2026 Tax Updates: Key Changes You Should Know
As we enter 2026, a number of tax changes are now in effect, while several provisions introduced in 2025 will fully impact planning this year and beyond. Below is a high-level summary of the most relevant federal and California updates—and why they may matter to you.
Federal Tax Updates:
Income Tax Brackets & Standard Deduction
Federal income tax rates continue under the current seven-bracket structure (10%–37%), avoiding an automatic tax increase that had previously been scheduled to occur in 2026.
Standard deduction for 2026:
- Married filing jointly: $32,200
- Single: $16,100
- Head of household: $24,150
Additional senior deduction: Taxpayers aged 65 and older may qualify for an additional $6,000 deduction per eligible person, subject to income phaseouts. This amount is in addition to the existing age-based increase built into the standard deduction.
Charitable Giving & Itemized Deductions
Several changes impact both itemized and non-itemized charitable giving for 2026.
- Universal charitable deduction (non-itemizers): Up to $1,000 (Single) or $2,000 (Married filing jointly) for eligible cash contributions.
- Itemized charitable deductions: Only the portion of charitable contributions exceeding 0.5% of adjusted gross income (AGI) is deductible.
- State and Local Tax (SALT) deduction: The SALT cap increases to $40,400 for 2026, with a phaseout beginning when Modified Adjusted Gross Income (MAGI) exceeds $505,000 for single and joint filers (or $252,500 for those married filing separately).
- Mortgage interest: The $750,000 acquisition debt limit for deductible mortgage interest has been made permanent.
Retirement & Healthcare Planning
Several retirement and healthcare-related limits increased for 2026 due to inflation, creating additional opportunities for tax-advantaged savings.
- 401(k), 403(b), and most 457 plans:
- Employee contribution limit: $24,500
- Catch-up contribution (age 50+): $8,000
- under SECURE 2.0, individuals aged 60–63 have a special "super catch-up" limit of $11,250.
- Certain higher-income earners must make catch-up contributions to Roth accounts rather than pre-tax accounts.
- Individual Retirement Accounts (IRAs):
- Contribution limit: $7,500
- Catch-up contribution (age 50+): $1,100
- Roth IRA eligibility remains subject to income phaseouts.
- Health Savings Accounts (HSAs):
- Self-only coverage: $4,400
- Family coverage: $8,750
- Catch-up contribution (age 55+): $1,000
- Bronze and Catastrophic health plans now qualify as HSA-compatible coverage.
- Flexible Spending Accounts (FSAs):
- Health FSA salary deferral limit: $3,400
- Dependent Care FSA limit: $5,000 (unchanged for 2026)
Working Families & Earned Income Changes
Several provisions aimed at supporting working households apply in 2026. These benefits are generally subject to income thresholds, filing requirements, and other eligibility conditions, and may phase out for higher earners.
- Tip income deduction:
- Up to $25,000 of qualified tip income may be deductible.
- Available only for tips reported as taxable wages and subject to income-based limitations and occupation-specific rules.
- Overtime pay deduction:
- A deduction may apply to the premium portion of overtime pay (the amount paid above an employee’s regular hourly rate).
- The deduction is subject to income limits, limited to $12,500 per individual, and applies only to qualified overtime compensation.
- Auto loan interest deduction:
- Interest on loans for new U.S. assembled vehicles may be deductible.
- Eligibility is subject to income phaseouts, vehicle eligibility rules, and loan origination requirements.
- Child Tax Credit (CTC):
- The credit increases to $2,200 per qualifying child.
- Up to $1,700 may be refundable.
- Eligibility and refundability depend on income levels, valid Social Security numbers, and other filing requirements.
These provisions generally reduce taxable income or tax liability but do not make income entirely tax-free.
Estate & Gift Tax
Inflation adjustments significantly expand estate and gifting opportunities in 2026.
