What's New for 2026 Tax Season

Short Answer

The 2026 filing season opens January 26, when the IRS begins accepting 2025 tax returns. The One Big Beautiful Bill (OBBB), signed July 4, 2025, created several significant new deductions: up to $6,000/$12,000 for taxpayers 65 and older, increased SALT deduction cap from $10,000 to $40,000, and new deductions for car loan interest, tipped workers, and overtime pay. Standard deduction increased to $15,750 (single) and $31,500 (married filing jointly). Form 1099-DA cryptocurrency reporting begins this year.

What This Means in Practice

The One Big Beautiful Bill represents the most significant tax law change for individual filers since the 2017 Tax Cuts and Jobs Act. The new provisions target specific taxpayer groups with most deductions expiring after the 2028 tax year.

For taxpayers 65 and older or in high-tax states, the combination of new deductions could substantially reduce 2025 tax liability. The SALT cap increase from $10,000 to $40,000 particularly benefits high-income filers in states like California, New York, New Jersey, and Connecticut.

Form 1099-DA cryptocurrency reporting begins this year. Brokers must report digital asset transactions to the IRS, though basis reporting is optional for 2025. The IRS receives transaction data and will use automated matching to identify unreported crypto activity.

Filing Season Dates

IRS begins accepting returns: January 26, 2026

Tax deadline: April 15, 2026

Extension deadline: October 15, 2026 (file Form 4868 by April 15)

First quarter estimated tax payment: April 15, 2026

E-filed returns with direct deposit typically receive refunds within 21 days. Paper returns take 6-8 weeks.

Major OBBB Tax Changes

Enhanced Senior Deduction

If you were born before January 2, 1961 (age 65 or older at end of 2025), you can claim a deduction of up to $6,000 (single) or $12,000 (married filing jointly, both spouses eligible). This deduction is available whether you itemize or take the standard deduction.

Phase-out: The deduction reduces by 6 cents for every dollar of modified adjusted gross income (MAGI) over $75,000 (single) or $150,000 (joint). Complete phase-out occurs at $175,000 MAGI (single) or $250,000 (joint).

Example: Single filer, age 70, $90,000 MAGI. Income exceeds threshold by $15,000, reducing the deduction by $900. Actual deduction: $5,100.

This deduction is separate from and in addition to the standard deduction and the existing bonus standard deduction for taxpayers 65 and older. The provision expires after the 2028 tax year.

SALT Deduction Cap Increase

The state and local tax (SALT) deduction cap increased from $10,000 to $40,000 for single filers and married couples filing jointly ($20,000 for married filing separately). The cap increases 1% annually through 2029, then reverts to $10,000 in 2030.

High-income phase-out: The $40,000 cap reduces by 30 cents for every dollar of MAGI over $500,000 ($250,000 married filing separately), with a floor of $10,000 ($5,000 married filing separately).

This change substantially benefits itemizers in high-tax states with significant state income tax and property tax liabilities. For many high-income filers previously capped at $10,000, the increase to $40,000 makes itemizing more valuable than the standard deduction.

Car Loan Interest Deduction

Deduct up to $10,000 of interest paid on a loan to purchase a new (not used) passenger vehicle, provided final assembly occurred in the United States and the vehicle weighs less than 14,000 pounds.

Phase-out: Reduces by $200 for every $1,000 of MAGI over $100,000 (single) or $200,000 (joint). Complete elimination at $150,000/$250,000.

Verify U.S. assembly by checking the vehicle identification number (VIN) at the National Highway Traffic Safety Administration’s VIN Decoder. The deduction applies whether you itemize or take the standard deduction and is available for 2025-2028 tax years.

Tipped Worker Deduction

Workers who receive cash tips in jobs that customarily involved tipping before 2025 can deduct up to $25,000 of those tips from taxable income.

Phase-out: Reduces by $100 for every $1,000 of MAGI over $150,000 ($300,000 joint). Complete elimination at $400,000/$550,000.

Married taxpayers must file jointly. The deduction is available for 2025-2028 tax years whether you itemize or take the standard deduction.

Overtime Pay Deduction

Workers can deduct up to $12,500 of qualified overtime compensation ($25,000 for joint filers) from taxable income.

Phase-out: Same structure as tipped worker deduction. Reduces by $100 per $1,000 of MAGI over $150,000/$300,000. Complete elimination at $275,000/$550,000.

Available for 2025-2028 tax years. Married taxpayers must file jointly.

Standard Deduction

The standard deduction for 2025 is:

• Single or Married Filing Separately: $15,750
• Married Filing Jointly or Qualifying Surviving Spouse: $31,500
• Head of Household: $23,625

Additional amounts for age 65+ or blind:

• Single/Head of Household: add $2,000
• Married (each qualifying spouse): add $1,600

Taxpayers both 65+ and blind receive double the additional amount: $4,000 (single) or $3,200 per qualifying spouse.

Retirement Plan Contribution Limits

401(k), 403(b), and 457 Plans

• Base contribution limit: $23,500
• Age 50 and older catch-up: $7,500 (total $31,000)
• Ages 60-63 enhanced catch-up: $11,250 (total $37,750)

The enhanced catch-up for ages 60-63 was created by the SECURE 2.0 Act and applies to most 401(k), 403(b), and governmental 457 plans.

