The short version
Six changes, in one screen
- Federal income tax rates are not going up in 2026 as previously scheduled. They are now permanent.
- People aged 65 and over get an extra deduction worth up to $12,000 for a couple, but only through 2028.
- The state and local tax deduction cap jumped from $10,000 to $40,400, which pulls a lot of households back into itemizing.
- Charitable giving rules changed for itemizers and non-itemizers, in opposite directions.
- The estate tax cliff that a decade of planning was built around no longer exists.
- Top bracket earners now get 35 cents of benefit per dollar of itemized deduction, not 37.
The tax increase you were planning for never happened
For eight years, every serious retirement plan carried the same assumption. The 2017 tax cuts expired at the end of 2025, rates went back up in 2026, and you should therefore pull income forward while rates were low. That assumption is now wrong.
The seven brackets are permanent. So is the larger standard deduction, which for 2026 is $16,100 for a single filer and $32,200 for a married couple filing jointly. Nothing reverts at the end of the year.
What this changes
- If you were accelerating income or converting to a Roth specifically to beat a 2026 rate rise, the deadline you were working to has gone away.
- Roth conversions can still be very valuable, but the reason is different now. The case rests on your own bracket today versus your bracket once required minimum distributions and Social Security start, not on a scheduled change in the law.
- The gap between retiring and turning 73 is usually the lowest income period of your life. That is where the opportunity sits, and it has nothing to do with this bill.
Worth remembering
Permanent in tax law means until Congress changes it. It does not mean forever. Every rate in the code today was set by a bill that could be replaced by another one. Build a plan that works across a range of rates rather than one that only works at today’s.
If you are 65 or over, there is an extra deduction that vanishes after 2028
This one is easy to miss because it is not a credit, not a rate change, and not tied to Social Security. It is a deduction of $6,000 per qualifying person aged 65 or over. A married couple where both spouses are 65 or over can claim $12,000.
You get it whether you itemize or take the standard deduction. It sits on top of the standard deduction and on top of the existing additional amount for being 65 or over, which is $2,050 for a single filer and $1,650 per qualifying spouse.
The two catches
- It phases out. The deduction shrinks once modified adjusted gross income passes $75,000 for a single filer or $150,000 for a couple, and disappears entirely at $175,000 and $250,000.
- It is temporary. It applies to tax years 2025 through 2028 only. Unless Congress extends it, 2028 is the last year.
The part almost nobody mentions
Inside the phase out range, every extra dollar of income costs you a slice of the deduction as well as the tax on the dollar itself. Your true marginal rate in that band is higher than your bracket suggests. A large Roth conversion, a property sale, or a concentrated stock disposal in one of these years can quietly cost more than the bracket table implies.
The window
Three tax years remain: 2026, 2027 and 2028. If you are close to the phase out threshold, the order in which you take income across those three years is worth modeling properly. It is one of the few genuinely time limited decisions in this bill.
The SALT cap went from $10,000 to $40,400, so itemizing may be worth it again
Since 2018 the deduction for state and local taxes has been capped at $10,000. That single cap is the reason roughly nine in ten filers stopped itemizing. For 2026 the cap is $40,400 for single filers and married couples filing jointly, and $20,200 for married filing separately.
If you pay meaningful property tax and state income tax, the arithmetic that has held since 2018 may have flipped. Adding property tax, state income tax, mortgage interest and charitable gifts together can now beat the standard deduction for the first time in years.
Two limits to watch
- A high income phase down. Above modified adjusted gross income of $500,500, the cap is reduced by 30 cents for every dollar over the threshold, with a floor of $10,000. Inside that band the effective marginal rate on an extra dollar of income is unusually punishing.
- An expiry date. The larger cap rises by about one percent a year through 2029, then reverts to $10,000 in 2030.
This matters most in states with high property or income taxes, but a large property tax bill anywhere in the country can put you over the old $10,000 line on its own.
Practical step
Run the itemize versus standard deduction comparison again this year even if you have not bothered since 2017. And if your income lands anywhere near $500,500, look at whether income can be shifted between years before you take it.
Charitable giving changed in two directions at once
Two changes took effect this year and they pull opposite ways depending on how you file.
If you take the standard deduction
You can now deduct cash gifts to charity without itemizing, up to $1,000 as a single filer or $2,000 filing jointly. This did not exist in 2025. For a lot of retired households it is the first tax benefit they have had from giving since 2017.
If you itemize
There is now a floor. Only giving above 0.5 percent of your adjusted gross income counts. On an AGI of $200,000, the first $1,000 of gifts produces no deduction at all. The 60 percent of AGI ceiling on cash gifts was made permanent, and top bracket filers see the value of the deduction capped at 35 cents on the dollar.
