TCJA Expiration: What Business Decisionmakers Need to Know

Certain provisions of the sweeping 2017 tax cuts for individuals, families and businesses, known as the Tax Cuts and Jobs Act (TCJA), expire on December 31, 2025. While a large majority of the expiring tax provisions fall in the individual and family category, a number of the business provisions will either expire or be the subject of intense debate over whether to extend or modify the tax benefit.

The November elections have set the table for the direction of the debate next year. A sweep of the House, Senate and White House by Republicans will allow that party the opportunity to implement their favored tax proposals. In addition, during the Presidential campaign, President-elect Trump indicated support for adoption of added tax benefits. Recently, House Budget Committee Chair Jodey Arrington (R-Texas) has indicated fast-track adoption of sweeping tax legislation is seriously being considered, which could even occur in the first 100 days of the new administration of President-elect Trump.

The following are key business tax provisions from the TCJA and other tax laws that will be the central focus of upcoming tax legislation debate:

Corporate Tax Rate

President-elect Trump has proposed going beyond the TCJA’s reduction of the corporate tax rate from a 35% maximum tax rate to a flat 21% rate by decreasing the current corporate tax rate to 15% for domestic manufacturers.

Deduction for Pass-Through Entities

Current Provision: Owners of pass-through businesses (e.g., S corporations, partnerships, and sole proprietorships) can currently deduct up to 20% of their qualified business income (QBI), effectively reducing their taxable income.
Impact of Expiration: The 20% QBI deduction is set to expire at the end of 2025. This will significantly affect small and pass-through business owners, potentially increasing their tax burden. Given the pro-business stance of the new administration, QBIs may be under consideration for extension.

Bonus Depreciation

Congress has worked bipartisanally to restore 100% bonus depreciation., The House cleared such an effort on a bipartisan basis earlier this year as part of the Tax Relief for American Families and Workers Act of 2024. Efforts to restore 100% bonus depreciation will be a central part of the tax package next year.

Current Provision: The TCJA bonus depreciation rules allow businesses to immediately deduct 100% of the cost of qualifying property and equipment in the year they are placed in service.
Impact of Expiration: The bonus depreciation percentage began to phase down starting in 2023, and by 2026, the provision will be entirely phased out, reverting to traditional depreciation methods. This will reduce the incentive for businesses to invest in new equipment or property and thus, may be ripe for extension.

Interest Expense Deduction Limitation (Section 163(j))

The TCJA imposed new limits on the deductibility of interest payments for most businesses. Yet again, Congress, on a bipartisan basis, has worked to eliminate the limits on the deductibility of interest payments, and, the House cleared such an effort earlier this year as part of the Tax Relief for American Families and Workers Act of 2024. Efforts to eliminate the limits on the deductibility of interest payments will be a central part of the tax package next year.

Current Provision: The TCJA limits the amount of business interest expense that can be deducted to 30% of adjusted taxable income. Adjusted taxable income excluded depreciation, amortization, and depletion until the end of 2021. After 2021, it includes these items, lowering adjusted taxable income and further limiting deductible interest.
Impact of Expiration: This provision will become stricter post-2025. Companies will have less room to deduct interest expenses, especially those with high debt loads or significant capital expenditures, potentially increasing their tax liability.

Renewable Energy and Related Tax Credits

The Inflation Reduction Act,enacted in 2022, introduced significant tax credits and incentives for renewable energy, manufacturing, and electric vehicle (EV) production. Republicans and Democrats disagree as to whether some or all of these tax benefits should be eliminated or modified. While Democrats tend to support renewal, many Republicans have called for the elimination of these benefits. As a result, extension of benefits seems unlikely and existing benefits may be on the chopping block so as to raise revenue to support other Republican desired tax cuts. Key provisions include:

Investment Tax Credit (ITC): Provides a tax credit for solar and other renewable energy projects.
Production Tax Credit (PTC): Offers a tax credit based on the amount of energy produced from renewable sources.
EV Tax Credits: Incentives for consumers purchasing electric vehicles, including credits for domestic manufacturing.

Limits on Business Loss Deductions

Current Provision: The TCJA implemented limits on excess business losses for non-corporate taxpayers, which disallowed excess losses exceeding $250,000 (single) or $500,000 (married filing jointly). These limits apply through 2025.
Impact of Expiration: Starting in 2026, these limits on business losses may no longer apply, which could benefit non-corporate business owners who face significant losses. Given the pro-business stance of the new administration, this limit may be one TCJA item that may not get extended unless it is used as a revenue raiser to support other more desirable business tax cuts.

R&D Expense Deduction and Amortization (Section 174)

Congress, on a bipartisan basis, has worked to restore full expensing of R&D expenses, and in fact, the House cleared such an effort on a bipartisan basis earlier this year as part of the Tax Relief for American Families and Workers Act of 2024. Efforts to restore full expensing for R&D expenses will be a central part of the tax package next year.

Current Provision: The TCJA introduced a requirement that businesses amortize their research and development (R&D) expenses over five years, beginning in 2022. Before this, R&D costs could be deducted fully in the year they were incurred.
Impact of Expiration: This requirement to amortize R&D expenses over five years will remain beyond 2025 unless changed. However, businesses will need to adjust to these costs, impacting cash flow over a more extended period rather than taking immediate deductions.

Qualified Opportunity Zones (QOZ)

Current Provision: The Qualified Opportunity Zone program that was adopted as part of TCJA provides tax incentives for investment in economically distressed communities designated as Qualified Opportunity Zones. These incentives are primarily aimed at promoting economic growth and job creation. In order to be eligible for the tax benefits under the Qualified Opportunity Zone program, an investor has to invest capital gain that was realized on or before December 31, 2026.
Impact of Expiration: The impending sunset of benefits has led to hesitancy in committing capital to projects in QOZs, especially if they are unsure about the long-term viability of such investments without the tax incentives.
Prognosis: Legislation, however, has been introduced by Senator Cary Booker and others to extend QOZ benefits through the end of 2028 and make other favorable changes. Since opportunity zones were adopted in TCJA and President-elect Trump has cited opportunity zones as a triumph, legislation extending opportunity zone benefits may be part of the 2025 tax legislation package.

Modification to an Existing Tax Provision and International Tax Rules

Many companies and businesses take advantage of a major tax debate to seek a modification to an existing tax benefit to either make the benefit more favorable to the entity or, in some cases, make the company or business eligible for the benefit. Their efforts are expected to greatly increase as companies and lobbyists see an administration taking a pro-business stance in tax reform.

Also, a global international tax agreement called Pillar Two that was created by the OECD (Organization of Economic Cooperation and Development) was adopted by many countries, including the US, in 2024. Given statements by the administration of separating itself from other international agreements the US has signed (such as the Paris Agreement on climate control), it may not be surprising to see the US back off full compliance with Pillar Two, which may be reflected in the scope of tax provisions that may be adopted.

Buchanan’s Federal Government Relations team stands by to assist in navigating the post-election landscape in Washington and beyond.