Impending Tax Reversion: What You Need to Know

It’s a subject that’s flying under the radar – the impending reversal of tax provisions outlined in the Tax Cuts & Jobs Act of 2017. By the time December 31, 2025 rolls around, just 26 months from now, these tax provisions are set to revert back to their 2017 counterparts. This seemingly distant date could, however, spell an unpleasant surprise for many taxpayers.

Take, for instance, the significant shift in estate tax rates. In 2017, the federal estate tax exemption stood at $5.49 million. In other words, the first $5.49 million a taxpayer passed on to heirs would be exempt from estate tax. Fast forward to today, and this exemption has ballooned to an impressive $12.92 million, or $25.84 million for married couples. The impending “revert” would bring this exemption back down to approximately $6.5 million, merely a third of its current value.

The Tax Cuts & Jobs Act also brought about a doubling of the standard deduction, reducing the need for many to itemize deductions. In the 2017 tax year, single filers had a standard deduction of $6,350, while married couples filing jointly could claim $12,700. Presently, these figures have surged to $13,850 for single filers and $27,700 for joint filers.

Additionally, the upcoming reversion to previous tax tables is poised to place individuals in higher tax brackets. As a result, most Americans will find themselves paying 1-4 percent more in personal taxes compared to their current rates under these older tax tables.

While there’s still a two-year and two-month window to prepare for these changes, it’s prudent for anyone with a net worth exceeding the old estate tax threshold to start devising strategies to reduce their estate’s exposure. Furthermore, everyone should brace themselves for the potential return to the task of itemizing deductions – unless Congress introduces a new tax bill. At that juncture, anything is possible.