2026 tax reform primarily involves significant changes from the OBBBA passed in 2025, which permanently extended some Tax Cuts and Jobs Act (TCJA) provisions, made new temporary tax cuts (like extra deductions for tips, overtime, and seniors), increased the standard deductions, and adjusted tax brackets and credits, leading to potentially larger refunds and major shifts for different income groups and businesses, impacting planning for the 2026 tax year. Key changes include higher SALT caps, expanded HSA eligibility, and new rules for paid leave credits.
Key Changes for Individuals:
- Standard Deduction: Increases significantly for 2026 (e.g., $32,200 for married filing jointly (MFJ).
- New Deductions: Up to $25,000 for tips and $12,500 for overtime, with income phase-outs.
- Senior Deduction: An extra $6,000 deduction for those 65+ (with MAGI limits).
- Child Tax Credit: Increased to $2,200 for qualified taxpayers.
- SALT Deduction: Cap increased to $50,000 for 2025 & 2026. There are income restrictions.
- Tax Brackets: Permanent extension of TCJA rates, with some inflation adjustments.
- ROTH IRA Limit: Increased to $7,500 for those under age 50, and $8,600 for those age 50 or older.
- Traditional IRA Limit: Increased to $7,500 for those under age 50, and $8,600 for those age 50 or older.
- Long-term capital gains rates do not change. The 0% rate applies at taxable incomes of up to $98,900 for joint filers, & $49,450 for single. The 20% rate: $613,700 & $545,500. The 15% rate: is for taxpayers with taxable incomes between the 0% and 20% break points.
- Mileage rates: business rate is 72.5 cents per mile. Medical & military is 20.5 cents, and charitable remains at 14 cents.
- Digital Assets: Brokers will report proceeds from digital asset sales that occur in 2025. A law requires brokers to report sales price, tax basis and other information on digital asset trades. Reporting was slated to begin in 2023, but the IRS delayed it. Reporting of sales proceeds starts with 2025 forms 1099-DA that brokers will send out in 2026. Decentralized crypto exchanges start reporting beginning with 2027 sales. Reporting of tax basis and character of gain begins with 2026 1099-DAs filed in 2027.
- Charitable Donations: There will be an allowable above the line deduction allowed for taxpayers who do not itemize. We saw this in 2020 and 2021 as part of the Covid relief. For 2026 single taxpayers can deduct $1,000 and MFJ can deduct $2,000. Remember, you must have receipts!
