President Trump campaigned on a good many issues – but taxes were high on the list. He proposed no income tax on Social Security, overtime pay, or tips. The tax cuts enacted in the 2017 Tax Cuts and Jobs Act (TCJA) would be made permanent or at least extended.

Costly proposals, all of them! And at present, the President and Congressional Republicans, along with the ubiquitous Elon Musk, the unpaid head of the newly created Department of Governmental Efficiency (DOGE) are exploring the ways they might cut – spending cuts in energy, transportation, education, health, welfare, customs, immigration, infrastructure, federal workforce levels are being discussed. So are income taxes and tax breaks.

According to reports, a number of time-honored tax breaks (and some newer ones, too) are under consideration for amendment or elimination.

Among these are:

Home Mortgage Interest Deduction

Prior to enactment of the TCJA, home mortgage interest on mortgage indebtedness for a primary or secondary family home of up to $1,000,000 was tax deductible via itemization on Schedule A of an individual income tax return.

The TCJA pared that back on residences acquired after December 15, 2017 – currently, for these properties, interest on $750,000 is deductible.

If Congress takes no action with respect to taxes, the lower TCJA cap would expire, and interest in $1,000,000 of family home mortgage debt would again be allowed.

However, on Capitol Hill they are discussing further lowering the mortgage debt cap to $500,000.

We can hope they don’t eliminate this deduction altogether – but we don’t think that’s likely.

SALT Deduction

Prior to the TCJA, taxpayers could deduct income, sales, and property taxes paid at the state or local level (state and local taxes = SALT)

The TCJA capped the deduction at $10,000.

The deduction used to have its own line item on individual income tax returns; now, to receive the deduction, the taxpayer has to itemize deductions on Schedule A.

This cap, like many provisions of the TCJA, is set to expire as of midnight, December 31, 2025.

Options being discussed on this subject include:

• A bipartisan bill to repeal al caps on SALT deductions was introduced in the U.S. House of Representatives just a few weeks ago.
• Total elimination of the deduction is another option under discussion.
• Some proposals would keep or increase the cap – by extending the $10,000 limit, but allowing married taxpayers to deduct $20,000, or increasing the cap to $15,000 for single filers, and allowing deductions up to $30,000 for married joint filers.

We consider some version of the last item more likely than either wholesale elimination of the deduction or full passage by both House and Senate of the bipartisan House bill.

Education Tax Breaks

There’s some enthusiasm and momentum behind a push to eliminate several higher-education-related tax breaks and/or credits:

• The $2,000 Lifetime Learning Credit for qualified tuition and related expenses for college and postgraduate students. This credit is available annually, with no limit on the number of years it can be claimed, to eligible students enrolled in an eligible educational institution.
• The American Opportunity Tax Credit (AOTC), a partially refundable $2,500 tax credit to help with tuition and other expenses such as certain required fees and course materials (but not including room and board). This credit is only available during the first four years of a student’s post-secondary education.
• The individual income tax return lime item credit of up to $2,500 for student loan interest.

Also being discussed is making grants for scholarships and fellowships taxable.

Whether any of these proposals will become effective is anyone’s guess – but I’d think not all of them, if indeed, any, are likely to survive.

Tax Breaks For Families

Also on the chopping block are some tax breaks targeted to families with dependent children:

• The child and dependent care credit. The child must be under age 13, and the dependent can be a spouse or other dependent of any age who is either physically or mentally unable to care for themselves, or who is a full-time student and also disabled. Taxpayers who pay outside caregivers while working or looking for work can claim this credit, but earned income of some amount is necessary.
• The head-of-household filing status – individuals now qualifying for this status would have to file as ordinary individuals. This would mean they get a lower standard deduction (in 2025, the individual standard deduction is $15.000, while the head-of-household’s is $22,500), and loss of the special tax brackets for current head-of-household filers.

There’s also discussion of requiring social security numbers for parents claiming the $2,000-per-child tax credit. At present, social security numbers are only required for the child or children.

But this last is certainly revenue neutral.

Other Tax Breaks Under Review

Other proposals concerning tax breaks which are being scrutinized for possible elimination include:

• Green energy initiatives enacted as part of the Inflation Reduction Act of 2022 might well vanish.
• Changes to the Affordable Care Act’s healthcare insurance premium subsidies are being looked at.
• The employee tax exclusion for employer-paid meals, transportation, and other perquisites could be eliminated.
• Private colleges currently pay a 1.4% excise tax on net investment income of private colleges; on the table is an increase to 14%.
• The exclusion of private individual donations to non-profit healthcare organizations, including hospitals, from the list of deductible charitable contributions.

We don’t know what is going to happen with all of this – or any of it. As Yogi Berra famously said,

“It’s tough to make predictions, especially about the future.”

These discussions are unusual – it’s more common – with both parties – to put forth proposed tax cuts or tax breaks of other kinds than to propose eliminating them once they are part of the tax code.

But we will certainly keep our ear to the ground, and what we hear we will report to you, our faithful readers.

If you have, or develop, any concerns about your tax situation, please call Rigby Financial Group. We have an expert tax team ready to help answer any questions and resolve any concerns you have.

Please click here to email me directly – I and my team are always here for you!

Until next time –

Peace,

Eric