What Actually Changed in the Tax Code for 2026 (And Why It Matters More Than You Think)
The IRS quietly rewrote a number of rules for 2026. If nobody walks you through what actually changed, you could end up handing over hundreds, maybe thousands, of extra dollars without ever realizing it happened.
This isn’t a minor update. It touches your Social Security, your Roth conversions, your investment income, and your Medicare premiums. Almost every part of your retirement income gets touched at once. Some of these changes look like a win on paper. But they come with catches, and the catches are the part that actually matters.
Every year at Ellis Retirement Advisors, we go through the new numbers with clients before we touch anything, before we do Roth conversions, handle capital gains, or make withdrawals. This year, there’s more to walk through than usual. So let’s walk through it.
The Standard Deduction Went Up Again
Let’s start with the easy one. For 2026:
- Single filers: $16,100
- Married filing jointly: $32,200
- Age 65+ add-on: $2,050 (single) / $1,650 per spouse (married)
For a married couple where both spouses are over 65, that’s a standard deduction of $32,200 plus $3,300, for a total of $35,500 before you’ve done anything else. Compared to last year, that’s maybe a couple hundred dollars in actual tax savings at a typical rate. Nice. Not life-changing.
The SALT Cap Change That Actually Matters
Here’s the one that matters for some of you. The SALT cap, your state and local tax deduction, used to be capped at $10,000 no matter what you actually paid. That cap is now $40,400.
If you’re in a high-tax state like California, New York, New Jersey, or somewhere similar, and you’ve got real property taxes or state income tax, that’s a massive shift from where things stood a few years ago.
There’s a catch, though. There’s almost always a catch with the IRS. The expanded cap starts phasing down once your modified adjusted gross income (MAGI) crosses $505,000, and it’s back down to the old $10,000 floor once you pass roughly $606,000.
For most retirees, this won’t come into play. But if you’re already itemizing, medical expenses, mortgage interest, charitable giving, it’s worth running the numbers both ways this year. A lot of people who got pushed onto the standard deduction back in 2018 might actually be better off itemizing again. Nobody goes back and checks that. You should.
The New Senior Deduction, And Its Built-In Trap
This is the one I really want you to pay attention to, because it has a trap built right into it.
There’s a brand-new senior deduction, separate from everything above, worth $6,000 per person for anyone 65 or older, on top of the regular standard deduction and on top of the age-65 add-on. It runs through 2028, and it applies whether you itemize or not.
That means a married couple, both over 65, could be stacking the standard deduction, the age-65 additional amount, and this new senior deduction, landing around $47,500 total before owing a dime more in tax. Sounds great. Here’s the catch.
This deduction phases out based on income, and it phases out fast:
- Single filers: starts shrinking at $75,000 MAGI, completely gone by $175,000
- Married couples: starts at $150,000 MAGI, gone entirely by $250,000
Because each spouse over 65 qualifies separately, a couple can lose a much bigger combined deduction than expected if they’re not careful. This is exactly where Roth conversion planning gets trickier this year. If a conversion pushes your income over that phase-out line, you could be giving up thousands of dollars of this deduction. That’s a real cost that has to get weighed against whatever the conversion saves you. Don’t make that call without running the actual numbers.
Tax Brackets: The Bucket Reminder
I still meet people who think crossing into a new bracket means all their income gets taxed at that higher rate. It doesn’t work that way.
Think of it like filling buckets. The first bucket fills up at 10%, then the next dollars spill into the 12% bracket, then 22%, and so on. Only the income inside each bucket gets taxed at that bucket’s rate.
The rates themselves didn’t change from last year, only the income ranges did. They moved up roughly 3%, giving you a little more room before crossing into the next bracket. This applies to ordinary income: wages, IRA withdrawals, short-term gains, interest, and similar income.
Capital Gains: Where Retirees Miss the Most Opportunity
Capital gains get their own separate set of brackets, and this is where I see the most missed opportunity with retirees.
Long-term capital gains (investments held more than a year) are taxed at 0%, 15%, or 20%, usually far friendlier than your ordinary income tax rate.
For 2026:
- Single filers: 0% up to $49,450 of taxable income; 15% up to $545,500; 20% above that
- Married filing jointly: 0% up to $98,900; 15% up to $613,700; 20% above that
Here’s the part most people don’t realize. That threshold isn’t based on the gain alone. It’s based on your total taxable income: wages, IRA withdrawals, interest, everything, plus the gain. So your ordinary income can push your capital gains rate out of the 0% bracket and into a higher one. It doesn’t work the other way around. Capital gains themselves don’t push your ordinary income into a higher bracket.
Also worth remembering: a 0% federal rate doesn’t mean 0% at the state level. Plenty of states tax capital gains just like ordinary income.
A few practical takeaways:
- Know exactly how much room you have before crossing into the 15% bracket, and model it before you sell
- Spread larger gains across multiple years to stay inside the 0% window longer
- Use tax-loss harvesting to offset gains when it makes sense
The Two Stealth Taxes Nobody Adjusts for Inflation
These get quietly worse every year even though nothing officially changes.
Net Investment Income Tax (NIIT). This is the 3.8% surtax on investment income once MAGI crosses $200,000 (single) or $250,000 (married). This threshold has been frozen since 2013. Over a decade with no adjustment, while incomes and account balances have grown.
Social Security taxation. The thresholds that determine how much of your Social Security benefit becomes taxable are $25,000 to $34,000 (single) and $32,000 to $44,000 (married). Cross the lower threshold and up to 50% of your benefit can become taxable. Cross the higher one and up to 85% can be taxable. These numbers haven’t moved since the 1980s and ’90s, even though Social Security benefits themselves keep rising with cost-of-living increases.
That’s a stealth tax increase, plain and simple. It quietly pulls more retirees in every year from normal income growth alone. If you’re 70½ or older, qualified charitable distributions can help manage exposure to both of these, along with timing income into lower-income years.
So What Do You Actually Do With All This?
None of these rules exist in isolation. A Roth conversion that looks smart on its own can quietly wipe out your senior deduction. A capital gain that seems small can nudge you across a Social Security threshold you didn’t know existed. That’s the whole point of walking through this stuff before you touch anything, not after.
If you want to know how any of this applies to your specific situation, schedule a time to talk with us here.
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