Expiring Tax Provisions Big Issue for 2025
As the 119th Congress gets to work, members of the new Republican majority have discussed many issues, including border security, increasing the debt ceiling, funding the government beyond March 14, 2025, scaling back Inflation Reducation Act provisions, and making the "Trump tax cuts permanent." The Tax Cuts and Jobs Act of 2017 (TCJA), P.L. 115-97, ushered in the most significant changes to the Internal Revenue Code in more than 30 years. Many of these provisions reduced income taxes for individuals and businesses. Others increased tax liability to fund the tax benefits. Absent intervention by Congress, many of the TCJA provisions are set to expire on December 31, 2025.
But simply extending the TCJA will not be a straightforward process. Because of a slim Republican majority in the Senate (53-45, with 2 independents caucusing with Democrats), any 2025 tax legislation must be passed through the budget reconciliation process.
The Congressional Budget Act allows a process called reconciliation for legislation that changes spending, revenues, and the federal debt limit. This legislation must flow from a budget resolution. Such bills are resistant to filibuster, which means that only 51 votes are needed to pass through the Senate. Subject to the so-called Byrd rule, provisions that do not change revenue or spending are extraneous and may not be included in a budget reconciliation bill. The legislation may also not increase the deficit beyond 10 years. Even so, budget reconciliation possibilities are far reaching. In recent years, the Affordable Care Act, the Tax Cuts & Jobs Act, the American Rescue Plan Act, and the Inflation Reduction Act were all passed through the reconciliation process.
And the small Republican House majority (currently 219-215) leaves no room for dissent. Even so, it appears those within the party may have different priorities. On January 3, 2025, 11 Republican members of the House (board members of the so-called Freedom Caucus) sent a letter to Speaker Johnson, urging that Republicans must “be organized to use reconciliation — and all legislative tools — to deliver on critical border security, spending cuts, pro-growth tax policy, regulatory reform…” Specifically, the letter urged that the Speaker must be committed to “ensure any reconciliation package reduces spending and the deficit in real terms with respect to the dynamic score of tax and spending policies under recent growth trends.” In May of 2024, the Congressional Budget Office estimated that it would cost more than $4 trillion over 10 years to extend the TCJA permanently. On January 10, 2025, the U.S. Treasury Department estimated that fully extending the expiring individual and estate tax provisions of the TCJA would cost $4.2 trillion between 2026 and 2035. That number would climb to $5.5 trillion if several already-expired provisions were restored. The Congressional Budget Office is scheduled to offer revised calculations of the federal baseline on January 17.
We review below the key expired and expiring provisions up for debate in what is sure to be an eventful year. For a complete list of expired and expiring tax provisions, see this report from the Joint Committee on Taxation, released January 9, 2025.
Already Expired Tax Provisions
The TCJA generally lowered taxes across the board. To pay for these provisions, however, several key business provisions, including the business interest deduction limit, the research and development expense deduction, and bonus depreciation, were modified before the general 2025 sunset.
Business Interest Deduction Limitation
The TCJA restricted business interest deductions generally to 30% of adjusted taxable income (ATI), beginning in 2018, for those taxpayers that meet the gross receipts test of I.R.C. § 448(c). In 2025, this means that the average annual gross receipts of the business for the prior three years were $31 million or more. Until 2022, taxpayers subject to the limit could add back depreciation, amortization, and depletion to their ATI, thereby increasing the amount of their allowable business interest deduction. Beginning in 2022, ATI does not include depreciation, amortization, or depletion. As such, business interest deductions are reduced, especially for capital intensive businesses such as agribusinesses. Although a “farming business” (as defined in IRC § 263A(e)(4)), can elect not to be subject to the business interest limitation, the electing farm business is then required to use the alternative depreciation system (ADS) to depreciate any farming assets with a recovery period of 10 years or more. [I.R.C. § 168(g)(1)(G)]. This also means the farmer cannot use bonus depreciation on those assets. Once this election is made, it is irrevocable. [I.R.C. § 163(j)(7)(C)].
