes after TCJA sunsets, but no way to predict what other changes may come along.

The TCJA took us from the 15% marginal bracket to the 22% marginal bracket. We managed to come down into the 12% bracket by making some changes. Anyway, I think the key to this stuff is to stay flexible and adapt the best you can.

[Artsdoctor]

I think that the best options for now would be to work with 2022 and 2023 as best as we can. The "actionable" maneuvers which would be wise would be to (1) acknowledge that tax law can change very very quickly, even during the last month of the year, (2) not make any significant taxable moves during the first 9 months of 2024, and (3) go ahead and make financial plans for 2024 and 2025 if you must but be prepared for last-minute changes in late 2024. History has shown us very clearly that there is a lot of uncertainty surrounding tax legislation so it's each person's responsibility to remain flexible.

[David Jay]

I agree we can't know what 2025 will bring, but I think that is what the OP is saying. We do know about 2023 and 2024. So if you don't want to introduce tax uncertainty into your upcoming decisions, sooner is better than later.

+1

If there is no change, fine. But if rates go up you will be pleased that you did your Roth conversions (for example) at the lower rate.

[CampingLife]

I agree we can't know what 2025 will bring, but I think that is what the OP is saying. We do know about 2023 and 2024. So if you don't want to introduce tax uncertainty into your upcoming decisions, sooner is better than later.

Thank you for all the replies.

For those that are on the fence concerning roth conversions. Not trying to cross any political lines.

John

[02nz]

Not trying to cross any political lines.

We can't speculate about possible changes to legislation in the future. However, I will note that, in the recent past, when it came time to decide about what to do with the expiring Bush tax cut, this is what happened: The American Taxpayer Relief Act of 2012 "made the tax cuts permanent for single people earning less than $400,000 per year and couples making less than $450,000 per year, and eliminated them for everyone else." Source: Wikipedia.

[CampingLife]

Not trying to cross any political lines.

We can't speculate about possible changes to legislation in the future. However, I will note that, in the recent past, when it came time to decide about what to do with the expiring Bush tax cut, this is what happened: The American Taxpayer Relief Act of 2012 "made the tax cuts permanent for single people earning less than $400,000 per year and couples making less than $450,000 per year, and eliminated them for everyone else." Source: Wikipedia.

Thank you.

John

[bsteiner]

All of the individual tax changes except for the treatment of alimony are scheduled to expire at the end of 2025.

Note that while the $10,000 cap on the deduction for state and local taxes is scheduled to expire, the increase in the AMT exemption is also scheduled to expire, so many upper middle class taxpayers won't get much benefit from the deduction for state and local taxes.

[Makefile]

All of the individual tax changes except for the treatment of alimony are scheduled to expire at the end of 2025.

Note that while the $10,000 cap on the deduction for state and local taxes is scheduled to expire, the increase in the AMT exemption is also scheduled to expire, so many upper middle class taxpayers won't get much benefit from the deduction for state and local taxes.

I believe C-CPI-U for indexing instead of CPI-U is permanent also.

Would you put personal exemption phaseout and the Pease limitation resurfacing in the same category as AMT (but with lesser effect)?

[Kookaburra]

I have heard/read conflicting reports of whether the $10K SALT cap is scheduled to sunset with the rest of the TCJA. Does anyone know for sure?

[calwatch]

It does sunset. This report from the Congressional Research Service is the best guide to indicate what changes are temporary in TCJA, and what is permanent: https://crsreports.congress.gov/product/pdf/R/R45092

[bsteiner]

All of the individual tax changes except for the treatment of alimony are scheduled to expire at the end of 2025.

Note that while the $10,000 cap on the deduction for state and local taxes is scheduled to expire, the increase in the AMT exemption is also scheduled to expire, so many upper middle class taxpayers won't get much benefit from the deduction for state and local taxes.

I believe C-CPI-U for indexing instead of CPI-U is permanent also.

Would you put personal exemption phaseout and the Pease limitation resurfacing in the same category as AMT (but with lesser effect)?

I think the change in the indexing is permanent. It is for the estate, gift and GST taxes.

I don't have a particular way of characterizing the personal exemption or its phaseout. You lose it if you're in the AMT.

The Pease limitation (reduction of itemized deductions based on income above a certain threshold) is best viewed as a slight increase in the tax rate.

[Kookaburra]

It does sunset. This report from the Congressional Research Service is the best guide to indicate what changes are temporary in TCJA, and what is permanent: https://crsreports.congress.gov/product/pdf/R/R45092

Thanks. Does it also eliminate/sunset the current 750K cap in mortgages eligible for mortgage interest deduction? What about the current requirement that mortgage must be used to acquire Primary residence (which eliminates deductibility if refinances) - does that sunset away too?m, thereby allowing refinances to have interest deducted?

[Bcdkgf]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

I have some planning to do with Roth Conversions, higher interest rates have cut into the amount we usually convert.

