A few of the biggest changes enacted by the TCJA include an increase in the standard deduction, adjustments to itemized deductions, and an increase in the lifetime gift and estate tax exemption.
The TCJA will sunset at the end of 2025, but these provisions could revert back to prior law sooner if new laws are passed by Congress.
Congress passed the Tax Cut and Jobs Act (TCJA) at the end of 2017, which resulted in the adjustment or elimination of many common itemized deductions, an increase in the standard deduction and a shift in income tax brackets.
TCJA also significantly enhanced the lifetime exemptions that allow individuals and married couples to transfer assets to children and grandchildren estate and gift tax free. You may be able to benefit from these income and estate tax changes, but you may also need to act quickly. The TCJA is set to end by December 31, 2025.
Here are a couple major takeaways from the TCJA.
One of the biggest changes from the TCJA involves the lifetime exemption for the estate tax. The exemption essentially doubled, which is currently $12.92 million for individuals and $25.84 million for married couples filing jointly.
You can take advantage of these elevated lifetime exemptions by transferring assets outside of your estate to a trust prior to the existing or potentially revised sunset date. The IRS has already ruled that a reversion back to old law will not cause these gifts to be “clawed back” into the estate.
Depending on your net worth, taking steps now could save you and your family a great deal of money in the long run. If you’re married and your net worth is:
For single individuals, divide these numbers in half to figure out whether you’d benefit from creating a trust under current tax law.
Many of the most commonly used itemized tax deductions were eliminated or severely reduced by the TCJA, including:
Despite this, you may have seen a lower income tax bill the last few years, as the reduction in the marginal income tax brackets offset the loss of itemized deductions. The alternative minimum tax (AMT) is also less of a factor, as the elimination of the deductions and exemptions makes it more difficult to be subject to AMT. Additionally, the AMT exemption amount is higher now than it previously was and increases each year on a cost-of-living basis.
Get more tax planning and preparation resources to help keep your financial plan on track.
Separate from the estate tax, the GST tax kicks in when you “skip” a generation of heirs when handing down assets.
The AMT was created to make sure taxpayers in higher tax brackets pay their fair share of taxes. Here’s how it could affect you at tax time.