The Treasury has estimated that restoring this provision would cost $179 billion over 10 years.
Research and Development Expenses
Beginning in 2022, research and development expenses are not currently deductible under I.R.C. § 174. Instead, the expenses must be amortized over five years. This was a change made by the TCJA, but it was not effective until 2022. This change has been particularly difficult for software development companies and other businesses that devote teams of employees to developing and launching new products.
The Treasury has estimated that restoring this provision would cost $184 billion over 10 years.
Bonus Depreciation
The TCJA allowed 100 percent bonus depreciation through 2022 for qualifying property acquired and placed into service after September 27, 2017. [IRC § 168(k)(6)(A)]. It then established a phase-out over the next four years, in increments of 20%. [IRC § 168(k)(A)]. For assets placed in service in 2024, the phase-out limits the bonus depreciation deduction to 60% of the basis. The phase-out was established as follows:
- 2023: 80 percent bonus,
- 2024: 60 percent bonus,
- 2025: 40 percent bonus, and
- 2026: 20 percent bonus.
- 2027: 0 percent bonus
Note: Although the bonus depreciation provisions of the TCJA are set to sunset, the TCJA’s increase of the Section 179 deduction was a permanent change. The deduction will remain at its current level, indexed for inflation, after 2025. In 2025, the maximum Section 179 deduction is $1,250,000, reduced dollar for dollar for qualifying purchases above $3.13 million.
The Treasury has estimate that restoring 100 percent bonus depreciation retroactively and making it permanent would cost $735 billion.
Income Tax Provisions Expiring at the End of 2025
Individual Tax Rates
Most farm businesses are sole proprietorships, partnerships, or S Corporations. This means that business income passes through to the owners, who pay taxes based upon individual income tax rates. From 2018 to 2025, the TCJA lowered individual income tax rates across the board. [IRC § 1(j)]. The graduated rates that apply to ordinary income were also restructured to include the following brackets: 10%, 12% (down from 15%), 22% (down from 25%), 24% (down from 28%), 32% (down from 33%), 35%, and 37% (down from 39.6%). [IRC § 1(j)(2)]. On January 1, 2026, the tax rates and brackets will reset to pre-2018 levels, as shown below.
Tax Rates 2024 and 2026 (Source: USDA-ERS)
In addition to the rate increases, the income at which most income reaches a higher rate will generally be lower. For example, a large swath of income currently taxed at the 24% rate will be taxed at the 33% rate. The 39.6% rate will be reached by many currently taxed at the 35% rate. Conversely, some income that is currently taxed at the 35% rate will be taxed at the 33% rate.
CBO estimated that making these rate cuts permanent would cost $2.2 trillion over 10 years.
Standard Deduction
Taxpayers may elect to itemize deductions if the amount they can deduct on 1040, Schedule A, is more than their standard deduction. The TCJA significantly decreased the number of taxpayers who itemize deductions by nearly doubling the standard deduction and suspending miscellaneous itemized deductions. In 2018, the standard deduction increased from $13,000 to $24,000 for married filing jointly taxpayers and from $6,500 to $12,000 for single taxpayers. [I.R.C. § 63]. In 2025, these amounts are $30,000 for married filing jointly and $15,000 for singles. The increased standard deduction is in place through 2025 and will reset to prior levels, indexed for inflation, in 2026.
CBO estimated that extending this change permanently would cost $1.3 trillion over 10 years.
Miscellaneous Itemized Deductions
For tax years 2018 through 2025, the TCJA suspended all miscellaneous itemized deductions subject to the 2% floor, including, for example, unreimbursed employee expenses, hobby expenses, and investment fees. [I.R.C. § 67(g)]. These deductions are scheduled to return in 2026.
CBO estimated that extending these provisions permanently, including the $10,000 SALT deduction limit below, would add $1.2 trillion to the budget over 10 years.
