Tax Cuts and Jobs Act

Open full sized image

How does it affect your tax situation?

© igorkol_ter/stock.adobe.com

The Tax Cuts and Jobs Act (TCJA), signed into law by President Donald Trump on December 22, 2017, introduced significant changes to the federal U.S. tax code. Its primary goals were to reduce taxes for many American individuals, households, and corporations, reduce tax paperwork, and ease recordkeeping.

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.

While household tax changes often garnered more media attention, numerous TCJA provisions also affected businesses.

However, many of these provisions were written with a 2025 “expiration date,” prompting the need for an update. This update came in the form of the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, which made adjustments to the expiring provisions of the TCJA. The TCJA, therefore, remains a significant milestone in U.S. tax policy, with its full impact only fully realized after the legislative actions taken in 2025.

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.

The higher, inflation-adjusted standard deduction was extended under the OBBBA. In the 2026 tax year, the standard deduction rises to $15,750 for single filers and $31,500 for married individuals filing jointly.

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 made the child tax credit more beneficial for low-income families, who could potentially convert more of the child tax credit into a tax refund.

Under the OBBBA, the child tax credit was raised to $2,200, with annual inflation adjustments and a maximum refundable amount of $1,700.

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 were extended under the OBBBA.

To help offset revenue lost from other tax cuts, the TCJA placed a $10,000 cap on the state and local tax (SALT) deduction. (Those married and filing separately could only deduct up to $5,000.) Previously uncapped, the limit primarily affected those in high-tax states, where property, income, and sales taxes often exceeded $10,000.

Under the OBBBA, the SALT deduction was raised from $10,000 to $40,000 for the 2025–2029 tax years, and, unless modified, will revert to $10,000 in 2030.

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 remained subject to the prior $1 million cap.) The change—which prevented 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.

The OBBBA made the $750,000 cap permanent, and also required mortgage insurance premiums to be included in the $750,000 limit.

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.

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—the elimination of Roth recharacterization is a permanent change to the U.S. tax code.

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 let these owners deduct up to 20% of qualified business income (QBI) from their taxable income. This deduction lowered 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 QBI deduction was made permanent in the OBBBA and expanded eligibility through higher phase-in thresholds.

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.

Provisions in the TCJA limit deductions for several types of business expenses:

Also, some benefits given to employees may no longer be deducted on corporate tax returns:

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 Tax Cuts and Jobs Act brought significant changes to the federal U.S. tax code, many of which were set to expire at the end of 2025. These provisions were subsequently addressed by the One Big Beautiful Bill Act (OBBBA), which extended or modified key aspects of the TCJA. While the TCJA’s provisions were temporary by design, the landscape of U.S. tax policy continues to evolve, with further adjustments likely as new laws take shape in the years ahead.