Major Tax changes are coming in 2026
Cartoon: Don Orehek - Private collection
Major Tax changes are coming in 2026
The 2017 Tax Cuts and Jobs Act (TCJA) brought changes to the tax code: many provisions will be sunset at the end of 2025, and will revert to 2017 levels, adjusted for inflation. This change will be either positive or negative depending on the taxpayer’s situation.
Below a summary of the major tax law changes:
New tax rates: The TCJA created new tax rates and increased the income thresholds before each new marginal tax bracket applied. In 2026 tax rate for capital gains will be again linked to ordinary income tax bracket.
Standard deductions: The Standard Deduction will drop but Personal Exemptions and Unlimited SALT Deductions will be back: In fact, in 2026 the standard deductions for taxpayers younger than age 65 - currently $14,600 (single) and $29,200 (married filing jointly), are expected to decline to $8,300 and $16,600 respectively. However, taxpayers will once again benefit from personal exemptions of $5,300 (per person) - that currently are at $0 - while the current $10,000 per tax return SALT cap, will be eliminated.
Mortgage and HELOC deductions: Starting in 2026, the mortgage interest tax deduction and HELOC rules will revert to pre-2018 levels. Mortgage interest will once again be tax-deductible on larger loans: under the 2017 TCJA, interest on new mortgages is only tax-deductible up to $750,000 of primary or second home’s mortgage. Older loans were grandfathered under the prior limits ($1 million). In addition, before 2018, homeowners could deduct interest on HELOCs up to $100,000, regardless of how the proceeds were used. Between 2018 and 2025, homeowners can only deduct interest on home equity lines of credit if used to buy, build, or improve their residence.
Business deductions: Business owners will lose the 20% qualified business income deduction and bonus depreciation.
Alternative Minimum Tax Exemptions: In 2026, it's expected that the Alternative Minimum Tax Exemptions will be reduced.
Estate and Gift Tax Limits: The Estate and Gift Tax Limits was raised in 2018: a single taxpayer can claim a federal estate and lifetime gift tax exemption of $13.61 million. In 2026, these limits are set to decrease to $7 million. The annual gift exclusion, currently $18,000 per person, is not expected to change.
Depending on their situation, income, and goals, there are strategies that taxpayers can consider discussing with their financial and tax advisors to Tax Planning for 2026:
Accelerate the recognition of income, for example:
Employees with stock/options may consider early sale/exercise.
Consider diversifying a concentrated stock position or accelerate the sale of an asset.
Business owners who are considering selling their companies may want to accelerate their timeline.
Individuals with IRA pre-tax money, especially pre-RMD retirees, may do a Roth conversion.
Delay harvesting losses. Consider delaying harvesting large unrealized losses until 2026.
Optimize your investments with asset location. Asset location means utilizing the tax treatment of different investment accounts to your advantage. Since investors pay tax annually on dividends, interest, and capital gains distributions in a taxable brokerage account, even if they don't sell assets, it’s advantageous to allocate more to tax-efficient investments.
Maximize employee benefits. Working taxpayers may consider maximizing after-tax Roth contributions now vs 401k and then revert in 2026. Workers can also consider flexible savings accounts, health savings accounts. Business owners may be able to accelerate tax-deferred savings even more by using different retirement plan structures.
Take advantage of the estate and gift tax limits. For taxpayer expecting to have a federally taxable estate, consider gifting the full $13.61 million this year: since the limit will drop to $7 million in 2026.
Delay charitable deductions. If the expiring tax code is likely to raise your tax liability, consider delaying planned charitable gifts until 2026. Given the changes to the tax brackets, tax deductions could be much more valuable in 2026 than they are today.
To avoid running out of time, Taxpayers should speak with their tax and financial professionals as soon as possible - especially as estate planning attorneys and tax professionals will likely be in high demand approaching 2026.
If you need help, please do not hesitate to schedule a call!
Best wishes for Health and Wealth, Rosanna
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