- Introduction
- 1. The standard tax deduction nearly doubled
- 2. The child tax credit doubled
- 3. Marginal tax rates were lowered for most tax brackets
- 4. The state and local tax deduction was capped
- 5. The mortgage interest deduction cap was lowered to mortgages under $750,000
- 6. The estate tax exemption threshold more than doubled
- 7. The ability to recharacterize Roth IRA conversions was eliminated
- 8. The qualified business income deduction was introduced
- 9. The corporate tax rate was reduced to 21%
- 10. New business tax deduction limits were introduced
- The bottom line
Tax Cuts and Jobs Act
- Introduction
- 1. The standard tax deduction nearly doubled
- 2. The child tax credit doubled
- 3. Marginal tax rates were lowered for most tax brackets
- 4. The state and local tax deduction was capped
- 5. The mortgage interest deduction cap was lowered to mortgages under $750,000
- 6. The estate tax exemption threshold more than doubled
- 7. The ability to recharacterize Roth IRA conversions was eliminated
- 8. The qualified business income deduction was introduced
- 9. The corporate tax rate was reduced to 21%
- 10. New business tax deduction limits were introduced
- The bottom line
- Location:
- United States
Are you a taxpayer in the U.S.? Then you need to know the rules that determine your tax obligations. The Tax Cuts and Jobs Act (TCJA)—signed into law by then-president Donald Trump on December 22, 2017—is significant legislation that altered many parts of the federal U.S. tax code. The goals of the act were to lower the taxes of many American individuals, households, and corporations, reduce tax paperwork, and make recordkeeping easier.
The TCJA impacted households and individuals by raising the standard deduction, child tax credit, and estate tax, lowering marginal tax rates, setting caps on deductions for mortgage interest and state and local taxes, and other provisions.
Key Points
- The TCJA streamlined many aspects of U.S. tax law.
- Businesses and individuals are both affected by the TCJA, but differently.
- Congress can choose to uphold temporary aspects of the TCJA after 2025.
Although the household provisions seem to have gotten more news coverage, there are quite a few components of the TCJA that affected businesses.
Individuals, households, and businesses are all affected by the Tax Cuts and Jobs Act. And with many of its provisions set to expire at year-end 2025, the U.S. tax code is likely to change yet again. Here’s an overview of the act and its key features.
1. The standard tax deduction nearly doubled
The Tax Cuts and Jobs Act substantially increased the standard tax deduction, bumping it from $6,500 for single filers in 2017 to $12,000 in 2018. (The rates for married couples filing jointly and heads of household were similarly increased.) The standard deduction has continued to rise with inflation adjustments for each subsequent tax year. The sharp increase has prompted many more taxpayers to use the standard deduction rather than itemize their tax-deductible expenses.
But that increase is temporary and set to expire at the end of 2025, unless Congress passes an extension. With no extension, the standard deduction in 2026 will return to pre-TCJA levels, adjusted for inflation.
2. The child tax credit doubled
The TCJA doubled the child tax credit from $1,000 to $2,000 per qualifying child under age 17. The act also increased the refundability of the credit, allowing up to $1,400 to be refunded in 2018 (indexed to inflation in subsequent years) even if the taxpayer owes less than the total credit amount. Boosting refundability makes the child tax credit more beneficial for low-income families, who can potentially convert more of the child tax credit into a tax refund.
As with most tax provisions for individuals in the TCJA, this enhanced child tax credit is set to expire at year-end 2025. If not extended, the credit will revert to its previous level of $1,000 per child.
3. Marginal tax rates were lowered for most tax brackets
A major provision of the Tax Cuts and Jobs Act was that it lowered marginal tax rates for individuals across the majority of income brackets. The TCJA maintained the seven-bracket marginal taxation structure, but changed the bracket limits and reduced the tax rate for five of those brackets by 1% to 4%.
Lowering the marginal tax rates reduced tax liability broadly for many Americans, with the wealthiest households benefiting the most in terms of absolute dollars. These lower marginal tax rates are temporary and will expire after 2025 unless extended by Congress.
Where did my personal exemption go?
The TCJA eliminated personal exemptions for taxpayers, their spouses, and dependents (although children under 17 are covered by the child tax credit). If not extended past 2025, personal exemptions will resume at rates adjusted for inflation and will phase out with higher income levels.
4. The state and local tax deduction was capped
To help offset revenue lost from other tax cuts, the TCJA placed a $10,000 cap on the state and local tax deduction. (Those married and filing separately can only deduct up to $5,000.) Previously uncapped, the limit primarily impacts those in high-tax states, where property, income, and sales taxes may easily exceed $10,000.
This provision is another that’s set to expire at the end of 2025 unless extended or revised by Congress.
