Chapter 2: The 2026 rulebook: what just changed
In the summer of 2025, Congress passed the One Big Beautiful Bill Act, OBBBA for short, and it touched nearly every line of the return you will file for 2026. Four new deductions vanish after 2028. One cap quadrupled and then snaps back in 2030. Several rules you may have planned around are now permanent. Most tax advice on the internet was written for the old rulebook, which is exactly why this guide exists.
This chapter is the map. Each provision gets a card with a tag that tells you how to treat it: PERMANENT means you can build long-term plans on it, 2025–2028 ONLY means use it while it lasts, FROM 2026 means it is new on this year's return, and WATCH 2030 means a deadline is coming. The deeper math lives in later chapters; the goal here is that nothing on your 2026 return surprises you.
The foundation is now permanent
The brackets and the big standard deduction
The seven rates from Chapter 1, 10% through 37%, were scheduled to expire after 2025 and jump back to their older, higher levels. OBBBA made them permanent, along with the large standard deduction ($16,100 single, $32,200 joint, $24,150 head of household in 2026, indexed for inflation). The practical meaning: no rate cliff hangs over your multi-year planning, and the standard deduction stays tall enough that most filers will keep taking it (Chapter 3).
The 20% QBI deduction for business owners
Self-employed people and pass-through owners keep the Section 199A deduction of up to 20% of qualified business income, now permanent, with phase-ins that limit specified service businesses at higher taxable incomes. If you freelance, consult, or run a business like Priya does, Chapter 11 runs the full math.
The SALT window
The SALT cap: quadrupled, then gone
The deduction for state and local taxes (SALT), meaning state income tax plus property tax for most people, was capped at $10,000 for years. OBBBA raised the cap to $40,000 for 2025, growing 1% a year, so it is $40,400 on your 2026 return. Two catches. First, the cap phases down for MAGI above $500,000, though never below $10,000, so the highest earners get little of it. Second, the whole thing reverts to $10,000 in 2030. That makes 2026 through 2029 a window: itemizing works for far more homeowners in high-tax states right now than it will in 2030, and late-2029 decisions about prepaying deductible bills will matter. Chapter 3 does the itemizing math; Chapter 13 covers the state layer.
The 2026 SALT cap, rising 1% a year while the window lasts.
The cap snaps back, and many itemizers return to the standard deduction.
Four deductions on a timer
These all share the same shape: real money, available even if you take the standard deduction, and gone after the 2028 tax year.
The tips deduction
Up to $25,000 a year of qualified tips can be deducted, phasing out above $150,000 of MAGI ($300,000 joint). The catch is the word qualified: your occupation must appear on the IRS list of jobs that customarily received tips, so a salary cannot be relabeled into deductible tips. And payroll taxes still apply to every tipped dollar; this deduction touches income tax only.
The overtime deduction
Only the premium slice of federally required overtime counts: if your base rate is $30 an hour and overtime pays $45, the deductible part is the extra $15. The cap is $12,500 ($25,000 joint), with the same phaseouts as tips. Hourly workers with heavy overtime should check their pay stubs; the premium adds up faster than it looks.
The senior deduction
Taxpayers 65 and older get an extra $6,000 deduction, stacking on top of the standard deduction and the existing age-65 add-on. It phases out above $75,000 of MAGI ($150,000 joint). One correction to the headlines: this did not make Social Security tax-free. Benefits are still taxed under the usual formula; the deduction simply offsets some income for those who qualify.
The auto-loan interest deduction
Up to $10,000 of interest on a loan for a new, US-assembled vehicle, with income limits. Worth a look if you financed a qualifying car; otherwise file it away and move on.
These deductions stack. A single bartender with $9,000 of qualified tips takes the $16,100 standard deduction plus the tips deduction, $25,100 off the top of taxable income, with no itemizing required. A married couple where both spouses are 65 or older and under the income limits can claim the senior deduction twice, $12,000 on top of everything else they already get. The phaseouts are the only gatekeepers, and they bind at MAGI levels most hourly and retired filers never reach.
Renee's father is 68 and lives on roughly $42,000 of pension and Social Security, far below the $75,000 phaseout. On his own 2026 return he claims the standard deduction, the regular age-65 add-on, and the new $6,000 senior deduction. Renee helps him file, and they have penciled the deduction into his plans through the 2028 return, after which it disappears. Renee's own head-of-household setup from Chapter 1 is unaffected; his deduction lives on his return, not hers.
Charity and the AMT changed shape
Charitable giving, rewritten in both directions
Good news for the standard-deduction majority: cash gifts up to $1,000 ($2,000 joint) are now deductible without itemizing, permanently, starting with 2026 returns. For itemizers the math tightened: only gifts above a floor of 0.5% of AGI count, and the deduction's benefit is capped at a 35% rate even for filers in the 37% bracket. The floor rewards concentrating gifts into fewer years; the cap trims the value at the very top. Chapter 12 turns both into strategy.
The AMT net tightened
The alternative minimum tax, a parallel tax that recalculates income with fewer breaks, has a 2026 exemption of $90,100 single and $140,200 joint. But the exemption now starts phasing out at $500,000 and $1,000,000 of AMT income, down from roughly $1.25 million and $1.6 million, shrinking 50 cents per dollar above the line. More high earners, and especially people exercising incentive stock options, will be pulled back in. If an ISO exercise is anywhere in your future, read Chapter 10 before acting.
What did not change
The quiet half of the law matters as much as the loud half. Long-term capital gains rates stay at 0%, 15%, and 20%, with 2026 thresholds moving only for inflation (the 0% rate runs to $49,450 single and $98,900 joint). The 3.8% net investment income tax still starts at $200,000 single and $250,000 joint, unindexed as ever. The wash-sale rule survived untouched (Chapter 5), and so did the step-up in basis at death (Chapter 4). Retirement account mechanics roll forward with their usual inflation bumps, gathered in Chapter 7, and the 2026 gift exclusion sits at $19,000 per recipient with a $15,000,000 estate exclusion. If your plan rested on any of these, it still stands.
Planning with a calendar in hand
The timeline above is the real lesson of the law. The same household can face three different rulebooks in five years: the temporary-deduction era through 2028, a transition year in 2029, and the smaller-SALT world from 2030. Good planning sorts moves by which era they belong to.
Match every tax move to its clock. Build decade-long plans only on the permanent pieces, treat the 2025–2028 deductions as use-it-now money, and assume the SALT window closes after 2029. A strategy built on an expiring rule carries a hidden deadline.
Where people go wrong
- Hearing "no tax on tips" as no tax at all. Social Security and Medicare taxes still come out of every tipped dollar, and the occupation list decides who qualifies.
- High earners counting on the $40,400 SALT cap. Above $500,000 of MAGI it phases down toward $10,000.
- Believing Social Security became tax-free. The senior deduction helps, within its income limits, but the benefit-taxation formula is unchanged.
- Building 2031 plans on 2026 rules. Anything tagged 2025–2028 ONLY or WATCH 2030 needs an exit plan, not just an entry plan.
Key takeaways
- OBBBA made the current brackets, the big standard deduction, and the 20% QBI deduction permanent.
- The SALT cap is $40,400 for 2026, rising 1% a year, phasing down above $500,000 of MAGI, and reverting to $10,000 in 2030.
- Tips (to $25,000), overtime premium (to $12,500/$25,000), the $6,000 senior deduction, and auto-loan interest (to $10,000) all run 2025–2028 only, with income phaseouts.
- From 2026, non-itemizers can deduct $1,000/$2,000 of cash gifts; itemizers face a 0.5%-of-AGI floor and a 35% benefit cap.
- The AMT exemption now phases out from $500,000/$1,000,000 of AMT income, catching more ISO exercisers.
- Capital gains rates, the NIIT, the wash-sale rule, and step-up at death did not change.
Sources: IRS: One Big Beautiful Bill Provisions · IRS: OBBBA Deductions for Working Americans and Seniors · IRS: 2026 Tax Inflation Adjustments · Fidelity: One Big Beautiful Bill Explainer · Schwab: OBBBA Tax Cuts Explainer