Traditional contributions reduce current taxable income. Roth contributions are made with after-tax dollars but qualified withdrawals are tax-free.

IRA Deduction Phase-Outs

If you are covered by a retirement plan at work, the deduction for traditional IRA contributions phases out based on MAGI:

• Married filing jointly or qualifying surviving spouse: $126,000-$146,000
• Single or head of household: $79,000-$89,000
• Married filing separately: $0-$10,000

If your spouse is covered by a workplace plan but you are not, your deduction phases out between $236,000 and $246,000 MAGI.

Roth IRA Contribution Phase-Outs

Roth IRA contribution eligibility phases out at:

• Married filing jointly or qualifying surviving spouse: $236,000-$246,000
• Single, head of household, or married filing separately (lived apart all year): $150,000-$165,000
• Married filing separately (lived together any time during year): $0-$10,000

Alternative Minimum Tax (AMT)

The AMT exemption amount for 2025:

• Single or Head of Household: $88,100
• Married Filing Jointly or Qualifying Surviving Spouse: $137,000
• Married Filing Separately: $68,500

The exemption begins phasing out at $626,350 MAGI ($1,252,700 for married filing jointly).

High-income taxpayers with substantial state and local taxes, large depreciation deductions, or significant incentive stock option exercises should calculate AMT liability to determine whether the higher SALT cap provides actual tax savings.

Form 1099-DA Cryptocurrency Reporting

Brokers who facilitated digital asset sales in 2025 must send Form 1099-DA reporting proceeds from those transactions. The form shows:

• Sale proceeds
• Date acquired and date sold
• Cost basis (optional for 2025, required in future years)

Key issue: Most brokers will not report basis for 2025 transactions, particularly for assets transferred from other wallets. The IRS receives the same 1099-DA data. Their automated matching system will propose tax on unreported proceeds assuming zero basis unless you report complete information on Form 8949.

You must answer the digital assets question on Form 1040 or 1040-SR regardless of whether you received a 1099-DA. Decentralized exchange (DEX) activity does not generate a 1099-DA but remains fully taxable.

Common Questions for Complex Filers

How do the new OBBB deductions interact with AMT?

The enhanced senior deduction, car loan interest deduction, tipped worker deduction, and overtime deduction reduce regular taxable income but may not reduce AMT liability. If you are subject to AMT, the actual tax benefit of these deductions may be less than expected. Professional tax calculation is recommended if you typically pay AMT.

Does the higher SALT cap actually help if I’m subject to AMT?

Possibly not. State and local taxes are not deductible for AMT purposes. If your AMT liability exceeds your regular tax liability, the increased SALT cap provides no benefit. Calculate both regular tax and AMT to determine actual savings.

Can I claim both the enhanced senior deduction and maximize SALT deductions?

Yes, if you meet the requirements for both. The enhanced senior deduction is available whether you itemize or take the standard deduction. The SALT cap increase only helps itemizers. For many high-income seniors in high-tax states, itemizing with the $40,000 SALT cap plus claiming the enhanced senior deduction produces the best result.

How should I handle Form 1099-DA if I transferred crypto between exchanges?

Report all transactions on Form 8949 with accurate cost basis, even if the 1099-DA shows zero basis or omits it entirely. Document transfers between wallets and exchanges with transaction IDs and blockchain records. The IRS’s automated system will flag discrepancies, but proper documentation and complete reporting prevents problems.

What if my MAGI puts me in the phase-out range for multiple deductions?

Calculate each deduction separately using the specific phase-out rules. The phase-outs are independent. High MAGI can reduce or eliminate multiple deductions simultaneously, particularly if you exceed $400,000 (single) or $550,000 (joint).

When Professional Help Makes Sense

Consider professional tax preparation if:

• You qualify for multiple OBBB deductions and need to optimize which to claim
• You are subject to AMT and need to calculate whether new deductions provide actual benefit
• You received Form 1099-DA with missing or incorrect basis and have substantial crypto activity
• You file in multiple states and the higher SALT cap changes your itemization strategy
• You have complex investment income (incentive stock options, K-1s, substantial capital gains)
• Your MAGI places you in phase-out ranges for multiple tax benefits

The OBBB provisions are new and interactions with AMT, phase-out calculations, and state tax implications create complexity. Getting the calculations wrong means either overpaying tax or facing IRS scrutiny.

What To Do Next

If you’re ready to file:

1. Gather all tax documents (W-2s, 1099s, 1099-DA if applicable, K-1s)
2. Determine which OBBB deductions apply to your situation
3. Calculate whether itemizing or standard deduction is more beneficial
4. Verify documentation for all deductions claimed
5. File electronically with direct deposit

If you’re not ready:

1. Organize documents as they arrive (1099s due by January 31)
2. Review eligibility for new OBBB deductions
3. Estimate tax liability including AMT calculation
4. Assess whether DIY or professional preparation fits your situation
5. Consider setting aside funds if you expect to owe

The April 15 deadline applies unless you file for an automatic extension, but extension to file is not extension to pay. Estimate and pay any tax owed by April 15 to avoid penalties.

Wendy Litten, EA
Enrolled Agent since 2006, serving clients nationwide with cryptocurrency tax expertise, complex return preparation, and IRS representation.
Litten Tax