5. The mortgage interest deduction cap was lowered to mortgages under $750,000
The Tax Cuts and Jobs Act reduced the limit on the mortgage interest deductions from mortgages of $1 million down to $750,000 for new home loans originated after December 15, 2017. (Home loans originated on or before this date remain subject to the prior $1 million cap.) The change—which prevents homeowners from deducting the portion of interest paid on mortgage debt above $750,000—primarily affects taxpayers in expensive housing markets where home prices commonly exceed $750,000.
Unless Congress acts, the cap on mortgage interest deductions will revert back to $1 million starting in 2026.
6. The estate tax exemption threshold more than doubled
The TCJA increased the threshold for the federal estate tax from $5.49 million per individual in 2017 to $11.18 million per individual in 2018 (with the threshold continuing to rise annually in subsequent years with inflation). This dramatic increase reduced the number of estates subject to the 40% federal estate tax that’s assessed when the estate is passed to heirs.
This change is also temporary, scheduled in 2026 to revert back to 2017 levels (plus increases for inflation) unless Congress approves an extension.
7. The ability to recharacterize Roth IRA conversions was eliminated
Before the TCJA was implemented, an investor who converted a traditional IRA to a Roth IRA could “recharacterize” (or undo) the conversion if it proved not to be beneficial. The TCJA eliminated this recharacterization option, obligating investors to approach IRA conversions more cautiously.
No going back—this change to the U.S. tax code is permanent in 2025 and beyond.
8. The qualified business income deduction was introduced
The Tax Cuts and Jobs Act introduced a new tax deduction for qualified business income (QBI). Structured for owners of pass-through businesses like sole proprietorships, partnerships, and S corporations, the TCJA lets these owners deduct up to 20% of qualified business income from their taxable income. This deduction lowers the effective tax rate for small businesses and entrepreneurs.
As with most tax deductions, the QBI deduction is subject to income thresholds. If you earn more than $191,950 (as a single filer) in 2024, your ability to use the QBI deduction starts to diminish.
The provision for QBI deductions in the Tax Cuts and Jobs Act is temporary, expiring at the close of 2025.
Was there more to this tax act?
The TCJA is a complex piece of legislation with hundreds of minor provisions. Did you know you can no longer deduct moving expenses in your itemized deductions (unless you are in the military)? Did you know that 1031 like-kind exchanges can now be only real property (not art or vehicles)? And if you receive small awards or benefits from work, they may now be added to your income. Your tax software should help you follow any new rules that might be obscure.
9. The corporate tax rate was reduced to 21%
The TCJA lowered the corporate tax rate from 35% to 21%—one of the most substantial tax code changes to result from the act. This reduction, which is permanent beyond 2025, was aimed at stimulating economic activity in the private sector. The corporate alternative minimum tax was also repealed (a new version of that tax would be implemented later with the Inflation Reduction Act of 2022).
In addition to reducing the tax rates, the TCJA allowed businesses to fully deduct the cost of (i.e., depreciate) certain capital investments (like equipment) in the year purchased instead of spreading it out over several years.
10. New business tax deduction limits were introduced
Provisions in the TCJA limit deductions for several types of business expenses:
A corporate earnings crash course
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- The deduction for interest expenses was limited to 30% of adjusted taxable income, applicable to businesses with gross receipts in 2024 above $30 million.
- Net operating losses are no longer fully deductible and cannot be carried back to prior years. The deduction is limited to 80% of taxable income.
- Before passage of the TCJA, 1031 like-kind exchanges could be used for both real property and personal property such as equipment, vehicles, and artwork. The Tax Cuts and Jobs Act restricted the use of like-kind exchanges exclusively to real property.
- There are new rules about taxes on foreign earnings.
- Companies may now deduct only 50% of the cost of meals for meeting or advertising purposes.
- Entertainment expenses may no longer be deducted.
Also, some benefits given to employees may no longer be deducted on corporate tax returns:
- Deductions for expenses related to employee transportation—such as mass transit or parking passes—were eliminated.
- The deduction for the cost of employee meals and snacks provided on-premises dropped to 50%, and is set to be completely eliminated by 2026.
- There are various rules with lower deductibility caps regarding non-cash achievement awards—things like anniversary gifts—that employers must follow.
A key objective of the new tax deduction limits is to offset losses in revenue from other tax cuts. All of these deduction limits are permanent beyond 2025.
The bottom line
The Tax Cuts and Jobs Act brought significant changes to the federal U.S. tax code, but many of those changes are scheduled to expire at year-end 2025. Congressional debate over tax rules is likely during 2025 as lawmakers grapple with whether to extend, modify, or let the expiring provisions of the TCJA lapse (“sunset”). The U.S. tax code is constantly evolving in planned ways; it’s likely to undergo important changes starting in 2026.