The recent passage of The One Big Beautiful Bill Act (OBBBA) has extended and modified several tax and regulatory provisions of interest to seniors and planners, blending inflation adjustments with new rules effective in 2026. While some maintain the status quo, others introduce fresh changes. This article highlights key updates relevant to seniors and families, focusing on how they affect estate planning, asset protection, and financial strategies for aging in place. Note that certain OBBBA provisions, like the senior deduction, are temporary and not inflation-adjusted beyond 2026. For full details, refer to Rev. Proc. 2025-32. As always, consult an elder law or tax attorney or financial planner to tailor these to your situation.
Estate and Gift Tax Adjustments
The following changes secure most estates from onerous estate taxes:
- Annual Gift Exclusion: Remains $19,000 per donee in 2026, with no increase to $20,000 until 2027 or later. For gifts to non-citizen spouses, the maximum rises to $194,000.
- Basic Exclusion Amount: OBBBA sets a new $15,000,000 base for the estate and gift tax exclusion (and GST exemption) for U.S. citizens/residents in 2026, with inflation adjustments starting in 2027. Nonresidents retain a $13,000 credit on U.S. assets only—check tax treaties for international implications.
- Special Use Valuation: For real property under IRC §2032A, the maximum fair market value decrease jumps to $1,460,000 for 2026 decedents.
Clarifying a Common Misunderstanding Regarding "Taxable Gifts"
The $19,000 annual gift tax exclusion (per donee in 2026, with no inflation adjustment until 2027) allows individuals to gift that amount without reporting to the IRS. Gifting beyond this, however, triggers a filing requirement using IRS Form 709, not an immediate tax. The excess (amount over $$19,000 in 2026) is applied against the future lifetime gift and estate tax exemption, currently $15,000,000 for 2026 for U.S. citizens/residents, before any tax liability kicks in. Only after exhausting this exemption (and the GST tax exemption, which mirrors it) does a 40% gift tax apply to amounts over $15,000,000, with rates escalating based on the taxable estate at death. For nonresidents, a $13,000 credit applies to U.S. assets, unaffected by inflation.
The misconception that gifting above $19,000 incurs an "onerous tax" stems from confusion with the filing obligation and the potential future tax liability, which few reach due to the high exemption. This fear dissuades seniors from gifting to reduce assets for Medicaid eligibility, a critical strategy for some.
Medicaid planning often involves "spending down" assets to qualify for long-term care coverage, including home- and community-based services (HCBS) to avoid nursing homes. Gifting is a common tactic to preserve assets from spend down, but the belief in an immediate tax penalty, despite the $15 million cushion, leads many to hoard assets, risking disqualification or reliance on costly facilities. For example, gifting $50,000 to a child triggers Form 709, applying $31,000 against the exemption, with no tax unless the lifetime limit is breached. Yet, this process sometimes confuses or intimidates families, delaying planning and leaving assets vulnerable. Proper gifting, timed with legal advice, can align with HCBS waivers, preserving home care funds. The OBBBA’s high exclusion amplifies this opportunity, but misinformation stalls action.
Income Tax Brackets for Individuals
The top 37% bracket starts at $768,700 for joint filers ($640,600 for singles/heads of household) in 2026, up from $751,600 and $626,350. This threshold now triggers the itemized deduction limitation under IRC §68: once taxable income (plus itemized deductions) exceeds it, deductions reduce by 2/37ths of the excess or total deductions (whichever is less). Note OBBBA's new 0.5% AGI floor for charitable deductions and phased $40,000 State and Local Tax (SALT) cap (down to $10,000 based on AGI over thresholds). SALT is a specific topic; more information regarding the SALT deduction and planning opportunities is available (follow the links).
OBBBA subtly adjusts the 10% and 12% brackets with an extra year's inflation (from 2016), expanding them slightly compared to higher brackets (adjusted from 2017). For estates and non-grantor trusts, the 37% bracket begins at $16,000 (up from $15,650), now subject to itemized deduction limits under revised IRC §68, potentially affecting charitable or Income in Respect of a Decedent (IRD) deductions.Standard and Senior Deductions
- Standard Deduction: Increases to $32,200 (joint), $24,150 (head of household), and $16,100 (single) in 2026. Additional amounts for those 65+ or blind rise to $2,050 ($1,650 for joint filers) if not itemizing.
