By Jill Garvey, CPA, CFP®, Wealth Strategist & Larry Jones, CPA, Wealth Strategist
The sun will set on select estate, gift, and other tax cut regulations, but there’s still time to take advantage of the current, higher exemptions before they go away.
The Tax Cuts and Jobs Act of 2017 (TCJA) instituted major changes to income taxes. Specifically, the legislation increased the standard deduction, lowered the highest marginal income tax rate, changed the Alternative Minimum Tax (AMT) threshold, and capped the State and Local Tax (SALT) deduction. Many people are unaware of the fact that almost all of the TCJA provisions are scheduled to revert to pre-2017 levels at the end of 2025.
Individual and trust income tax brackets
The current seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35% and 37%) have been in place since the 2017 act was passed. However, those brackets are scheduled to change beginning in tax year 2026. Specifically, the marginal tax rates according to TCJA are set to expire and revert back to their pre-TCJA levels (10%, 15%, 25%, 28%, 33%, 35% and 39.6%.) One of the biggest changes is that the highest income earners currently taxed at 37% are expected to see that tax rate increased to 39.6% in 2026.
Capital gains tax rates
Prior to TCJA, individual taxpayers faced three long-term capital gains tax rates that were tied to the ordinary income rate brackets. The TCJA retained the capital gains tax rates but established their own brackets not tied to ordinary income brackets.
In 2026, this decoupling of capital gains and ordinary income tax rates will end, and many higher-income taxpayers may find themselves facing a higher tax burden.
Standard deduction
The standard deduction is often used by taxpayers who are unable to itemize their deductions and wish to simplify the tax-filing process. In 2017, the standard deduction for single filers was $6,500 and $13,000 for married filing jointly. With passage of the TCJA, these amounts were nearly doubled to $12,000 and $24,000, respectively. That deduction increases with inflation each year greatly reducing the number of taxpayers who itemize. For example, in 2024, the standard deduction has climbed to $14,600 for single taxpayers and $29,200 for married couples filing jointly. Although it’s scheduled to climb again in 2025, in 2026 the standard deduction will sunset back to roughly half of what it currently is, adjusted for inflation. For many people this will represent an unanticipated tax increase.
In addition, the child tax credit was increased from $1,000 to $2,000 per qualifying child in 2024. This higher tax credit is also scheduled to revert to pre-TCJA levels in 2026 of $1,000 per qualifying child.
2024 standard deductions
The filing status and deduction set by the IRS for tax year 2024:
- Single, $14,600
- Married filing jointly, $29,200
- Head of household, $21,900
- Additional amount for married seniors, $1,550
- Additional amount for unmarried seniors, $1,950
Alternative minimum tax
The AMT was designed to ensure that certain high-income taxpayers can’t use deductions to avoid paying a minimum amount of tax. This is definitely an area where an advisor could help out with the intricacies, particularly for those who may have numerous deductions.
In 2024, the AMT tax exemption was increased to $85,700 for single and head of household filers; see other AMT for other filers below. The higher exemptions have drastically reduced the number of taxpayers impacted by AMT to an estimated several hundred thousand people.
Alternative minimum tax 2024
| Status | Maximum AMT exemption amount | AMT income exemption phaseout threshold | AMT (26% applies to AMT income at or below; 28% applies to AMT income above) |
|---|---|---|---|
| Married filing jointly or surviving spouse | $133,300 | $1,218,700 | n/a |
| Single or head of household | $85,700 | $609,350 | n/a |
| Married filing separately | $66,650 | $609,350 | $116,300 |
| All taxpayers except married filing separately | n/a | n/a | $232,600 |
State and local taxes
After passage of the 2017 legislation, taxpayers who itemize their deductions are limited to deducting no more than $10,000 of whatever property, and/or SALT paid. The $10,000 applies to both single and married filing jointly taxpayers and is not adjusted for inflation over the course of the TCJA. After the sunset in 2026, the SALT deduction limit of $10,000 will expire and return to the higher pre-2017 levels. If the sunset takes place as currently scheduled, many taxpayers may find themselves itemizing their deductions once again, particularly with the accompanying reduction in the standard deduction. These changes may also trigger discussions on whether changes to the charitable contribution strategy would be beneficial.
Estate and gift tax exemptions
Federal estate tax and gift tax exemptions are scheduled to automatically sunset at the end of 2025, increasing the number of people who would be exposed to the tax. The current federal estate and gift tax exclusion for 2024 is $13,610,000, meaning that most people who pass away with less than this in their taxable estate will avoid paying gift tax.
However, beginning in 2026 that exemption is currently scheduled to drop to essentially half of what it will be in 2025, likely somewhere around $7,000,000 per person. This is just the federal estate tax–many states have their own inheritance or estate taxes.
What strategies should you consider?
You can fund trusts or make outright gifts that take advantage of the current high estate and gift tax exemptions before the tax sunset, which might save future generations from paying a federal estate tax. Not only will the assets be outside of your taxable estate but, if executed correctly, any future growth that those funds experience will also be exempt from estate tax. Strategies like a Spousal Lifetime Access Trust can be a good way to utilize your exclusion before it disappears while not losing complete access to the funds.
Below is an example of a net worth statement that shows the increase in estimated total tax consequences with the estate tax exemption sunset 2026.
| Assets | 2024 | 2026 |
|---|---|---|
| Checking | $50,000 | $50,000 |
| Saving | $250,000 | $250,000 |
| Investment account | $3,700,000 | $3,700,000 |
| 401(k) | $1,100,000 | $1,100,000 |
| Inherited IRA | $2,400,000 | $2,400,000 |
| Primary residence | $1,500,000 | $1,500,000 |
| Vacation home | $1,000,000 | $1,000,000 |
| Total assets | $10,000,000 | $10,000,000 |
| Total subject to estate tax | $0 | $3,000,000 (Projected) |
| Total tax consequences | $0 | $1,200,000 (Estimated) |
We can help
Before the sun sets on some estate, gift, and other tax cut regulations, there’s still time to take advantage of the current, higher exemptions before they go away. To learn more, please contact your Huntington Private Bank team to see how we can help or find a Huntington Private Bank office near you.
