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Marketmail PWM Tax Bomb

Here at Patriot Wealth Management (PWM) of Raymond James, we get it. A Market mail on taxes is probably a cure for insomnia for most of our clients.

But we wrote this one because the changes which are scheduled for the year 2026 are massive. Some are positive changes, but most are negative changes.

Many of the items in the Tax Cuts and Jobs Act of 2017 are slated to “sunset” (end) at the end of 2025.

Here are the big ones to know about:

  1. The Standard Deduction will be cut by about 50% (i.e. down from $25,900 today to $12,700 for married-filing-jointly taxpayers). When you file your taxes each year, you either select the standard deduction, or the itemized deduction. Per the IRS, more than 87% of tax payers choose the standard deduction. And that deduction is being cut in half. Why does it matter? Because cutting your deduction in half will increase what you pay in taxes.
  1. Alternative Minimum Tax (AMT) will apply to a lot more taxpayers because the exemption level will reset much, much lower. AMT is basically extra capital gains tax (an extra 3.8%). The AMT was created in 1969 to try to prevent extremely wealthy people from using deductions & credits to reduce their taxes. But it was never indexed with the rising cost of living. So while in 1970 only 19,000 taxpayers suffered under AMT, in 2018 more than 5 million people paid AMT. And most of those 5 million people are not extremely wealthy at all. Why does it matter? Because odds grow significantly that you will be paying more in taxes because you are suddenly subjected to a tax you never had to pay before (the AMT).
  1. Qualified Business Income (QBI) disappears. QBI is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. Why does it matter? Because if you are a business owner who currently leverages QBI, seeing it eliminated will likely raise your taxes dramatically.
  1. The Federal Estate Tax Exemption will be cut in half. Basically, right now an individual’s estate can pass up to $12.06 million in assets to their heirs without owing federal estate tax. The figure is up to $24.12 million for a married couple. That means a LOT of people never have to worry about their heirs dealing with federal estate tax. But in 2026, the exemption is set to drop to $6 million for an individual ($12 million for a married couple). Still sounds like a lot, right? But remember it likely includes your portfolio assets, real estate, life insurance death benefits, and possibly your business assets. Some people can get to $6 million really quickly. Why does it matter? Federal estate tax rates for 2026 and beyond are scheduled to run on a graduated scale from 18% up to 40%. Can you imagine your heirs having to give the US Government anywhere near 40% of your life’s hard work?
  1. Individual Tax Rates are set to go higher.

Right now the tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%

But they will be moving back up to 10%, 15%, 25%, 28%, 33%, 35% and 39.6%

Why does it matter? This one’s pretty easy. Most people will simply pay more in income taxes.

  1. Mortgage Interest Deduction increases. Today, you can only deduct the interest you pay on up to $750,000 of qualified mortgage debt. In 2026, it will be up to $1 million, and $100k of home equity debt. Why does it matter? If you have a very large mortgage and/or home equity line of credit, your taxes may decrease as you will be able to deduct more of the interest you are paying.
  1. The SALT deduction will no longer be limited to $10k/year (but will be subject to phase outs, starting at $261,500 for individuals and $313,800 for couples). SALT stands for State & Local Tax deduction. Why does it matter? If you are not phased out, and you pay more than $10k/year in State & Local taxes, you will likely owe less in taxes thanks to the SALT cap being removed.

Questions? As always, we are here to help you.

Authors: Matt Pruitt and Matt Fisher

Matthew Pruitt, AIF®

Senior Vice President, Branch Manager

Matt.pruitt@raymondjames.com

Matthew Fisher, CFP®, CRPS

First Vice President

matthew.fisher@raymondjames.com

Dale A. Hoernlein

SR. Registered Client Service Associate

Dale.hoernlein@raymondjames.com

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Source: The Internal Revenue Service.

The views expressed herein are those of the author and do not necessarily reflect the views of Raymond James & Associates or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.