The 2024 Election's Impact on Future Tax Legislation

Donald Trump is set to return as president in 2025. Alongside this, the Republicans will control the Senate and hold a majority in the House. With legislative control of Congress, the Trump administration will have the opportunity to implement substantial tax reforms impacting both businesses and individuals. Prior to the election we discussed Key Election Year Tax Issues for Business Owners. In this article we summarize all the potential tax implications, for businesses and individuals, of the new Trump administration.  

A major component of the Trump tax policy is to make permanent the expiring components of the Tax Cuts and Jobs Act of 2017 (TCJA): 

1. Individual tax rates
   • The current TCJA individual tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. 
2. Standard deduction 
   • The standard deduction was increased substantially by TCJA and is indexed annually for inflation. In 2023, the standard deduction was $13,850 Single and $27,700 Married Filing Jointly.   
3. Itemized deductions
   • SALT cap
     • TCJA capped the state and local tax (SALT) deduction at $10,000, limiting many taxpayers on the amount of real estate taxes and state withholding taxes they could deduct on their federal returns.  During the campaign Trump indicated that he is in favor of either repealing the SALT cap or expanding the deduction by increasing it to $20,000.  
       
   • Mortgage interest 
     • Under TCJA, interest is limited on loans over $750,000 that originated after December 16, 2017, and there is no interest deduction allowed for home equity loans.  
   • Miscellaneous itemized deductions 
     • The TCJA suspended miscellaneous itemized deductions, such as attorney fees, advisory and investment fees, casualty and theft losses, and unreimbursed employee fees.  
4. Other items
   
   • Child tax credit
     • Under TCJA, the child tax credit is $2,000 per qualifying child, with phaseout thresholds of $200,000 Single and $400,000 Married Filing Jointly. 
   • Personal exemptions
     • The TCJA suspended personal exemptions. 
   • Alternative Minimum Tax (AMT) 
     • The TCJA increased the exemption amounts and phaseout thresholds for AMT, which meant fewer taxpayers were subject to the AMT tax.  
5. Section 199A pass-through business deduction 
   • TCJA provided a deduction for individuals, including S corporation shareholders, partners and LLC members, equal to 20% of their qualified business income. 
6. Higher estate and gift tax exemption amounts 
   • TCJA doubled the individual estate tax exemption, which is currently $13,610,000 and is effectively doubled to $27,220,000 for married couples. 
   • The annual gift tax exclusion also increased, for 2024 the annual per recipient exemption is $18,000 and is increased to $36,000 for gifts made with a spouse. 

Although not explicitly stated, other possible TCJA related business tax changes include: 

• Restore the TCJA 100 percent bonus depreciation – without legislation bonus depreciation would decrease to 40% in 2025 and 20% in 2026. 
• R&D expensing – repeal the rule requiring 5-year amortization of research and development expenses. 
• Modify the business interest deduction limitation to be based on EBITDA.

In addition to making most, if not all, of the TCJA provisions permanent, President Trump has also indicated that he may propose the following tax provisions: 

• Allow a deduction for interest on loans to purchase automobiles made in the U.S.  
• Allow a deduction for the cost of home generators in states hit by natural disasters. 
• Expand qualifying tuition programs to cover homeschooling. 
• Eliminate income tax on Social Security benefits.  
• Exclude tips from income tax and payroll tax.
• Exclude overtime pay from tax, though it is unclear whether this applies solely to income tax or to both income and payroll tax. 
• Eliminate double taxation for U.S. citizens overseas. 
• Repeal energy tax incentives enacted under the Inflation Reduction Act. 
• Provide tax incentives for first-time homebuyers.

It is uncertain how much of the Trump tax agenda will be enacted. We will continue to monitor these issues and provide timely updates when and where appropriate. 

Please contact your Herbein tax consultant if you have any questions regarding this article or tax planning strategies related to tax implications of the 2024 election. 

Article contributed by Sarah R. Knox