On October 22, 2024, the Internal Revenue Service (IRS) released its annual inflation adjustments or tax year 2025 covering updates to more than 60 tax provisions. These adjustments will affect tax returns filed in 2026. More importantly, however, are the election results that occurred a few weeks later, which will no doubt result in an extension of many of the Tax Cuts and Jobs Act (TCJA) provisions passed in 2017. This article will highlight some of the inflation adjustments and how President Donald Trump’s election with a Republican-controlled Congress will affect tax planning in 2025 and beyond.
1. Notable Changes for Tax Year 2025
Every fall, the IRS releases a revenue procedure that adjusts more than 60 tax provisions for inflation. Last year the revenue procedure was released in November, but the IRS came early this year and released Revenue Procedure 2024-40 in late October. Since 2018, the IRS has used the Chained Consumer Price Index (C-CPI) to adjust tax thresholds, and this year that index increased by 2.8 percent. The Internal Revenue Code (IRC) provisions are highlighted in the relevant sections below as reference.
Ordinary Income Tax Rate Tables
The current TCJA tax rates will likely be extended by Congress past 2025 with a Republican-controlled Congress. The previous rates, which capped out at 39.6%, will no return after 2025. This means that most taxpayers will keep the savings they received on their 2018 tax return.
| TCJA Tax Rate |
Married Joint IRC § 1(j)(2)(A) |
Head of Household IRC § 1(j)(2)(B) |
Single IRC § 1(j)(2)(C) |
Estates and Trusts IRC § 1(j)(2)(E) |
| 10% | $0 to $23,850 | $0 to $17,000 | $0 to $11,925 | $0 to $3,150 |
| 12% | $23,850 to $96,950 | $17,000 to $64,850 | $11,925 to $48,475 | |
| 22% | $96,950 to $206,700 | $64,850 to $103,350 | $48,475 to $103,350 | |
| 24% | $206,700 to 394,600 | $103,350 to $197,300 | $103,250 to $197,300 | $3,150 to $11,450 |
| 32% | $394,600 to $501,050 | $197,300 to $250,500 | $197,300 to $250,525 | |
| 35% | $501,050 to $751,600 | $250,500 to $626,350 | $250,525 to $626,350 | $11,450 to $15,650 |
| 37% | $751,600 and over | $626,350 and over | $626,350 and over | $15,650 and over |
Capital Gains Rate Tables
The tax rate for capital gains is based on taxable income as it appears on line 15 of Form 1040. Taxpayers with taxable income under the “Maximum 0% Rate” amount will owe no income tax on capital gains under that threshold. Taxpayers with taxable income above the “Maximum 15% Rate” will owe 20% on their capital gains even if their capital gains are less than the Maximum 15% Rate Threshold. In other words, a taxpayer with $1,000,000 of taxable income and $20,000 of capital gains will pay at the 20% capital gains rate, and not the 0% rate.
| Filing Status – IRC § 1(h),(j)(5) | Maximum 0% Rate | Maximum 15% Rate |
| Married Joint | $96,700 | $600,050 |
| Heads of Household | $64,750 | $566,700 |
| Single | $48,350 | $533,400 |
| Estates and Trusts | $3,250 | $15,400 |
Before 2018, taxpayers would remain in the “Maximum 0% Rate” if they fell within the 10% or 15% ordinary income tax brackets. Taxpayers would remain in the “Maximum 15% Rate” if they fell within the 25%, 28%, 33% or 35% ordinary income tax brackets and taxpayers would pay 20% capital gains tax rate if they fell within the 39.6% ordinary income tax bracket. After the election, the current capital gains rate adjustments, which are no longer tied to the ordinary income tax rates, are likely to continue past 2025.
It is notable that the actual tax rate paid by taxpayers often includes the Net Investment Income Tax (NIIT) of 3.8%. As such, some taxpayers in the “Maximum 15% Rate” will pay 18.8% on their capital gains and taxpayers paying 20% capital gains rate will pay 23.8% on their capital gains.
Qualified Business Income (QBI) – IRC § 199A
The TCJA added the QBI deduction in 2018. The QBI deduction allows for business owners to deduct up to 20% of their business’ taxable income. The purpose of the QBI deduction was to ensure small business owners retained the beneficial treatment of pass-through entity taxation after the decrease of the corporate income tax rate to 21% from 35%. The phase-out and termination thresholds are provided below.
| Filing Status | Phase-Out Threshold | Termination Threshold |
| Married Individuals Filing Joint Returns | $394,600 | $494,600 |
| All Other Returns | $197,300 | $247,300 |
It is likely that the Republican-controlled Congress will extend the QBI deduction past 2025.
Valuation of Qualified Real Property in Decedent’s Gross Estate – IRC § 2032A
For an estate of a decedent dying in 2025, if the executor elects to use the special use valuation method for qualified real property, the aggregate decrease in the value of qualified real property resulting from election cannot exceed $1,420,000.
Unified Estate and Gift Tax Credit – IRC § 2010
The Unified Credit allows for an individual to gift and devise an amount up to the threshold amount without incurring the 40% gift and estate tax. The TCJA doubled the Unified Credit in 2018. That increase was set to decrease back to the previous amount, adjusted for inflation, after 2025. It is likely that the Republican-controlled Congress will extend the increase to Unified Credit past 2025.
| Gift Giver | Threshold |
| Individual Gift Giver | $13,990,000 up from 13,610,000 in 2024 |
| Married Couple Gift Giver | $27,980,000 up from $27,220,000 in 2024 |
Annual Exclusion for Gifting – IRC § 2503
The annual exclusion for gift giving has been increased from 2024.
| Gift Giver | Threshold |
| Individual Gift Giver | $19,000 up from $18,000 in 2024 |
| Married Couple Gift Giver | $38,000 up from $36,000 in 2024 |
| Domestic Spouse Gift Giver to Foreign Spouse | $190,000 up from $185,000 in 2024 |
With President Trump and the Republican-controlled Congress, it is likely that many TCJA provisions will be extended past 2025. However, some provisions may be adjusted. There are rumors that President Trump wants to either eliminate the $10,000 state and local tax (SALT) cap or increase it to $50,000. This would generate additional tax savings for middle America.
President Trump has also proposed the following tax adjustments:
- Decreasing the corporate income tax rate to 15% for manufacturers and 20% for all other corporate taxpayers. The current tax rate is 21%. Before 2018, the corporate tax rate was 35%.
- Allowing for some taxpayers to take an itemized deduction for auto-loan interest. This deduction would likely have a phase-out for high-income earners.
- Exempting overtime and tip income from taxable income. This statute would likely be accompanied by significant regulation that would ensure only certain income qualifies as overtime and tip income. This exemption would likely have a phase-out for high-income earners.
- Imposing a universal tariff on all US imports of 20%. Such tariffs have incorrectly referred to as a national sales tax. Rather, any increase of pricing to imports would be inflationary. Nevertheless, such tariffs would likely result in American businesses bringing manufacturing back to the United States.
- Restoring IRC § 168(k) 100% bonus depreciation, which currently stands at 40% in 2025. Bonus depreciation allows for businesses to deduct the full price of certain business property in the first year the property is put into use.
- Exempting social security from taxable income.
It is likely that one of the first tasks of the new Congress will be to pass President Trump’s tax plan. Expect for that to occur before April of 2025.
