The election has concluded giving former President and now President-Elect Donald J. Trump control of the White House come January. The Republican Party will have a majority in the Senate. As of the writing of this blog, they have 53 seats with one race uncalled. The Republican Party also leads the Democratic Party in seats in the House of Representatives, now controlling 219 seats with 3 races uncalled. Given these numbers, the newly elected President will have the support of the Senate and the House for legislation he wants to pass. While campaigning, Donald Trump floated several tax policy ideas including extending the expiring Tax Cuts and Jobs Act of 2017 (“TCJA”) changes currently set to occur on January 1, 2026, restoring the unlimited deduction for State and Local Taxes (“SALT”), exempting various types of income from imposition of income tax, and imposing new tariffs on imported goods. Let’s investigate the potential implications for nation’s tax landscape.
If President-Elect Trump extends the expiring provisions of TCJA that will impact the Estate Planning world directly. Trusts and Estate Practitioners may find themselves doing considerably less work than they anticipated. After all, several of us have spent the last two years discussing what would happen should TJCA expire and making suggestions for techniques that those clients could implement in order to utilize the temporarily doubled Applicable Exclusion Amount (“AEA”). The AEA dictates the amount of assets that any individual can transfer during life or at his or her death without imposition of gift or estate tax. Extending or making permanent the provisions of TCJA means even higher AEAs as the years progress. Currently, each taxpayer can pass $13.61 million in assets to any non-spouse without imposition of tax. On January 1, 2025, that amount rises to $13.99 million. Spouses can pass an unlimited amount to their United States citizen spouse. Clients may ask Estate Planning attorneys to review and update plans designed to utilize the temporarily doubled AEA as they consider whether the plan continues to work for their circumstances in light of the increased AEA.
Interestingly, Donald J. Trump suggested that he would allow the $10,000 SALT limitation enacted under the TCJA to expire. The SALT deduction allows taxpayers who itemize their deductions to deduct certain income taxes paid at the state and local levels. TCJA capped the deduction at $10,000. This limitation will impact those living in states with high-income taxes. Residents of those states were unhappy with enactment of the cap, some even going so far as to move to other states to avoid paying income taxes without an offsetting deduction at the federal level. Removing that cap benefits those taxpayers living in high-income states. While this doesn’t directly impact Estate Planning, practitioners in states with high state income taxes may see more clients as former residents move back or as new residents arrive.
Finally, in addition to leaving the income tax brackets as they exist now, Donald J. Trump expressed a desire to exempt Social Security benefits, tips, and overtime pay from income taxation. He also suggested creating a loan for automobile loan interest and a tax credit for family caregivers. Finally, he suggested the enactment of tariffs on foreign goods. While the potential tax implications of each of those exceed the scope of this article, many of these income tax provisions have broad applications and affect more than just the wealthiest of individuals.
Obviously, the proposals that President-elect Donald J. Trump decides to enact will determine the impact on our tax planning landscape, possibly for years to come. At this moment, it’s hard to predict whether any of these proposals will come to fruition. It’s easy to make promises when campaigning, it isn’t always as easy to enact legislation keeping those promises. Sometimes other priorities appear or the incoming administration encounters roadblocks. In this case, Donald J. Trump enacted the original legislation on which he campaigned which might mean that it’s given higher priority than other issues. Further, he has the benefit of a House and Senate aligned politically which theoretically means fewer barriers to passage. No matter what happens in the coming months, count on me to keep you informed.