- New Senior Deduction: Starting in 2025 through 2028, individuals aged 65 and over can claim an additional $6,000 below-the-line deduction ($12,000 for joint filers if both qualify), regardless of itemizing or taking the standard deduction. It phases out for modified AGI above $75,000 (single) or $150,000 (joint), fully disappearing at $175,000/$250,000. This stacks with the existing additional standard deduction for seniors ($2,050 single/$1,650 per spouse in 2026), potentially reducing taxable income by up to $8,050 for a single senior taking the standard deduction. For retirees relying on Social Security (still taxable), this could lower or eliminate federal liability, freeing funds for home modifications or in-home aides. inflation adjustments.
SALT Deduction and QBI Updates
- SALT Cap: Rises to $40,400 in 2026 (escalating 101% annually through 2029), phasing down to $10,000 based on MAGI over $505,000. state-level pass-through entity tax (PTET) elections remain viable workarounds since the final text of OBBBA did not disqualify PTET.
- Qualified Business Income (QBI) Thresholds: Phase-in increases to $150,000 (joint) or $75,000 (others), with 2026 thresholds at $403,500 (joint) and $201,775 (others), expanding the phase-in range to $553,200 and $276,750.
- Qualified Small Business Stock (QSBS) Exclusion: Boosts to $15,000,000 for stock issued post-July 5, 2025, with no 2026 inflation adjustment (resumes in 2027). Pre-OBBBA stock stays at $10,000,000.
- Alternative Minimum Tax AMT) Phaseout: Resets to $1,000,000 (joint) and $500,000 (others) in 2026, with a new inflation base; estates/trusts at $104,800 for 2026.
- A Stealth Increase in Taxes: The OBBBA's AMT provisions, while extending the TCJA's higher thresholds, effectively increase taxes for lower- and middle-income earners through a "stealth reset" of inflation adjustments. By recalculating the base year for AMT phaseout thresholds from 2026 onward, the law pulls back the higher 2025 inflation-adjusted figures ($1,252,700 joint/$626,350 single) to their original base ($1,000,000/$500,000), then resumes inflation from this lower starting point. This disproportionately affects seniors on fixed incomes, retirees with investment income, and those itemizing deductions, potentially increasing their tax liability by thousands. Below, I'll illustrate with examples relevant to aging-in-place planning, where preserving after-tax income for home care is critical.
- Understanding the Change: Pre-OBBBA (TCJA Extension) AMT phaseout thresholds would have continued inflating from 2025 levels (~$1.25M/$626K joint/single), keeping more taxpayers out of AMT. But OBBBA thresholds reset to $1M/$500K in 2026 (no inflation carryover), then inflate from that base starting 2027. The result is ~20-25% lower thresholds than formerly projected, capturing more moderate-income filers.
- Illustration- Retired Couple Filing Jointly: Assume a retired couple (joint filers) with $150,000 AGI in 2026, including taxable Social Security ($30K), pension ($60K), and investment income ($60K with $20K state taxes paid). They itemize $25K (including $15K SALT, medical expenses over 7.5% AGI threshold).
- Scenario 1: Pre-OBBBA (Continued Inflation) AMT Phaseout: ~$1.27M (2026 projection from 2025 $1.25M base):
- Regular Tax: ~$18,500 (after $32,200 std deduction + senior add'l).
- AMT Calculation: Tentative Minimum Tax ~$22,000, but phaseout doesn't apply (AGI well below $1.27M).
- Final Tax: $18,500 (no AMT hit).
- Scenario 2: OBBBA (Reset Base)AMT Phaseout: $1M (reset, no 2026 inflation yet).
- Regular Tax: Same ~$18,500.
- AMT Calculation: Tentative ~$22,000; exemption phases out slightly due to reset threshold, but key hit is add-back of SALT deduction under AMT rules.
- AMT Liability: ~$3,800 additional (recaptures $15K SALT + preference items).
