Major Tax Changes are on the Horizon: Here’s What You Need to Know

Posted by Nick Sampson on Jul 2, 2024 1:22:24 PM
Nick Sampson
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In 2017, the Tax Cuts and Jobs Act (TCJA) brought sweeping changes to the tax code for individuals and businesses. Now, many of those provisions are set to expire at the end of 2025.

Here are the key scheduled tax changes that may impact individuals and business owners in 2026:

  • Higher Tax Brackets
    The TCJA lowered tax rates and increased income thresholds. Unless additional changes are implemented, taxpayers can expect tax rates to rise again in 2026.

  • Capital Gains
    In 2026, capital gains taxes will once again be linked to a taxpayer’s ordinary income tax bracket.

  • Unlimited SALT Deductions
    While the TJCA eliminated personal exemptions and put a $10,000 cap on State and Local Tax (SALT) deductions (including property taxes) – it also significantly increased the standard deduction. In 2026, this is expected to change. The standard deduction is expected to decline from $14,600 (single) and $29,200 (married filing jointly) to $8,300 and $16,600 (respectively), and the SALT cap, currently at $10,000 per tax return, will be eliminated. Additionally, taxpayers will benefit from personal exemptions, which are anticipated to increase from $0 to $5,300 for each individual, spouse, and dependent child.

  • Mortgage Interest & HELOC
    After the TJCA, interest on new mortgages is only tax-deductible up to $750,000 of mortgage debt on a primary or secondary home. Older homes were grandfathered under the prior limit, which was $1 million. The TJCA also changed the tax treatment of Home Equity Lines of Credit (HELOC). Prior to 2018, homeowners could deduct interest on HELOCs up to $100,000, applied on top of the $1 million regular loan limit, for a total of $1.1 million. Since TJCA, homeowners can only deduct interest on HELOCs if used to buy, build, or substantially improve the residence, and the $100,000 limit could no longer be applied on top of the regular loan limit. Unless changes are implemented by congress, in 2026 the mortgage interest tax deduction and HELOC rules will revert to pre-TJCA levels.

  • Reduced AMT
    The TJCA significantly increased the Alternative Minimum Tax (AMT) exemption amounts and phase out limits. Unless changes are made by congress, it is expected that the AMT amounts and limits will revert to pre-TJCA levels.

  • Estate and Gift Tax Limits
    The estate and gift tax exemption limit increased significantly in 2018. Currently, the federal estate and lifetime gift tax exemption for a single taxpayer is $13.61 million (double for married couples filing jointly). In 2026, it is expected that these limits will decrease, possibly by as much as half. The annual gift exclusion, which is currently $18,000 per person, is not expected to change.

  • Qualified Business Income & Bonus Depreciation
    The TJCA allowed owners of many pass-through businesses to deduct up to 20% of their Qualified Business Income (QBI). Bonus depreciation was also introduced by the TJCA, allowing business owners to claim an additional first-year allowance on qualifying equipment purchases. Both of these provisions are scheduled to sunset at the end of 2026.

Planning ahead will be key in navigating any impending tax changes. It is also important to note that legislation may be put in place between now and 2026 that could impact these provisions. Your CPA can assist you in creating a multi-year tax strategy that best aligns with your specific situation. If you have questions about tax changes, leave a comment below, or feel free to contact me directly.

Topics: Regulatory Updates, Tax, IRS