Personal Exemption
In 2017, taxpayers could generally take a personal exemption of $4,050 for themselves, their spouse, and each of their dependents. In conjunction with increasing the standard deduction and lowering individual income tax rates, the TCJA suspended the personal exemption from 2018 through 2025. [I.R.C. § 151(d)(5)(A)]. Personal exemptions, indexed for inflation, are scheduled to return in 2026. It is projected that the 2026 personal exemption will be around $5,300.
CBO estimated that extending these provisions permanently would add $1.7 trillion to the budget over 10 years.
State and Local Tax Deduction
For tax years 2018 through 2025, the TCJA limits the amount of combined state and local income and property taxes taxpayers can claim as an itemized deduction to $10,000 ($5,000 for married filing separately). [I.R.C. § 164(b)(6)(B)]. This SALT deduction limit is scheduled to end at the end of 2025. In the meantime, many states have enacted pass-through entity (PTE) provisions allowing state income tax to be paid by the pass-through entities, thereby allowing a deduction at the entity level and an offsetting credit to the individual owner. Some of these state laws will remain in effect even if state and local tax deduction limit returns.
The projected budget impact of the SALT limit deduction is included in the miscellaneous itemized deduction category above.
Home Mortgage Interest Deduction
Through 2025, the TCJA lowers the home mortgage interest deduction from $1 million ($500,000 married filing separately) to $750,000 ($375,000 married filing separately). [I.R.C. § 163(h)(3)(F)]. The TCJA also suspends the deduction for interest paid on a home equity loan, unless that loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. [I.R.C. § 163(h)(3)(B)]. These provisions are scheduled to end at the end of 2025.
The projected budget impact of this provision is included in the miscellaneous itemized deduction category above.
Charitable Contribution Limit
The TCJA increased the charitable deduction limit for cash contributions from 50% to 60% of AGI. [I.R.C. § 170, § 11023]. In 2026, the limit returns to 50% of AGI.
The projected budget impact of this provision is included in the miscellaneous itemized deduction category above.
Personal Casualty Losses
For tax years 2018 through 2025, casualty or theft losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. Personal casualty and theft losses attributable to a federally declared disaster are subject to the $100 per casualty and 10% of adjusted gross income (AGI) reductions unless they are attributable to a qualified disaster loss. Personal casualty and theft losses attributable to a qualified disaster loss are not subject to the 10% of the AGI reduction, but the $100 reduction is increased to $500. In 2026, a federally declared disaster is not required for taxpayers to deduct personal casualty and theft losses.
The projected budget impact of this provision is included in the miscellaneous itemized deduction category above.
Pease Limitation
Although personal exemptions will return and more taxpayers will be eligible to itemize deductions in 2026, the Overall Limit on Itemized Deductions (Pease limitation) will return. For singles with income above $250,000 (indexed for inflation to more than $325,000 in 2026) and those married filing jointly with income above $300,000 (indexed for inflation to more than $390,000 in 2026) personal exemptions and itemized deductions will begin to phase out. Deductions for investment interest, medical expenses, casualty, theft and wagering losses are not affected by the Pease limitation.
The projected budget impact of this provision is included in the miscellaneous itemized deduction category above.
Child Tax Credit
The TCJA raised the child tax credit from $1,000 to $2,000 per qualifying child for tax years 2018 through 2025. [I.R.C. § 24(h)(2)]. Of this credit, $1,700 per child is refundable in 2025. The TCJA also created a new $500 nonrefundable credit for each dependent who does not qualify for the child tax credit, including those over the age of 16. [I.R.C. § 24(h)(4)]. In addition to receiving a larger child tax credit, more families have qualified for the child tax credit under the TCJA because the phase-out of the credit does not begin until a married filing jointly couple reaches an adjusted gross income of $400,000 or a single taxpayer reaches an adjusted gross income of $200,000. Under prior law, the $1,000 credit per child began to phase out when the married filing jointly couple had modified adjusted gross income above $110,000 and the single taxpayer had modified adjusted gross income above $75,000.
In 2026, the child tax credit is scheduled to reset to pre-2018 levels.
CBO projects that extending these provisions permanently would cost $735 billion over 10 years.
