Josh Strange, the Founder and President of Good Life Financial Advisors of NOVA, has highlighted the possible expiration of many provisions of the Tax Cuts & Jobs Act (TCJA) at the end of next year due to ongoing political dysfunction at the federal level. Since tax policy often changes when there is a change in the White House, it is important for individuals to understand how these potential changes could impact their financial situation, especially in a presidential election year like 2024.
One of the significant changes that could occur if the TCJA expires is in the tax brackets. Currently, there are seven marginal rates ranging from 10% to 37%. If the TCJA expires, these rates will revert back to tax rates of 10% to 39.6%. These changes could result in significant increases in annual tax obligations for individuals, potentially costing thousands of dollars more each year.
Another aspect that could be affected is the standard deduction, which nearly doubled under the TCJA. If the law expires, the standard deduction amounts will revert to pre-TCJA levels and then be adjusted for inflation. This could impact the taxable income for individuals who do not itemize their deductions, potentially leading to higher tax liabilities.
The mortgage interest deduction is also a key provision of the TCJA that could change if it expires. Currently, individuals can deduct interest payments on home equity debt up to $750,000. If the law expires, this cap will rise to $1 million, and taxpayers will be able to deduct interest on the first $100,000 of home equity debt, regardless of when the debt was incurred.
Estate and gift tax exclusions are also set to change if the TCJA expires, with the exclusion amount dropping from $10 million to $5 million for each person who dies. This could lead to high net worth families facing significant estate and gift taxes on portions of their wealth. Planning for these changes can be challenging, but it is important for families with high net worth to understand how these changes could impact their financial situation.
To prepare for the potential expiration of the TCJA and any new tax policies that may emerge, individuals are advised to speak with their financial professionals to develop solutions tailored to their unique circumstances. Coordination between advisors, accountants, and attorneys is essential to ensure that financial plans are resilient to potential changes in tax policy. It is important to seek advice from licensed professionals to understand how these changes may affect your specific situation.
