As some of you may know, the current tax rates are set to expire at the end of 2025 unless Congress intervenes. It is important to address these changes now, as they may impact most, if not all, of our clients.
Currently, the SALT (State And Local Tax) deduction is capped at $10,000, but this would expire in 2025 (however, it is subject to phaseouts at higher income levels). The mortgage interest deduction is set to increase from interest on $750,000 of qualified debt to $1,000,000 (there would also be an additional $100,000 of home equity interest if it is considered qualified). Lastly, miscellaneous deductions would be available once again (i.e., investment fees).
Personal exemptions would once again appear at $4,050 per taxpayer and qualified dependents (however, phaseouts apply to this figure at higher income levels), but the standard deduction would be cut in half. For 2023, the standard deduction is $27,700 for couples and $13,850 for individuals. AMT, or Alternative Minimum Tax, would also apply to many more taxpayers due to lower phaseouts for income and lower exemptions.
The lifetime exclusion amount for estate tax is currently $12,920,000 per person. The exclusion is set to be reduced by about half in 2025. A high-net-worth family may want to explore gifting strategies before the current exclusion changes.
Please call us with any questions; there may be other strategies we want to implement, including giving additional QCDs (Qualified Charitable Distribution) from your IRA, or combining a few years’ worth of charitable distributions into one year to itemize your deductions, and then taking the standard deduction the following year. These strategies are on a case-by-case basis, which we are more than happy to discuss with you. Again, if Congress acts, these changes may not occur, but we would rather review these changes now and formulate our customized plan with you ahead of time.
*Cox (2022). “Preparing for the 2025 Tax Sunset.” Creative Planning, https:// creativeplanning.com/insights/taxes/preparing-for-the-2025-tax-sunset/
**Schamis (2022). “What to Do Before the Tax Cuts and Jobs Act Provisions Sunset.” Kiplinger, https://www.kiplinger.com/taxes/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset