IRS 2026 tax changes: what they mean for homeownership

Interest rates are fluctuating, house prices are bouncing around, and now the Feds have given us some new numbers to look at.

The Internal Revenue Service has issued its 2026 inflation adjustments, revising more than 60 tax provisions that affect everything from income brackets to estate exclusions. The new figures, outlined in Revenue Procedure 2025-32, incorporate several key changes from the recently enacted One, Big, Beautiful Bill (OBBB) — legislation designed to expand tax relief for families, employers, and homeowners.

For lenders, real estate professionals, and mortgage borrowers, these adjustments set the stage for new financial dynamics in 2026. Larger deductions, higher thresholds, and expanded credits could all influence homebuying affordability, refinancing activity, and client tax strategies heading into next year.

Key highlights for homeowners and borrowers

Standard deduction rises again

The standard deduction increases to $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of households.

These higher deduction amounts could reduce the incentive for some taxpayers to itemize — including those who would otherwise claim mortgage interest or property tax deductions. However, for many middle-income homeowners, the increase translates into more take-home pay and better debt service ratios.

Marginal tax brackets adjust for inflation

The top marginal rate remains 37 percent for individuals earning over $640,600 ($768,700 for joint filers). Lower brackets have shifted upward modestly:

• 35 percent over $256,225 ($512,450 joint)
• 32 percent over $201,775 ($403,550 joint)
• 24 percent over $105,700 ($211,400 joint)
• 22 percent over $50,400 ($100,800 joint)
• 12 percent over $12,400 ($24,800 joint)

These incremental changes may influence mortgage qualification calculations for self-employed borrowers and those whose adjusted gross income impacts credit or deduction eligibility.

Implications for real estate and mortgage planning

Estate and Gift Tax Adjustments

The federal estate tax exclusion rises to $15 million in 2026, up from $13.99 million. This increase will particularly affect high-net-worth homeowners transferring real estate assets or establishing trusts. The annual gift exclusion remains at $19,000 per recipient, but gifts to non-U.S. citizen spouses can reach $194,000.

These higher limits provide planning flexibility for families transferring property or using gifts toward down payments.

Alternative Minimum Tax (AMT)

The AMT exemption rises to $90,100 for single filers and $140,200 for married couples filing jointly, reducing the likelihood that middle- and upper-middle-income homeowners will face AMT consequences from deductions tied to state and local taxes (SALT).

Employer-Provided Childcare Credit Expansion

One of the most notable enhancements under the OBBB is the employer-provided childcare credit, now capped at $500,000 — or $600,000 for qualifying small businesses. For mortgage lenders and real estate firms offering workplace benefits, this expansion could support employee retention and indirectly improve borrowing capacity for working parents.

Everyday adjustments that affect homeowners

• Earned Income Tax Credit (EITC): Rises to $8,231 for families with three or more children.

• Health FSA limit: Increases to $3,400 with a $680 carryover option.

• Transportation and parking benefits: Increase to $340 monthly.
• Medical Savings Account limits and foreign earned income exclusions are also adjusted upward.

These updates, while smaller in scale, can improve borrowers’ disposable income and household balance sheets — key factors in mortgage affordability and refinancing potential.

Unchanged or permanent provisions

Some items remain locked in under the OBBB and could continue to shape tax strategy for homeowners:

• Personal exemptions remain eliminated.
• The itemized deduction limit stays repealed but includes a cap for taxpayers in the 37 percent bracket.
• Lifetime Learning Credit phase-outs remain unadjusted ($80,000–$90,000 single / $160,000–$180,000 joint).

Together, these provisions mean fewer households will itemize deductions — continuing a trend that has reduced the number of filers claiming the mortgage interest deduction since 2018.

Mortgage industry takeaway: planning for 2026 and beyond

For mortgage professionals, these inflation adjustments underscore the importance of proactive borrower education. While higher deductions and thresholds may simplify tax filing for some, they also reshape the financial calculus around homeownership, refinancing, and real estate investment.

Lenders and advisers should:

• Reassess borrower qualification models as income thresholds shift.
• Update financial planning tools to reflect higher standard deductions.
• Educate clients on the continuing impact of the mortgage interest deduction and SALT limitations.
• Encourage estate planning discussions for high-value homeowners under the new $15 million exclusion.

Bottom line

The IRS’s 2026 inflation adjustments, combined with reforms from the One, Big, Beautiful Bill, will influence tax strategies, mortgage qualification, and household affordability for millions of Americans. As these changes take effect for returns filed in 2027, the mortgage and housing industries have an opportunity to guide clients through a new era of tax-aware homeownership.