Residents could see big changes to the tax code at the end of next year when some of the provisions from the Tax Cuts and Jobs Act (TCJA) of 2017 expire. Some of these changes will impact property owners in particular.
The U.S. Congress has not acted on making changes to the Jobs Act at this time, but it’s important to know which provisions are expiring, so residents can plan on how to reduce the potential impact on their taxes while they have time, Sharon Kreider, CPA and managing partner at Western, said during a presentation at a recent Silicon Valley Association of Realtors meeting.
Here are some provisions that are set to sunset at the end of 2025:
Estate and gift tax
The estate tax and gift tax provisions significantly increased an individual’s lifetime exclusion – the amount a person can give during their lifetime and pass on to others at their death without it being subject to estate and gift tax.
Before the 2017 tax changes, the lifetime exclusion was $5.49 million. The Jobs Act increased this amount to $11.42 million. With the annual inflationary increase, the 2024 lifetime exclusion per person is $13.6 million. In 2026, the lifetime exclusion amount will return to $5.49 million (with adjustments for inflation that amount would be an estimated $6.4 million).
State and local tax deductions
The state and local tax (SALT) deduction allows taxpayers to deduct certain state and local taxes to reduce their federally taxable income. The Jobs Act capped the state and local tax deduction at $10,000, which has impacted taxpayers in high-tax states, such as California.
Kreider said that currently, many homeowners don’t see financial benefits in moving because interest rates are high, and they would not be able to deduct much of their mortgage interest and large property tax bill due to the SALT limitation. There have been many proposals on how to change this provision, but Congress has not taken any action.
In addition, the Jobs Act limited the home mortgage interest deduction to the first $750,000 of debt (for married couples filing jointly) for any loan originating on or after Dec. 16, 2017. The mortgage interest deduction will return to prior levels in 2026, which would allow interest to be deducted on the first $1 million of mortgage debt and $100,000 in a home equity loan.
Tax rates and brackets
The Jobs Act lowered the tax rate individuals pay as a percentage of their income, decreasing the top rate to 37% from 39.6%. If Congress does not do anything, the top tax will return to 39.6% on Jan. 1, 2026.
Standard deductions
The standard deduction is a specific dollar amount that reduces the amount of income on which an individual is taxed. The Jobs Act nearly doubled the standard deduction from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for those married and filing jointly. Every year, the IRS makes adjustments to the standard deduction to account for changes in the cost of living. The standard deduction in 2023 was $13,850 for single filers and $27,700 for those filing jointly.
Starting in 2026, the standard deduction will return to its pre-Jobs Act rate.
Personal and investment properties
Kreider said many changes have been suggested for tax rates on the sale of a personal residence, deductions for investment property depreciation, and capital gain tax deferrals for property exchanges, known as a 1031 exchange. Congress, she said, has not acted on any changes or limitations to the 1031 tax exchanges.
“Tax deferred exchanges are alive and well,” Kreider said.
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.