The IRS released Revenue Procedure 2025-32 to announce significant inflation-adjusted amounts for tax year 2026. Selected items are discussed below.
Standard Deduction. For tax year 2025, the amounts started at $15,000 for single and married filing separately (MFS) and $30,000 for married filing jointly (MFS). The One Big Beautiful Bill Act (OB3 Act) raised them to $15,750 and $31,500, respectively.
For tax year 2026, the standard deduction amounts will increase to $16,100 for single and MFS and $32,200 for MFJ.
The standard deduction is essentially a taxpayer’s 0% tax bracket and cannot be carried forward if unused. A taxpayer should always consider accelerating income in a low-income tax year to fully utilize the standard deduction.
Income Tax Brackets. In tax year 2026, the 10% rate will apply to taxable income up to $12,400 for single and MFS and $24,800 for MFJ. A taxpayer should consider accelerating income in a low-income tax year to utilize the 10% bracket.
On the other end of the income spectrum, the 37% rate will apply to taxable income exceeding $640,600 for single, $384,350 for MFS, and $768,700 for MFJ. Starting in 2026, under revised §68 due to the OB3 Act, taxpayers whose itemized deductions fall within the 37% bracket will have the amount reduced such that the maximum benefit of the itemized deductions within the 37% bracket does not exceed 35%.
0% Long-Term Capital Gain Rate. In tax year 2026, the 0% rate will apply up to taxable income thresholds of $49,450 for single and MFS, and $98,900 for MFJ.
While harvesting long-term capital gains in the 0% bracket is an important tax planning opportunity, it is essential to note that gains will still be included in adjusted gross income (AGI), possibly affecting other tax benefits. The gains will also be subject to state income tax in most cases.
Child Tax Credit. The OB3 Act increased the child tax credit to $2,200 for the 2025 tax year and adjusted it for inflation. In tax year 2026, the credit will remain at $2,200.
Educator Expenses. For tax year 2025, an eligible educator can deduct up to $300 of certain unreimbursed expenses above-the-line; in tax year 2026, this amount will increase to $350. Qualified expenses include professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials used in the classroom. The expenses for health or physical education courses must be for athletic supplies. Qualified expenses also include the amounts for personal protective equipment, disinfectant, and other supplies used to prevent the spread of coronavirus.
Starting in tax year 2026, the OB3 Act allows an itemized deduction for qualified expenses exceeding the $350 amount, plus some additional expenses not included in the $350 above-the-line deduction. Interscholastic sports administrators and coaches are added as eligible educators with respect to the itemized deduction. In addition, expenses outside of the classroom (but are part of instructional activity) and supplies and materials not athletics-related (but used in instructional activities) are allowed with respect to the itemized deduction.
Excess Business Loss Limitation. The Tax Cuts and Jobs Act added new §461(l) to limit a taxpayer’s ability to use business losses against nonbusiness income; losses not allowed are suspended and carried forward as a net operating loss to the next tax year. For tax year 2025, the business loss limitation amount is $313,000 ($626,000 MFJ).
The OB3 Act made the excess business loss limitation permanent and reverted the thresholds to the original Tax Cuts and Jobs Act amounts; as such, the limitation amounts will decrease in tax year 2026 to $256,000 ($512,000 MFJ). This change means more taxpayers going forward will be subject to the loss limitation.
Important note: tax year 2026 retirement-related inflation-adjusted amounts and mileage rates will be announced later this year. More to come!
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