2026 Tax Law Changes You Need to Know About

Although many provisions of the One Big Beautiful Bill Act (OBBBA) took effect in 2025, additional changes began in 2026. A significant change for higher-income taxpayers age 50 and older under the Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022 (SECURE 2.0) also goes into effect this year. Here's an overview of notable changes affecting individuals and businesses.

New Deduction Rules for Individuals

The OBBBA retains — and slightly increases — high standard deduction amounts that had been set to expire December 31, 2025. It also generally retains various limitations on itemized deductions that were scheduled to expire on that date. In addition, it implements new deduction changes that take effect in 2026.

For taxpayers who claim the standard deduction, the OBBBA reinstates the COVID-era deduction for cash donations to qualified charities, subject to an increased annual limit of $1,000, or $2,000 for joint filers. (The limits were $300 and $600, respectively, for 2021 when this nonitemizer deduction was last available.)

The definition of "cash contribution" may be broader than you think. It includes gifts made by debit or credit card, check, electronic bank transfer, online payment platform, and payroll deduction.

If you itemize, however, you may face some new limits on your deductions under the OBBBA. First, your otherwise allowable charitable deductions for the year will be limited to the amount that exceeds 0.5% of your 2026 adjusted gross income (AGI). Put another way, your 2026 charitable deduction will be limited to the amount that exceeds 0.5% of your 2026 AGI. If you'll be affected, you may want to bunch donations into alternating years.

Second, if you're in the 37% tax bracket, your tax benefit from itemized deductions generally will be as if you were in the 35% bracket. For 2026, the 37% bracket starts when taxable income exceeds $640,600 for singles and heads of households, $768,700 for married couples filing jointly, and $384,350 for married couples filing separately.

Increasing AMT Risk

You must pay the alternative minimum tax (AMT) if your AMT liability exceeds your regular tax liability. The top AMT rate is 28%, compared to the top regular ordinary-income tax rate of 37%. But the AMT rate typically applies to a higher taxable income base. An AMT exemption is available, but it phases out when AMT income exceeds certain levels.

The OBBBA calls for those thresholds to revert back to their 2018 levels for 2026. In other words, the law removes the inflation adjustments applied to the 2019 through 2025 tax years, though it will annually adjust the thresholds for inflation going forward. Also, the OBBBA phases out the exemption more quickly beginning in 2026. Effectively, the exemption will phase out twice as fast. Both of these changes mean more taxpayers could become subject to the AMT for 2026.

It's also important to consider that some deductions used to calculate regular tax aren't allowed under the AMT. Those deductions can trigger AMT liability. Because of deduction changes that the OBBBA has made permanent, there are now fewer differences between what's deductible for AMT purposes and regular tax purposes, which reduces AMT risk.

However, beginning in 2025, the OBBBA did increase the state and local tax (SALT) deduction limit for regular tax purposes. However, the increased cap is temporary and may phase down for higher-income taxpayers, which could affect the amount of benefit a taxpayer receives. Plus, SALT isn't deductible for AMT purposes. Thus, combined with the exemption changes noted above, a large SALT deduction could further increase AMT risk.

Evolving Tax-Advantaged Savings Opportunities

Various types of tax-advantaged accounts are available to help taxpayers pursue financial goals, such as saving for a child's education or their own retirement. The savings opportunities are evolving for 2026.

For example, new tax-advantaged Trump accounts are available beginning this year. Created under the OBBBA, these accounts are available to U.S. citizens under 18. Contributions to properly established accounts can begin on July 4, 2026. Generally, up to $5,000 per year can be contributed. Although contributions aren't tax deductible, the accounts can grow tax-deferred until the child is 18. "After that point," says the IRS, "the account generally is treated as a traditional IRA and generally is subject to the same rules as other traditional IRAs."

Eligible children born between Jan. 1, 2025, and Dec. 31, 2028, whose parents have elected to participate in a pilot program, will receive a one-time, tax-free $1,000 federal contribution to their accounts. Some children may be eligible for a "qualified general contribution" funded by certain government entities or nonprofits. These contributions can be made only to "qualified classes," such as those residing in certain areas and born in specific years.

Another enhanced opportunity this year under the OBBBA is the increased tax-free 529 plan withdrawal limit for qualified elementary and secondary school expenses. Distributions used to pay qualified expenses are income-tax-free for federal purposes and may also be income-tax-free for state purposes, making the tax deferral a permanent savings.

In recent years, certain elementary and secondary school expenses of up to $10,000 per beneficiary per year have been deemed qualified and therefore eligible for tax-free treatment. Under the OBBBA, various additional expenses incurred after July 4, such as books, instructional materials and certain fees, also qualify. Beginning in 2026, the annual limit increases to $20,000.