In our taxable account, we are now planning to place hunks of money into Muni Funds as Treasuries mature. so we can increase the Roth Conversion amount. The hunks of money were from the sale of our home and the interest we earn from them now incredibly pays our rent and utilities, but it is taxable.

If we continue to rent, we will have no deductions to speak of. The passage of this tax bill a few years ago was a boon to us in regards to Roth Conversions.

[Bcdkgf]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

I have some planning to do with Roth Conversions, higher interest rates have cut into the amount we usually convert.

In our taxable account, we are now planning to place hunks of money into Muni Funds as Treasuries mature. so we can increase the Roth Conversion amount. The hunks of money were from the sale of our home and the interest we earn from them now incredibly pays our rent and utilities, but it is taxable.

If we continue to rent or pay cash for a house, we will have no deductions to speak of. The passage of this tax bill a few years ago was a boon to us in regards to Roth Conversions.

[Tom_T]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

Neither. 2026.

[enad]

Found this.

Hope it sheds some light

[hachiko]

The general consensus that I'm hearing is that most of these temporary provisions are expected to be made permanent. Remember - the reason they were temporary in the first place was to keep the cost below $10T so they could use reconciliation.

The IRS cannot easily make these changes, so hopefully Congress acts before December 23, 2026.

[Bcdkgf]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

Neither. 2026.

Thank you. It gives me three years to finish all the conversions, which is doable.

[calwatch]

It does sunset. This report from the Congressional Research Service is the best guide to indicate what changes are temporary in TCJA, and what is permanent: https://crsreports.congress.gov/product/pdf/R/R45092

Thanks. Does it also eliminate/sunset the current 750K cap in mortgages eligible for mortgage interest deduction? What about the current requirement that mortgage must be used to acquire Primary residence (which eliminates deductibility if refinances) - does that sunset away too?m, thereby allowing refinances to have interest deducted?

That provision expires December 31, 2025. Although, you can refinance today provided the balance didn't exceed the original mortgage.

[utvolfan]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

Neither. 2026.

Thank you. It gives me three years to finish all the conversions, which is doable.

So, unless there are changes made before Dec. 31, 2025, we have 3 years (2023, 2024, 2025) to plan for things like Roth conversions under the current tax brackets? Just want to be sure I'm looking at this correctly. Other places I have read that we only have 2023 and 2024 so...

[Stoic9]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

Neither. 2026.

Thank you. It gives me three years to finish all the conversions, which is doable.

So, unless there are changes made before Dec. 31, 2025, we have 3 years (2023, 2024, 2025) to plan for things like Roth conversions under the current tax brackets? Just want to be sure I'm looking at this correctly. Other places I have read that we only have 2023 and 2024 so...

My reading is that your 2026 tax bill (due APR 2027) will be based on pre 2017 rules. I retired just before the change so all my initial plans were based on the former brackets. My aggregate taxes increased because I make more money in retirement and I had to start paying State taxes. I view this as a planning exercise just like I do for my death and my spouse falls under single tax payer brackets. I personally hope we revert back as I opposed the change in 2017.

[Alan S.]

Thank you for this reminder. As a clarification is this for tax year 2025 ot tax year 2024?

Neither. 2026.

Thank you. It gives me three years to finish all the conversions, which is doable.

So, unless there are changes made before Dec. 31, 2025, we have 3 years (2023, 2024, 2025) to plan for things like Roth conversions under the current tax brackets? Just want to be sure I'm looking at this correctly. Other places I have read that we only have 2023 and 2024 so...

The reversion does not occur until 2026. But anyone who has observed Congressional behavior for prior "sunset" provisions in the tax code knows that the TCJA will not simply be allowed to sunset with reversion to 2017 provisions. While certain provisions may sunset, other provisions may be continued, and still other provisions may be modified to reflect the wish list of Congress anytime between now and 2026. For anyone believing "sunsets", look no farther than the history of the estate tax unified credit over the last 15 years.

The one disturbing habit deeply engrained with such legislation is that no one will know exactly what 2026 will bring until roughly 12/27/2025. Makes detailed tax planning nearly impossible. The IRS must really detest this practice as well since it gives them no time to adjust to changes effective in the week following enactment.

[jebmke]

The one disturbing habit deeply engrained with such legislation is that no one will know exactly what 2026 will bring until roughly 12/27/2025.

or even later. not unusual in the past when "extenders" were passed in December of the tax year affected.

[jeremy12]

The one disturbing habit deeply engrained with such legislation is that no one will know exactly what 2026 will bring until roughly 12/27/2025.

We will have some idea after 11/5/2024.

[slalom]

Actually, my effective tax rate increased with TCJA because of SALT, even though my marginal tax rate decreased from 25% to 24%. I'm looking forward to lower taxes after TCJA sunsets, but no way to predict what other changes may come along.

Same here - I pay roughly $25-30k/year more in taxes than I would have without the TCJA, due to SALT cap.

Looking forward to it sunsetting, if it does..

[ramram22]

I hope they keep the qualified business income (QBI) deduction for business owners - that reduces my taxable income by like $35K per year. It's huge.