Qualified Business Income Deduction
For tax years 2018 through 2025, the TCJA allows most individuals receiving income from a sole proprietorship or a pass-through business—including an S corporation or a partnership—to take a 20% qualified business income deduction (QBI deduction). [I.R.C. § 199A]. Additionally, agricultural cooperatives are allowed to take a I.R.C. § 199A(g) deduction or pass that deduction through to their patrons. This deduction is similar to the old domestic production activities deduction (DPAD) under I.R.C. § 199. Section 199A is set to expire in 2026. This will significantly impact small businesses, as well as agricultural cooperatives and their patrons. The DPAD deduction provided by I.R.C. § 199, was permanently repealed by the TCJA in 2018.
Note: In contrast to the pass-through tax deduction, the TCJA provision lowering the top corporate tax rate from 35% to a flat tax rate of 21% was a permanent change.
CBO has projected that extending this provision permanently would cost $684 billion over 10 years.
Alternative Minimum Tax
The alternative minimum tax (AMT) applies to taxpayers with higher economic income by setting a limit on certain deductions. A minimum 26% tax rate applies to AMT taxpayers, with taxpayers above a certain income being subject to a 28% minimum tax. Prior to the TCJA, the AMT exemption was $55,400 for singles and $86,200 for married couples. The exemption began to phase out at $123,100 for singles and $164,100 for those married filing jointly. Those married filing jointly were subject to the 28% tax rate when their income exceeded $191,500. The TCJA significantly increased exemptions and phaseout limits for individual taxpayers, ensuring that many fewer taxpayers are subject to the AMT through 2025. In 2024, for example, the AMT exemption amounts were $85,700 for singles and $133,300 for married couples. The exemption begins to phase out when income exceeds $609,350 for singles and $1,218,700 for those who are married filing jointly. In 2024, the 28% rate applied to taxpayers with AMT incomes above $232,600. In 2026, the AMT returns to prior exemption and phaseout levels, indexed for inflation.
CBO estimates that extending these provisions permanently would cost $1.4 trillion over 10 years.
Employer-Provided Meals
The TCJA reduced the deduction for de minimis meals provided by an employer from 100% to 50% through 2025. In 2026, the deduction is fully eliminated. The IRC § 119 exclusion from income for meals for the convenience of the employer will remain intact.
Other TCJA Income Tax Changes and Their Impact
Like-Kind Exchange
The TCJA retained the I.R.C. § 1031 like-kind exchange gain recognition deferral for real property, but eliminated it for personal property, such as farm equipment or livestock. [I.R.C. § 1031(a)(1)]. This was a permanent change.
Excess Business Loss Limits
The TCJA implemented an excess business loss rule that replaced (and expanded upon) the excess farm loss rule. Under I.R.C. § 461(l)(3)(A), an “excess business loss” is one that exceeds $500,000 (married filing jointly) or $250,000 (single). These limit amounts have been indexed for inflation, so that in 2024, loss limits are $610,000 for MFJ and $305,000 for singles. Any loss disallowed by this rule is treated as a net operating loss and subject to NOL carryover rules. Although 2025 was originally the last year for this provision, intervening legislation has further extended this provision through December 31, 2028.
Vehicle Depreciation
For passenger automobiles placed into service after December 31, 2017, the TCJA significantly increased the dollar limitations on depreciation and expensing for passenger automobiles. [I.R.C. § 280F]. These limits are not set to sunset in 2026.
Net Operating Losses
The TCJA reduces the five-year carryback of net operating losses for a farming business to two years. [I.R.C. § 172(b)(1)(B)]. It also limits the net operating loss deduction to 80 percent of taxable income for losses incurred after December 31, 2017. [I.R.C. § 172(a)(2)]. The law also allows indefinite carryovers, instead of the 20-year carryover allowed under prior law. [I.R.C. § 172(b)(1)(A)(ii)]. Net operating losses incurred prior to 2018 are still allowed to be deducted against 100 percent of taxable income. The NOL changes are not scheduled to sunset.
