Changes in State and Local Taxes 2026

There are some pretty big changes coming to 2026, With them could come some pretty big deductions thanks to the One Big Beautiful Bill Act (OBBB). It's important to know what the deductions are, and how they can affect you.

What's New - Some Deductions that Go Up or Get Introduced

Big changes in the standard deductions it rises meaning more income is shielded without needing to itemize. New deductions added allowing for specific groups the ability to claim additional deductions. Even tac payer who don't itemize can take out a charitable donation. Allowing for some of the highest returns in history.

Standard Deductions

The standard deduction rises. For the 2026 tax year.

Single filers (and married filing separately): $16,100.
Married filing jointly: $32,200.
Heads of household: $24,150.

New Deductions

New deductions for specific groups:

Individuals age 65+ may claim an additional deduction of $6,000 (per eligible individual) in addition to the regular additional standard deduction for seniors.
Workers in certain tipped occupations: Gains in “qualified tips” may be deductible if the occupation was listed as customarily receiving tips by Dec 31, 2024.
A deduction for qualified overtime compensation (the “half-time” portion of time-and-a-half over 40hrs) up to $12,500 for single filers (or $25,000 for joint filers) with phase-out above certain incomes.
For car loan interest: Starting in 2025, individuals may deduct interest paid on a loan used to purchase a qualified vehicle (personal use, final assembly in the U.S., etc.) up to $10,000 annually.

Charitable Giving

Changes to charitable giving:

Beginning 2026, even taxpayers who don’t itemize can take a cash charitable deduction: $1,000 for singles, $2,000 for married filing jointly.
For those who do itemize, a floor is introduced: you can only deduct charitable contributions above 0.5% of your adjusted gross income (AGI) starting 2026.

What's Changing/Becoming More Restrictive

The tax landscape is tightening in several areas beginning in 2025 and especially in 2026. The State and Local Tax (SALT) deduction cap will temporarily rise to $40,000 from the previous limit. High-income filers will also see the return of itemized deduction limitations, where each dollar of itemized deductions provides only about 35 cents of tax savings instead of the full 37 cents. Additionally, the mortgage interest deduction remains unchanged, with the current cap of $750,000 in acquisition debt still in place, offering no expansion and continuing to limit the deduction in higher-cost housing markets.

SALT Deduction Cap

The cap on the deduction for state and local taxes increases temporarily to $40,000 (2025–2029) for many taxpayers — up from the prior $10,000 limit. However, this higher cap phases out for high-income taxpayers.

Itemized Deduction Limitation

For high-income taxpayers (top tax bracket), the tax benefit from itemized deductions is limited — each dollar of deduction will provide only about 35¢ of tax savings, rather than the full benefit of the 37% rate.

Mortage Intrest Deductions

The existing mortgage interest deduction limit remains unchanged, applying only to acquisition debt up to $750,000 for most taxpayers.