- Lifetime estate and gift exemption:
- $15 million per person
- $30 million per married couple
- Annual gift exclusion:
- $19,000 per recipient for 2026
Business Owner & Real Estate Investor Notes
Several tax rules in effect for 2026 may be especially relevant for business owners and Real Estate Investors. While some provisions are not new, changes in limits and interactions between rules can materially affect planning decisions.
Pass-Through Entity (PTE) taxes:
- State-level Pass-Through Entity (PTE) tax elections (including California) remain available in 2026 as a potential workaround to the federal SALT deduction cap.
- Higher SALT deduction limits and income phaseouts may reduce the benefit of making a PTE election for some taxpayers.
- PTE elections are generally made on an annual basis and are typically irrevocable, making proactive year-by-year planning important.
- California Election Timing (2026–2030): While the June 15 of current year payment deadline remains the target for California PTE tax payments, new rules provide a "safety net" if the deadline is missed. You may still elect into the program later on your return, but doing so after the June 15 deadline results in a 12.5% permanent reduction of the available tax credit. Proactive cash-flow planning is still required to avoid this credit loss.
Bonus depreciation:
- 100% bonus depreciation applies in 2026 for qualifying property placed in service, following changes enacted in 2025.
- This allows businesses to fully expense eligible equipment, machinery, and certain property in the year the asset is placed in service.
- This provision may significantly affect capital expenditure timing and cash-flow planning.
Section 179 expense:
- Section 179 remains available for qualifying business assets.
- Deductions are subject to annual dollar limits and taxable income thresholds, which may restrict the benefit for larger purchases or higher-income businesses.
- Section 179 is often evaluated alongside bonus depreciation to determine the most effective expense strategy.
Qualified Business Income (QBI) deduction:
- The 20% Qualified Business Income (QBI) deduction for eligible pass-through income continues in 2026.
- Eligibility and benefit levels are subject to income thresholds, specified service trade or business rules, and wage and qualified property limitations.
Cost Segregation Still Valuable
- With 100% bonus depreciation, cost segregation continues to deliver value by:
- Identifying shorter-life assets (5–15 years) buried in buildings
- Unlocking first-year expenses for qualified components
- Even passive investors and non-traders can benefit, especially if selling within a few years.
Research & Development (R&D) credit:
- The federal Research & Development (R&D) credit remains available in 2026 for businesses engaging in qualifying research activities, including software development, product design, engineering, and process improvement.
- Eligible businesses may use the R&D credit to offset income tax or, in certain cases, payroll taxes, subject to applicable limitations.
- Qualification and benefit levels depend on the nature of the activities, documentation, and interaction with other tax provisions, making careful evaluation important.
Opportunity Zones: Important 2026 Deadline
2026 represents a key milestone for Opportunity Zone investors.
- Investors who previously deferred capital gains through Opportunity Zone investments must recognize those gains by December 31, 2026, even if the investment has not been sold.
- Depending on when the original investment was made, partial tax reductions (basis step-ups) may still be available.
- For projects located in rural Opportunity Zones, investors are now required to reinvest only 50% of a building’s value into improvements (rather than 100%) to qualify for Opportunity Zone tax benefits—making many rural projects more financially viable.
California-Specific Updates
Several California-specific changes may affect residents and business owners in 2026.
- State Disability Insurance (SDI):
- The SDI withholding rate increases to 1.3%.
- All wages are subject to SDI, as there is no income cap.
- Electric vehicle incentives:
- Federal EV credits have expired.
- California is developing a new state-level EV incentive program expected to launch in 2026.
- Business e-filing enforcement:
- Mandatory electronic filing is now strictly enforced for business entities. Waiver maybe available.
- Penalties for noncompliance generally range from $100 to $500.
- Retail theft prevention credit:
- Certain businesses may qualify for a limited credit for eligible security related expenses, subject to program rules and caps. Businesses must reserve the credit with the Franchise Tax Board.
Tax changes can affect cash flow, retirement contributions, charitable strategies, and long-term planning. While headlines focus on what changed, the real impact depends on how these rules apply to your specific situation.
If you would like to discuss how the 2026 updates fit into your overall financial plan, we are happy to help.