New Gavels, Same Code: What the Midterm Elections Mean for Tax Planning

The midterm elections changed the balance of power in Washington, but they didn’t change current federal tax rules. The 2025 tax law remains in effect, and it made most of the 2017 tax cuts permanent, so no sweeping expiration cliff is forcing Congress to act, though a few narrower provisions have lapsed or are close to expiring.

Democrats won majorities in both chambers of Congress, and a Republican remains in the White House. The new Congress begins on January 3, 2027. Until then, the current Congress stays in place.

The lame duck session: What could move before year-end

The lame duck session is the stretch between the election and when the new Congress is sworn in. The key date is December 11, when current government funding expires, and lawmakers who write tax law hope to attach tax provisions to whatever year-end legislation emerges.

Possible tax provisions include:

Expiring provisions (often called extenders)

Provisions that could be extended include the Work Opportunity Tax Credit (WOTC), the §48D semiconductor manufacturing credit, and a few smaller business provisions. The list is far shorter than in past years.

WOTC lapsed for hires after December 31, 2025, so any renewal would likely apply retroactively to January 1, 2026. The §48D credit is now 35% for property placed in service after 2025, but it applies only to property whose construction begins by December 31, 2026, so waiting for an extension could cost a taxpayer the credit.

Film and television production credit

A proposed credit of 20% (up to 30% with add-ons) is being pursued on a bipartisan basis, and supporters hope to attach it to a year-end tax package. The cost of the credit is likely to shape its prospects.

Tax administration

The bipartisan Taxpayer Assistance and Service Act, which would improve IRS taxpayer service, passed the Senate with no opposition and now awaits House action. IRS funding and staffing levels may also be part of the discussion. Any unfinished taxpayer-service measures could carry over to the new Congress.

Digital asset taxes

The Digital Asset Tax Certainty Act, which primarily addresses the tax treatment of digital assets, also includes a fix to the 90% cap on deducting gambling losses that took effect in 2026. The House Ways and Means Committee advanced it by a bipartisan 38–5 vote, but the full House has not acted. The Senate has a separate bill, so the two chambers would need to work out the differences.

The wild card is another reconciliation bill before the new Congress begins. Lawmakers have expressed differing views on whether to try, and the choice could affect the odds for bipartisan proposals.

What you do next depends on the outcome:

• If a package passes: Review the final provisions and update your 2027 projections.
• If it stalls: Keep planning under current law and revisit your plan if the provisions return.

Plan on a short, bipartisan package at best, and don’t count on expiring provisions until they’re signed. These provisions have a history of arriving at the last minute with retroactive effective dates.

The new Congress: Where common ground could appear

A Democratic-led Congress can pass legislation, but without a two-thirds majority in either chamber it cannot override a presidential veto (the White House is still governed by a Republican), so watershed tax legislation in 2027 is unlikely. Even with divided control, some topics draw support from both parties. Possible areas of overlap include:

Health and energy credits

Both parties have emphasized affordability. Enhanced health coverage premium credits that expired after 2025 and energy incentives changed in the 2025 tax law may be part of the discussion.

Unfinished business

The film credit, WOTC, and the semiconductor manufacturing credit could carry over if they don’t pass in the lame duck session. Lawmakers may also consider the deductions for tips, overtime, car loan interest, and seniors, which end after 2028.

The 2025 tax law raised the federal borrowing limit, known as the debt limit, and the government is expected to reach it in 2027. Must-pass bills like a debt limit increase often attract tax provisions.

A 2027 debt-limit bill may be the likeliest next vehicle for a bipartisan tax package, and credits aimed at affordability are among the likelier candidates. Expect more hearings and discussion than new legislation.

A word on tariffs

Tariffs may be the area where Congress has the most room to act. Some Republican free-trade advocates could join Democrats to scale back the President's tariff authority and some of the tariffs already imposed. A veto override would still require two-thirds of both chambers, which is a high bar, but this is one issue where it’s not out of reach.

Tax proposals to watch ahead of 2028

Proposals introduced now often shape the 2028 debate, and potential candidates from both parties are expected to put forward tax plans before then. Ideas vary widely, and themes that have surfaced include:

Borrowing against assets

Ideas under discussion would tax large loans taken against investments that have gained value, as an alternative to selling them.

Large retirement balances

Proposals would limit further retirement account contributions for higher-income taxpayers once balances pass a set threshold.

Insurance products

Proposals would change how certain life insurance policies used mainly as investments are taxed.

Technology sector taxes

Some plans would raise revenue from artificial intelligence companies and data centers.

These proposals show where the debates could center: How loans against investments are taxed, how large retirement balances are treated, and how certain investment-style life insurance policies are taxed.

Tax planning you can do now

Tax planning after the midterm elections comes down to four business decisions: hiring, capital investment, entity structure, and compensation. Divided government makes sweeping tax change less likely in the near term, which gives you room to make those decisions.

Keep planning under current law

Base 2027 projections, estimated payments and business structure decisions on the law as written, and revisit them if legislation is signed.

Maintain documentation for provisions that could be extended

Keep organized records for WOTC-eligible hires, §48D project costs and milestones, and 2026 gambling wins and losses. Track qualifying tips, overtime, and car loan interest as well, since those deductions are scheduled to end after 2028 and could be extended. Clear records also help support the credits and deductions you claim if questions come up.

Treat 2028 proposals as items to watch

Hold off on building plans around 2028 proposals, and revisit your plan if one gains momentum.

Talk with your tax advisor before year-end

Review which provisions apply to you and what documentation to keep.

How CLA can help with tax planning after elections

Planning around a Congress that hasn’t acted yet means making hiring, investment, and compensation decisions without knowing which provisions will last.

CLA’s tax advisors can help you build 2027 projections under current law and model how a year-end package could change them. Our tax credits and incentives team helps you document WOTC hires and project costs so you can claim credits if Congress extends them. Wealth advisors help higher-income individuals weigh the 2028 proposals against their retirement and investment plans.

We can also help you shape a tax strategy and outlook built on the One Big Beautiful Bill Act (OBBBA) and update it as new legislation takes shape.

Contact us

Turn midterm uncertainty into a clear 2027 tax strategy. Complete the form below to connect with CLA.