- Final Tax: $22,300 (+$3,800 increase, or 20% hike).
- Illustration- Single Senior: Example ($80K AGI, $12K itemized, including $8K SALT):
- Pre-OBBBA: No AMT (~$626K threshold)
- OBBBA: AMT adds ~$1,200 (SALT recapture)
- Net Increase: 15% on tax bill
- Why Seniors Are Hardest Hit: While the AMT reconfiguration may impact other taxpayers, seniors are most vulnerable for the reasons that follow.
- Fixed Income Sensitivity: Retirees rely on after-tax dollars for home modifications, aides, or HCBS waivers—$3K+ extra tax could force care cuts.
- SALT Exposure: States like NY, CA, NJ (high taxes) see bigger AMT bites; seniors in high-cost areas face a double whammy.
- Itemizing Common: Medical expenses (over 7.5% AGI) + property taxes push many into AMT recapture.
- No Senior AMT Relief: OBBBA's $6K senior deduction helps regular tax but doesn't shield AMT preferences.
Enhanced Deductions for Seniors and HomeownersOBBBA provides additional modest but meaningful tax relief for older adults, particularly those on fixed incomes:
Conclusion: Planning Ahead for 2026 and BeyondOBBBA's changes provide opportunities for tax efficiency in elder planning, such as leveraging higher exclusions for gifting or trusts to fund aging-in-place needs. However, temporary provisions like the senior deduction emphasize timely action. Tie these to directives specifying home care preferences to avoid institutional risks.- Mortgage Insurance Deduction: Permanent extension of the deduction for mortgage insurance premiums (including FHA and private), effective for 2025+ payments, benefiting seniors downsizing or maintaining homes for aging in place.
- Child Tax Credit for Dependents: Permanent $500 credit for non-child dependents (e.g., elderly parents), aiding multigenerational households and family caregiving
- HCBS Expansion and Staffing Delay: A 10-year delay on federal long-term care staffing mandates (from the 2024 CMS rule) gives facilities breathing room but prioritizes community-based waivers, potentially boosting funding for in-home aides over nursing homes. This aligns with aging-in-place goals, but reduced federal matching rates could strain state programs, increasing waitlists for HCBS in states like Missouri or Ohio.
- Provider Tax Limits: Bans on new provider taxes and caps on increases limit states' ability to fund Medicaid LTSS, potentially raising costs for seniors in facilities and encouraging shifts to home care.
- Eligibility Tightening: Stricter Medicaid work requirements exempt caregivers for dependents (including seniors), but overall cuts could disenroll 10-17 million, affecting dual eligibles and LTSS access. In California, the home exemption for long-term care Medicaid drops to $1 million in 2028, urging asset protection trusts now.
- Medicare Cuts via PAYGO: OBBBA potentially triggers up to 4% annual Medicare reductions ($490 billion through 2034), potentially affecting Skilled Nursing Home reimbursements and raising out-of-pocket costs for skilled care. This incentivizes planning for in-home therapy to avoid facility stays and asset protection planning, but may make seniors relying on such care vulnerable. If you are curious about PAYGO, follow the link.
- Rural Health Funding: A $50 billion Rural Health Transformation Program over 5 years supports telehealth and HCBS in underserved areas, benefiting aging-in-place in rural states.
While this article has endeavored to provide a thorough examination of OBBBA's 2026 tax updates and their elder law implications, it is by no means comprehensive. Tax laws evolve rapidly, influenced by policy changes and individual circumstances that no single resource can fully capture. Therefore, readers must remain vigilant, continuously educating themselves through reliable sources like the IRS, AARP, and local elder law attorneys and tax professionals, while regularly evaluating their personal situations to identify potential risks. By combining awareness with tools such as trusts, POAs, and advance directives, seniors and their families can better safeguard financial independence and thrive while aging in place. For ongoing support, consult a professional and stay informed. Your security depends on proactive engagement.
A special thanks to Griffin Bridgers, publisher of State of Estates, and his recent article, "Tax Inflation Adjustments for 2026," on which this article is heavily reliant.