However, retirement savings opportunities are changing for certain higher-income taxpayers. Beginning in 2026, new rules under the SECURE 2.0 Act will require higher-income participants in 401(k), 403(b) and 457(b) retirement plans to make any catch-up contributions as after-tax Roth contributions. For 2026, this requirement applies to participants with 2025 Social Security wages exceeding $150,000. (That threshold will be annually adjusted for inflation.)

No longer being able to make pretax catch-up contributions could increase affected participants' taxable income. This, in turn, could push them into higher tax brackets and impact their eligibility for various tax breaks.

Changes Affecting Business Owners

In 2026, business owners will continue to benefit from changes the OBBBA implemented in 2025, including the restoration of 100% bonus depreciation and the ability to immediately deduct domestic research and experimental expenses rather than amortize them over five years. But the OBBBA also puts a couple of significant tax law changes into effect this year — one that might save business owners taxes and another that might increase owners' taxes.

The OBBBA makes permanent the Section 199A qualified business income (QBI) deduction and enhances it for 2026. The deduction applies to sole proprietors and owners of pass-through entities and generally equals 20% of QBI, subject to a limit of 20% of taxable income. Additional limits may apply if taxable income for the year exceeds the applicable threshold.

One such limit is the deduction not being allowed to exceed the greater of the owner's share of:

• 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
• The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.

Another such limit is the deduction being unavailable for income from a specified service trade or business. Examples include businesses that involve investment-type services and most professional practices other than engineering and architecture.

Under the OBBBA, beginning in 2026, instead of the distance from the threshold to the top of the phase-in range (the amount at which the limit fully applies) being $50,000, or, for joint filers, $100,000, it is $75,000, or, for joint filers, $150,000. This will allow larger deductions for some taxpayers. For 2026, the phase-in ranges are $201,750 to $276,750 (up from $197,300 to $247,300 for 2025), double those amounts for married couples filing jointly. (The threshold amounts will continue to be annually adjusted for inflation.)

Taxpayers experiencing business losses, however, may be able to immediately deduct less of those losses beginning in 2026. The deduction for current-year business losses incurred by a noncorporate taxpayer generally can offset income from other sources — such as salary, self-employment income, interest, dividends and capital gains — only up to the annual limit. "Excess" losses are carried forward to later tax years and can then be deducted under the net operating loss (NOL) rules.

The OBBBA makes the limit permanent and reduces the threshold at which the limitation goes into effect. For 2026, the threshold generally is $256,000 — down from $313,000 for 2025. (Those amounts are double for joint filers.) This means affected business owners will have to carry forward more of their losses and deduct them in future years under the NOL rules.

Vanishing Clean Energy Breaks

The OBBBA eliminates many clean energy breaks for businesses and individuals. For example, it eliminated most vehicle clean energy credits for vehicles purchased after September 30, 2025. If you or your business acquired one or more eligible vehicles before that date, you may be able to claim a clean vehicle credit on your 2025 tax return.

Certain energy-efficiency credits for homeowners, such as for installing energy-efficient windows or adding solar panels, are also still available to claim on 2025 tax returns. But they won't be available for any property placed in service after Dec. 31, 2025. Examples include the:

Energy Efficient Home Improvement Credit. This applies only to improvements to an existing home. The credit is 30% of total improvement expenses in the year of installation, generally up to $1,200 annually.

Residential Clean Energy Credit. This is for existing and newly constructed homes. The credit is 30% of total improvement expenses, with no annual maximum or lifetime limit.

Businesses can still claim some clean-energy breaks for 2026 if they act soon. For example, the Sec. 179D deduction for energy-efficient commercial buildings allows owners of new or existing commercial buildings to immediately deduct the cost of certain energy-efficient improvements rather than depreciate them over the 39-year period that typically applies. The base deduction is calculated using a sliding scale. For 2026, the range is 59 cents per square foot to $5.94 per square foot for improvements that achieve 50% energy savings, depending on the type of energy savings and whether specific prevailing wage and apprenticeship requirements are met. The OBBBA eliminates the deduction for property that begins construction after June 30, 2026.

Another clean energy break that's available for part of 2026 is the Sec. 30C alternative fuel vehicle refueling property credit, which applies to property that stores or dispenses clean-burning fuel or recharges electric vehicles. The credit is worth up to $100,000 per item (each charging port, fuel dispenser or storage property). The OBBBA eliminates the credit for property placed in service after June 30, 2026.

Other clean energy breaks that might still be available to businesses if they act soon include the clean energy investment and production credits and the advanced manufacturing production credit.

Filing for 2025, Planning for 2026

With multiple tax law changes taking effect in 2026 — on top of those implemented in 2025 — there's more to factor into your tax filing for 2025 and tax planning for 2026. Professional tax assistance and advice are critical to minimizing taxes while staying compliant with evolving tax law.