Navigating the 2026 Tax Proposals: Key Changes and Their Implications

Published on February 14, 2025 by Mark Hamad in Tax Services

With 2025 and a new presidential administration well underway, new tax proposals are poised to reshape the tax landscape for both businesses and individuals – and may have a significant impact on tax deductions, tax credits, and overall tax liabilities for virtually every taxpayer. We’re taking a look at the major components and their potential implications.

Proposed changes to State and Local Tax (SALT)

Right now, individual taxpayers face a $10,000 cap on SALT deductions when itemizing on Schedule A. The limit, which was introduced under the Tax Cuts and Jobs Act (TCJA) is set to expire along with many other TCJA provisions at the end of 2025 – and there are five separate proposals on the table, in addition to the option of allowing the cap to expire.

Allowing the SALT cap to sunset would eliminate the $10,000 cap, restoring full SALT deductions.

Proposal 1: Repeal the SALT deduction completely, removing the ability to deduct any state and local taxes.

Proposal 2: Make the $10,000 SALT cap permanent and double it to $20,000 for married couples filing jointly, thereby providing some relief for dual-income households.

Proposal 3: Increase the SALT cap to $15,000 for individuals and $30,000 for married couples filing jointly, easing the burden for taxpayers in states with higher tax rates.

Proposal 4: Limit SALT deductions to property taxes only, thereby eliminating deductions for state and local income and sales taxes. Under this proposal, the current $10,000 cap would expire.

Proposal 5: Eliminate the business SALT deduction while leaving the individual SALT deductions unchanged.

Proposed changes to mortgage interest deductions

Currently, the Mortgage Interest Deduction allows deductions on mortgage interest for loans up to $750,000 for homes purchased after December 15, 2017. After the TCJA provisions expire at the end of 2025, this cap would revert to $1 million. However, new proposals aim to adjust or eliminate this deduction.

Proposal 1: Eliminate the Mortgage Interest Deduction entirely. This proposal would substantially impact homeowners – especially those in high-cost housing markets.

Proposal 2: This proposal would lower the deduction cap to $500,000, reducing tax benefits for those with larger mortgages.

Other significant tax proposals on the table

There’s a long list of other tax proposals targeting specific deductions, credits, and tax benefits that could alter the tax landscape significantly for many taxpayers. They include:

• Eliminate Head of Household Filing Status: Currently available for certain unmarried individuals who support a qualifying person.
• Eliminate the American Opportunity Credit & Lifetime Learning Credit: Currently, these tax credits are available for those taxpayers under certain income limits who are pursuing a higher education.
• Replace Health Savings Accounts (HSAs): Introduces a $9,100 Roth-Style Universal Savings Account (USA), changing how medical expenses are saved for and taxed.
• Eliminate Deduction for Charitable Contributions to Health Organizations: Currently, nonprofit hospitals are exempt from federal taxes.
• Eliminate Credit for Child and Dependent Care: Currently, working families with dependent care expenses can claim a child and dependent care credit.
• Require SSNs for Child Tax Credit: Enhances program integrity by requiring a Social Security number for each child claimed.
• Eliminate Exclusion of Scholarship and Fellowship Income: Makes these funds taxable.
• Eliminate Employer-Paid Transportation Benefits & On-Site Gym Exclusions: Makes these benefits taxable as well, affecting employee compensation packages.
• Eliminate Deduction of Interest on Student Loans: Currently, taxpayers with student loan interest can deduct up to $2,500 for those under certain income thresholds.
• Allow Auto Loan Interest Deduction: Introduces a new deduction for auto loan interest, potentially benefiting car owners.
• Eliminate Tax on Tips and Overtime: Exempts tips and overtime wages from income and payroll taxes, benefiting service industry workers.
• Exempt Americans Abroad from Income Tax: Reduces tax burdens on expatriates through elimination or expansion of the foreign earned income exclusion.
• Repeal Green Energy Tax Credits: Removes tax credits for certain clean energy initiatives.
• Repeal IRS Enforcement Funding: Could claw back some IRS government funding.
• Eliminate the Estate Tax (“Death Tax”): Repeals the estate tax, which is set to revert to a lower exclusion amount (~$7 million) after 2025.

Let’s Talk

Almost every U.S. taxpayer would be affected by these potential tax law changes – which makes it essential to have an in-depth tax analysis and strategic plan well before these changes would take place.

As always, Barnes Dennig’s team of top tax professionals is here to help you navigate these changes and develop the best strategies for your unique situation. Contact us today for a free consultation.