This article is sponsored by Parsons Behle & Latimer.
What will the Tax Code look like at the end of 2025?
During President Trump’s first term, the Tax Cuts and Jobs Act (TCJA) was enacted which dramatically changed the Tax Code. After a lengthy reconciliation process, the TJCA was passed on Dec. 20, 2017.
A majority of the key provisions in the TCJA will expire, or “sunset,” at the end of 2025, and the Republican party has indicated that extension of the TJCA is a key priority. In that context, here is what we currently know (and do not know) about what to expect regarding taxation in Trump 2.0.
Known Knowns
Republicans have the slimmest House margin in nearly a century.
In 2025, the House will remain in Republican control by only two seats (218 votes constitute a majority). Currently, the House count is 219¹-215, meaning three Republican House members could block the next tax bill. Additionally, the Senate has flipped back to Republican control by a slim margin of 53-47. In 2017, 12 Republican House members voted against the TJCA. Given Republican margins in the House, the party must create a tax package that will receive virtually no dissent from the party.
Extension of the TCJA in its entirety would cost more than $4.5 trillion over the next decade.
If the TCJA is extended in its entirety, the 10-year extended TCJA is estimated to cost around $4.5 trillion. It is unclear if Republicans can universally stomach this increase to the federal budget deficit.
Certain TCJA provisions are sunsetting absent new legislation.
The key TCJA provisions that are expiring at the end of 2025 and 2026 are:
Qualified Business Income (QBI)/199A Deduction: A 20% deduction for pass-through businesses will no longer be available after the sunset of the TCJA in 2025.
Bonus Depreciation: The TCJA allowed businesses to write off 100% of the cost of eligible trade or business property in the first year it was purchased, rather than capitalizing the costs over time. Since 2023, the bonus depreciation percentage has been phasing out and will be 0% beginning 2027.
Qualified Opportunity Zones: The TCJA allowed the deferral of capital gains for those who reinvested into a qualified opportunity fund before Dec. 31, 2026.
Marginal Tax Rates: The TCJA cut the marginal tax rates for individuals to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rates will revert to pre-TCJA numbers of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
Standard Deduction: The TCJA nearly doubled the standard deduction. Post-TCJA, the rate will return to its standard number and more individuals will likely utilize itemized deductions again.
Estate and Gift Tax: The TCJA more than doubled the estate and gift tax exemption. This year (2025) is the last year to utilize this exemption of $13.99 million before it reverts to approximately $5 million (adjusted for inflation).
Two provisions were made permanent by the TCJA and will not sunset:
- Corporate Tax Rate: The TCJA permanently cut the corporate tax rate from 35% to 21%.
- Research & Development (R&D): The TCJA required R&D costs to be amortized instead of expensed.
Known Unknowns
President-elect Donald Trump has discussed many potential tax plans for his next term in office, including the following:
Raising Tariffs: President Trump has threatened to impose import tariffs of 10-20% on all countries and upwards of 60% on China.
Cutting the Corporate Tax Rate: President Trump has discussed reducing the corporate tax rate from 21% to 20% and further reducing the tax rate to 15% for income received on American-made products.
Chipping away at Biden’s Inflation Reduction Act (IRA): President Biden passed the IRA, which will cost approximately $780 billion next decade in “green” energy credits and an extra $80 billion to the IRS through 2032. President Trump has discussed chipping away at some of the “green” energy credits under the IRA by having an “early termination” of some of these credits. However, some of the credits that have universal support (such as carbon capture and clean hydrogen) will likely remain under the IRA and will not be subject to any “early termination.”
Unknown Unknowns
The two big unknowns are (1) what the new tax bill will look like and (2) when we will see the next tax bill.
We do know that if President Trump and Congress do not pass a new bill by the end of 2025, many of the TCJA provisions will sunset, which means clients should consider a “be ready” posture. For many, this will mean accelerating the realization of capital gains or gifting to utilize the enhanced exclusion.