Major U.S. tax updates are taking effect in 2026, bringing important changes for both individuals and businesses across a wide range of income levels. These updates include new federal tax brackets, expanded deductions, and significant improvements to business expensing rules. Below isa clear, streamlined overview of what’s changing and how it may impact your planning for 2026.
1. Federal Tax Brackets for 2026
The 2026 federal tax brackets have been adjusted for inflation, affecting how much tax households will owe on their income.
These changes influence planning around:
Staying aware of the new 2026 tax brackets helps taxpayers understand how their marginal tax rate may shift compared to previous years, which is essential for efficient year‑to‑year tax planning.
OBBA makes several key rules permanent, including the 20% QBI deduction for pass‑through owners and the $750,000 mortgage interest cap.
The 2%‑of‑AGI miscellaneous itemized deductions are repealed, and the SALT cap increases to $40,000 ($20,000 if married filing separately), with phase‑outs at higher incomes.
The Child Tax Credit is set at $2,200 per child, plus $500 for other dependents, with a larger refundable portion.
The estate and gift exemption rises to $15 million per person ($30 million for couples), with a $19,000 annual exclusion per recipient ($38,000 for couples).
Foreign Earned Income Exclusion (FEIE)
For the 2026 tax year, the U.S. Foreign Earned Income Exclusion (FEIE) allows qualifying citizens and residents working abroad to exclude up to $132,900 of foreign-earned income from federal taxation. This is an increase from the $130,100 limit in 2025.
To qualify, you must meet the bona fide residence test or physical presence test.
2. Section 179 Deduction: Bigger Opportunities for Businesses
The Section 179 deduction continues to be one of the most powerful tax tools available to U.S. businesses investing in new equipment and technology. Beginning in 2025 and continuing into 2026, several enhancements increase the value of this deduction.
Higher Expensing Limit
Businesses can now deduct up to $2.5 million of qualifying purchases immediately. The phase‑out threshold has been increased to $4 million, meaning more businesses can take full advantage of Section 179 without hitting reduction limits.
These higher limits are made permanent under OBBA and apply retroactively to assets placed in service on or after January 1, 2025, so purchases in both 2025 and 2026 can potentially benefit.
What Counts as Section 179 Property?
Eligible Section 179 property includes:
Schedule 179 Election & Reporting
When filing taxes, businesses generally make and allocate their Section 179 elections on IRS Form 4562, selecting how much of their eligible purchases they wish to expense upfront and how much to recover through regular depreciation.
This election can be tailored each year to match cash‑flow needs and income levels.
3. Bonus Depreciation Returns to 100%
One of the most impactful updates is the return of 100% bonus depreciation for eligible property.
Starting with assets placed in service after January 19, 2025, businesses may once again deduct the full cost of qualifying property during the first year. This applies to both new and used assets.
Bonus depreciation is especially powerful when combined with:
Together, these tools allow businesses to significantly reduce taxable income through strategic capital investment.
OBBA also extends 100% bonus depreciation to certain “qualified production property” that forms part of nonresidential real estate, such as components used in manufacturing, refining, or agricultural and chemical production. To qualify, construction must begin after January 19, 2025 and before January 1, 2029, and the property must be placed in service before January 1, 2031, making project timing and design an important part of the planning discussion.
4. Updates for Individuals: Deductions, Credits & Retirement
Individuals will also see meaningful changes beginning in 2026, offering more flexibility and improved tax benefits.
Key individual updates include:
The permanently higher federal estate and gift tax exemption of $15 million per person ($30 million for married couples), along with a $19,000 annual exclusion per recipient, gives more room for strategic gifting, succession planning, and long‑term wealth
Several clean‑energy incentives are scheduled to end after 2025, including the $7,500 new EV credit, the $4,000 used EV credit, and the Energy Efficient Home Improvement Credit, which currently covers 30% of qualifying costs (generally subject to a $1,200 annual cap, with a separate $2,000 limit for certain high‑efficiency systems).
This makes 2025–2026 a key window for energy‑related purchases.
Updated Retirement Plan Contribution Limits for 2026
Based on new IRS guidance:
These higher limits give savers more room to build tax‑advantaged retirement savings in 2026.
Summary
The 2026 tax landscape introduces several updates that can improve tax efficiency for both individuals and businesses:
Newly adjusted 2026 federal tax brackets
More generous Section 179 and 179 depreciation limits
The return of 100% bonus depreciation
Enhanced deductions, credits, and retirement rules for individuals
OBBA’s permanent changes to the QBI deduction, estate and gift tax thresholds, SALT cap, and charitable and energy‑related rules add another layer of planning opportunities for business owners, high‑net‑worth families, and investors.
Understanding how these updates work — especially how Section 179 and bonus depreciation interact — can help you make smarter, more tax‑efficient decisions for 2026 and beyond.
Need Guidance?
If you need personalised tax advice or support planning for 2026, feel free to get in touch using the form at the bottom of this page. Our team is here to help you make the most of these changes.