Understanding Potential Income, Estate, and Gift Tax Changes Under the Trump Administration

With President Trump again in office, discussions around tax and estate policy changes are gaining traction. While no formal legislation has been enacted, several key proposals could impact individuals, businesses, and estate planning strategies. Understanding these potential changes can help taxpayers prepare for shifts in policy to help make informed financial decisions.

Income tax and tax cuts extension

One of the major discussions surrounding tax policy is the potential extension of the 2017 Tax Cuts and Jobs Act (TCJA), which is set to expire at the end of 2025. The TCJA lowered tax rates across income brackets, and if extended, these rates would remain in place rather than reverting to pre-2017 levels. The higher standard deduction, which significantly reduced the number of taxpayers itemizing deductions, may also be extended. Additionally, potential reform to the child tax credit could adjust eligibility or credit amounts, affecting families across multiple income levels.

State and local tax deduction

The TCJA introduced a $10,000 cap on state and local tax (SALT) deductions, impacting most taxpayers, especially those  in states with an income tax. Proposed changes include removing or increasing the deduction limit, which would benefit taxpayers who face high property and income taxes. However, some lawmakers argue that maintaining the cap helps balance the broader tax cut benefits. The future of this deduction remains uncertain, but it will certainly be a key issue in upcoming tax policy debates.

Business tax implications

The Trump administration may also seek to adjust corporate tax policies. The TCJA lowered the corporate tax rate from as high 35% to 21% flat tax. There is speculation that an extension of these rates could be prioritized to maintain global competitiveness. Another important consideration is bonus depreciation, which allows businesses to deduct the full cost of eligible assets immediately. This provision is set to phase out, but a potential extension could encourage continued capital investments. Additionally, the 20% qualified business income (QBI) deduction for pass-through entities may be extended or modified to further support small businesses and entrepreneurs.

Estate and gift tax considerations

Current estate and gift tax exemptions, which have been significantly increased under the TCJA, are set to sunset at the end of 2025. If the exemption reverts to pre-2017 levels (approximately $7 million per individual with inflation), more estates could become subject to federal taxation. Some policymakers support maintaining the higher exemption, which is currently $13.990 million per individual in 2025. Another potential change involves basis step-up for most assets inherited at death, which helps reduce capital gains tax for heirs. If this provision is eliminated, it could result in higher taxes on inherited assets.

What taxpayers should consider

While legislative details remain uncertain, staying ahead of potential tax and estate changes can help taxpayers make informed decisions.  Contact your wealth advisor to create a strategy that fits into your comprehensive wealth management plan.

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