3 Ways the TCJA Expiration Could Impact Your Finances
“A Trump presidency could be favorable or unfavorable to your taxes depending on which aspects are most relevant to your situation,” said Noah Damsky, CFA, principal “For example, some would benefit from SALT limitations expiring, while others could see effectiveness rates tick higher by a decline in the standard deduction.”
Formally known as the State and Local Tax Deduction, SALT is used by taxpayers who itemize their deductions to lower their federally taxable income. These people are able to deduct up to $10,000 of property, sales or income taxes they’ve already paid to state and local governments.
Damsky also noted the significance of the TCJA tax legislation and the potential for it to affect your finances if Trump is elected and renews it.
“If Republicans can also secure the House and Senate, this would increase the probability of extending Trump’s landmark TCJA tax legislation.”
He said retirees could be most affected by the expiration of the TCJA in the following three ways.
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1. Eliminating SALT Limitations
“If TCJA expires, eliminating SALT limitations means more deductions, especially for those in high-income and property tax states,” he said. “This is especially relevant for retirees with real estate rental income, as they could see significant tax savings by offsetting rental income.”
The SALT deduction is popular with taxpayers in high-tax states and filers with high incomes, because it allows them to avoid double taxation. If you fit into this category, your tax liabilities could go up.
2. Decrease in Standard Deductions
“A decline in the standard deduction could mean a higher tax bill,” he said. “If TCJA sunsets, the standard deduction could be cut by almost half.”
This could mean you ultimately end up paying more to Uncle Sam.
“For retirees with few itemized deductions such as state and property taxes, your tax bill might go up,” he said.
3. Possible Changes to Mortgage Interest Deduction
“Currently under TCJA, home mortgage interest is deductible up to the first $750,000 of mortgage debt,” he said. “This limit would increase to $1 million if TCJA expires as currently scheduled.”
Depending on the size of your mortgage, this could be beneficial.
“This means retirees with a mortgage of over $750,000 would benefit if TCJA sunsets,” he said.
If this is you, you might end up with more money in your wallet if TCJA expires as planned in 2025.