Cash Accounting
I.R.C. § 448(b)(1) excepts a “farming business” from its general requirement that C corporations and partnerships with a C corporation partner use the accrual method of accounting. For this purpose, “farming business” means the trade or business of farming within the meaning of I.R.C. § 263A(e)(4). [I.R.C. § 448(d)(1)(A)]. I.R.C. § 447(a), however, generally requires that taxable income arising from the trade or business of farming for a C corporation or a partnership with a C corporation partner is to be computed using the accrual method. The TCJA significantly expanded the availability of the cash method of accounting to farming C corporations and partnerships with a C corporation partner. Beginning in 2018, the I.R.C. § 447 accrual accounting requirement does not apply to any farming corporation that meets the gross receipts test of I.R.C. § 448(c). In 2025, this amount is $31,000,000. For purposes of the I.R.C. § 447(a) accrual accounting requirement, a C corporation that meets the gross receipts test for any taxable year is not treated as a corporation at all for that taxable year. [I.R.C. § 447(c)(2)]. This means that partnerships with such C corporations as partners are also not required to use the accrual method of accounting. Farming S Corporations continue to be wholly excluded from an accrual accounting requirement, regardless of gross receipts. These businesses, however, may not use an accounting method that materially distorts their income. These provisions are not scheduled to sunset.
Farm Machinery or Equipment Depreciation
Beginning in 2018, the TCJA required new farm machinery or equipment to be depreciated over a period of five years, instead of seven. [I.R.C. § 168(e)(3)(B)(vii)]. This change does not apply to grain bins, cotton ginning assets, fences, or other land improvements. The TCJA also allows farmers to use the 200% declining balance method of MACRS depreciation for many farming assets. [I.R.C. § 168(b)(2)]. These changes were permanent and will not end in 2026.
Other Considerations
Capital Gains Tax Rates
The TCJA did not modify long-term capital gains tax rates or the income brackets that apply to capital gain. In other words, capital gain continues to be taxed under pre-2018 rules. Assuming no congressional intervention, the tax brackets for ordinary income and capital gain will again be aligned. The income brackets will continue to adjust for inflation each year, but otherwise, the rates will remain the same in 2026, assuming no change in law.
Net Investment Income Tax
The TCJA did not modify the provisions of the net investment income tax. It remains a 3.8 percent tax on net investment income for taxpayers with income that exceeds a statutory threshold amount. The income threshold for the NIIT is not adjusted for inflation. Although not directly related to the sunset of the TCJA, taxpayers must consider the impact of the NIIT on planning decisions.
Net Investment Income Tax Thresholds
Sunset of Increased Estate and Gift Tax Exemption
The TCJA doubled the individual exemption from the estate and gift tax. Absent intervention by Congress, this increase will expire on December 31, 2025.
CBO has estimated that extending the increased basic exclusion permanently would cost $167 billion over 10 years.
Affordable Care Act Changes
Although not implemented by the TCJA, key Affordable Care Act provisions are also scheduled to expire at the end of 2025. Many agricultural producers have been eligible to obtain lower-cost insurance coverage since 2021 because of these provisions. The American Rescue Plan Act of 2021 significantly expanded the availability of the Affordable Care Act’s premium tax credit (PTC).This made healthcare acquired on the Health Insurance Marketplace more affordable in 2021 and 2022. On August 23, 2022, the Inflation Reduction Act extended these changes through 2025.Generally, the extended law allows many higher income individuals to qualify for a PTC for the first time. It also increases the amount of the premium tax credit available to those with lower incomes.Under the expiring provisions, taxpayers with income greater than 400 percent of the FPL are eligible for the PTC (if they otherwise qualify). The premium tax credit for these taxpayers is the difference between the cost of the premium for the second lowest cost silver plan and 8.5 percent of their household income. For taxpayers with lower incomes, the percentage is lower. If these provisions expire as scheduled, noone with household income above 400 percent of the federal poverty limit will be eligible for a premium tax credit in 2026.