What people are doing about it
- Bunching. Combining two or three years of intended giving into a single year clears the floor once instead of losing it every year, and makes itemizing worthwhile in the year you give. A donor advised fund lets you take the deduction now and release the money to charities over time.
- Qualified charitable distributions. If you are 70 and a half or over, giving directly from an IRA sidesteps all of this. The money never appears in your income, so there is no floor, no deduction cap, and no need to itemize. It can also count toward your required minimum distribution.
If you give regularly
The timing of your giving now affects its tax treatment more than it did last year. The gifts themselves have not changed. The calendar around them has.
The estate tax cliff everyone planned around has gone
This is the biggest change in the bill for families with real assets, and the one most likely to have left old documents saying the wrong thing.
The federal estate and gift tax exemption was scheduled to fall by roughly half on January 1, 2026. Instead it rose to $15 million per person, $30 million for a married couple using portability, and the sunset was removed altogether. It is indexed to inflation from 2027. The rate above the exemption stays at 40 percent, and the annual gift exclusion is $19,000 per recipient.
Why this needs attention rather than relief
- Plans built for the sunset may now work against you. A great deal of gifting and trust work was done between 2021 and 2025 specifically to use exemption before it halved. That urgency has evaporated.
- Basis matters more than exemption for most families now. Assets you still own at death get a step up in cost basis, wiping out unrealized capital gains for your heirs. Assets given away during your lifetime do not. Under a $30 million exemption, holding appreciated assets is often the better answer.
- State taxes did not change. Several states levy their own estate or inheritance tax at far lower thresholds than the federal one, and some have a cliff where crossing the line taxes the whole estate rather than the excess. Federal permanence does nothing for that exposure.
- Formula clauses can misfire. Wills and trusts that direct amounts by reference to the exemption can now move far more into a trust than was ever intended, sometimes leaving a surviving spouse with less than the drafter assumed.
If your documents predate July 2025
Have them read again. Not rewritten by default, just read, with the current exemption in mind. This is the single most common piece of unfinished business created by the bill.
Top bracket earners now get 35 cents on the dollar, not 37
From this year, filers in the top 37 percent bracket have their itemized deductions reduced by a formula that leaves the benefit worth what it would have been in the 35 percent bracket. In 2026 the 37 percent bracket begins at $640,600 of taxable income for single filers and $768,700 for married couples filing jointly.
It applies to all itemized deductions, including the enlarged state and local tax deduction. The cost is modest in percentage terms and easy to overlook when you are estimating what a deduction is worth.
When it actually bites
Most retired households never touch the 37 percent bracket in an ordinary year. The problem is the extraordinary year: selling a business, exercising options, a large Roth conversion, a property sale, or the year an inheritance changes the picture. In that year, deductions you have been saving up are worth less than you expected.
If you can see a spike year coming, the deductions and the income are two separate levers. They do not have to land in the same tax year.
The pattern across all six
Almost every change in this bill rewards knowing what your income will be before the year ends, rather than finding out in April. The rules are not more complicated than they were. They are just more sensitive to timing.
Reference
The dates that matter
| When | What happens |
|---|---|
| Now, 2026 | SALT cap $40,400. Charitable floor of 0.5 percent of AGI begins. New $1,000 / $2,000 charitable deduction for non-itemizers. Itemized deduction limit for the 37 percent bracket. Estate and gift exemption $15 million per person. |
| Through 2028 | Senior deduction of $6,000 per person aged 65 or over. Temporary deductions for tips, overtime and car loan interest. |
| 2029 | Final year of the enlarged SALT cap. |
| 2030 | SALT cap reverts to $10,000 unless Congress acts. |
| Permanent | The seven tax brackets. The larger standard deduction. The $15 million estate and gift exemption, indexed for inflation from 2027. |
Five questions worth asking about your own plan
- Was my withdrawal or conversion strategy built around rates rising in 2026? If so, what does it look like now that they are not?
- Will my income sit inside the senior deduction phase out in any of the next three years, and can I do anything about which year it lands in?
- Should I be itemizing again now that the SALT cap has moved?
- Am I giving to charity in a way that still produces a deduction, and would a qualified charitable distribution be cleaner?
- When were my will and trust documents last read against the current exemption?
One honest caveat
Everything above is the federal picture. Your state has its own rules on income tax, property tax relief and estate or inheritance tax, and those interact with all six points. Any specific number in this guide is for the 2026 tax year and applies to your situation only after someone has looked at your actual return.
This guide is general information, not financial, tax or legal advice. Figures are current for the 2026 tax year and may change — verify against the cited sources and your own circumstances before relying on them.