Wealth Planning Insights
Major Changes Coming in 2026 with the Expiration of the Tax Cuts and Jobs Act
Keith Fenstad, CFP®, October 2024
The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the U.S. tax code. Unfortunately, many of these provisions were temporary and sunset at the end of 2025 unless congress acts to make some or all of them permanent. This means that the 2024 and 2025 tax years may be the last opportunity to lock in the tax advantages of the current rules.
Here is a summary of the major components of the changes that would impact most clients:
Tax Rates Revert to Pre-2018 Levels. One of the most significant aspects of the TCJA was the lowering of income tax rates. The law reduced tax rates for nearly all income levels, resulting in lower taxes for millions of Americans.
Chart 1 is an estimate of the 2025 vs. 2026 (post-TCJA) tax brackets and income thresholds. Note how the 24% bracket is eliminated completely. This is often our target for tactical Roth conversions.
Source: Manning-Napier, Married Filling Jointly
Reduction in the Standard Deduction. The TCJA nearly doubled the standard deduction, which significantly simplified the tax filing process for many individuals and reduced the need to itemize deductions. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. In 2026, the standard deduction will revert to its pre-TCJA levels, which is estimated to be $8,300 and $16,600 respectively.
Many clients who have been taking the standard deduction may find themselves itemizing deductions once again to minimize their tax liability.
To that end, most “Miscellaneous Itemized Deductions” were disallowed due to the TCJA but will return in 2026. While still subject to the 2% of adjusted gross income phaseout, investment management fees and legal and tax advice fees are some of the more common deductions that would return.
The Return of the Personal Exemption. Prior to the TCJA, taxpayers could deduct a set amount for each household member – called the “Personal Exemption”. This provided additional tax savings for families with dependents. The personal exemption was set at $4,050 per dependent in 2017 but was eliminated as part of the TCJA reforms.
Starting in 2026, the personal exemption returns. The reinstatement of this exemption could offset some of the negative effects of the reduced standard deduction, particularly for larger families with multiple dependents.
State and Local Tax (SALT) Deduction Limits Uncertain. One of the more controversial aspects of the TCJA was the imposition of a $10,000 cap on the state and local tax deduction. Previously, taxpayers could deduct an unlimited amount of state and local taxes paid from their federal taxable income.
Although the SALT cap is set to expire in 2026, it remains unclear whether it will be allowed to lapse or if lawmakers will extend it on a standalone basis. If the cap remains, it will continue to limit deductions for clients with larger real estate and state income tax expenses.
Changes to the Alternative Minimum Tax (AMT). The AMT is intended to ensure that high-income taxpayers pay a minimum level of tax. The Tax Policy Center estimated that in 2017 over 5 million taxpayers were subject to AMT. The TCJA reduced the impact by increasing the income thresholds at which the AMT applies, leaving only an estimated 200,000 affected taxpayers in 2018.
In 2026, the thresholds will revert to their previous lower levels, bringing the AMT into more tax planning conversations with clients.
Reduction of the Estate and Gift Tax Exemption. As we’ve discussed on several occasions, the TCJA also significantly increased the estate and gift tax exemption, allowing individuals currently to pass up to $13.61 million tax-free. This change eliminated the estate tax for most individuals and families.
This higher exemption is set to expire in 2026, at which point the exemption will revert to around $7 million per person. This reduction will result in more estates being subject to the estate tax, which can be as high as 40% on the excess. We continue to work with high-net-worth clients and families in thoughtful estate planning conversations to assess the exposure and minimize their potential future estate tax liability.
The expiration of TCJA in 2026 will bring widespread changes to the U.S. tax landscape. While some of the provisions, such as the lower corporate tax rate, were made permanent, many of the individual tax cuts will sunset unless congress intervenes with new legislation. Careful tax planning with your Wealth Advisor over the next two tax years will be essential to navigate this changing landscape.