The 2017 Tax Cuts and Jobs Act (TCJA) made significant changes to the tax code, affecting all taxpayers and business owners. Many of these changes are set to expire at the end of 2025, reverting to 2017 levels adjusted for inflation. While some of these changes will negatively impact taxpayers starting in 2026, a few will be positive. Here’s a summary of the major tax law changes coming in 2026 and some steps individuals and business owners can take to prepare.
The TCJA introduced new, lower tax rates and increased the income thresholds for each tax bracket. For example, in 2017, the tax brackets were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. In 2018, they changed to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. In 2026, taxpayers can expect to be in higher tax brackets before any deductions or credits, with the most significant increase of 9% affecting those in the middle brackets.
Additionally, in 2026, the tax rate for capital gains will once again be linked to the ordinary income tax bracket, potentially leading to higher taxes on capital gains for some. This change will impact taxpayers differently, with those in high-tax states and families with many dependents likely benefiting.
The TCJA eliminated personal exemptions and capped state and local tax (SALT) deductions at $10,000, including property taxes. In exchange, the standard deduction increased significantly, reducing the number of taxpayers who benefit from itemizing deductions. In 2026, the standard deduction is expected to decrease, but personal exemptions will return. The SALT cap will also be eliminated.
The TCJA limited the mortgage interest deduction to $750,000 of mortgage debt for new mortgages on primary or second homes, with older loans grandfathered under the previous $1 million limit. It also changed the tax treatment of home equity lines of credit (HELOCs), allowing interest deductions only if the funds were used to buy, build, or improve the residence. In 2026, these rules will revert to pre-2018 levels.
The TCJA significantly increased the alternative minimum tax (AMT) exemption amounts and phase-out limits, reducing the number of taxpayers subject to the AMT. In 2026, these changes are expected to revert, impacting taxpayers with large itemized deductions and executives with incentive stock options.
The federal estate and lifetime gift tax exemption was raised dramatically in 2018, allowing a single taxpayer to claim an exemption of $13.61 million in 2024. In 2026, this limit is expected to decrease to around $7 million, adjusted for inflation. The annual gift exclusion is not expected to change.
The TCJA allowed owners of pass-through businesses to deduct up to 20% of their qualified business income (QBI), a provision set to expire in 2026. Bonus depreciation, which allowed business owners to claim an additional first-year allowance on qualifying equipment purchases, is also scheduled to sunset at the end of 2026.
Taxpayers should consider various strategies to prepare for these changes. For example, those with large unrealized losses might delay harvesting those losses until 2026. Affluent individuals and families expecting a federally taxable estate should consider a pre-2026 gifting strategy. Delaying planned charitable gifts until 2026 could also be beneficial due to the expected changes in tax brackets.
Working taxpayers should evaluate pre-tax versus Roth 401(k) contributions and consider flexible savings accounts, health savings accounts, and deferred compensation. Business owners might accelerate tax-deferred savings through different retirement plan structures. Investors should optimize their tax situation with asset location, utilizing the tax treatment of different investment accounts to their advantage.
Given the many changes to the tax code in the last decade, taxpayers should not get too comfortable with the current tax code. The major tax changes in 2026 are widely expected, but nothing is set in stone. Taxpayers should consult with their tax and financial professionals for multi-year planning to avoid running out of time, especially for estate planning.