Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on federal and state estate taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What's the lifetime federal estate and gift tax exemption?

Question: What is the lifetime federal estate and gift tax exemption for people who die this year? Will it be different for 2027 deaths?

Joy Taylor: The lifetime federal estate and gift tax exemption for people who die in 2026 is $15 million. This amount will go up each year with annual inflation. We don't yet know the figure for 2027 deaths.

2. How many estates pay federal estate tax?

Question: I'm curious how many estates actually pay estate tax, now that there is such a high lifetime federal estate and gift tax exemption.

Joy Taylor: In recent years, about 7,000 Form 706 estate tax returns have been filed with the IRS each year. More than half of these filings are from taxable estates of decedents, meaning estates that owe the federal estate tax.

The nonpartisan Tax Policy Center recently estimated that 6,890 federal estate tax returns would be filed for decedents dying in 2026, with 3,900 filed by taxable estates and 2,990 filed by estates that owe no tax.

3. Will the IRS tax me on inherited property?

Question: My grandmother recently died, and I inherited an appreciated, valuable piece of real property that she owned. Will the IRS tax me on my inheritance?

Joy Taylor: No. Inheritances are generally tax-free for federal tax purposes. And you would generally take a stepped-up tax basis in the inherited property equal to fair market value at the time of your grandmother's death. So if you sell the property shortly after her death, you shouldn't recognize much taxable gain from the sale.

4. Which states have their own estate, inheritance taxes?

Question: Which states have their own estate or inheritance taxes?

Joy Taylor: Most states do not impose taxes upon death. However, some do. Washington, D.C., and 12 states levy their own estate taxes on decedents. These states are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.

The estate tax exemption amounts in the 13 locales vary widely from state to state, and most are far below the federal exemption. Only Connecticut has hiked its estate tax exemption amount to close to the current federal level.

Five states impose an inheritance tax. They are Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

For more information, see our article on states with scary estate and inheritance taxes.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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For some retirees living on a fixed income, making ends meet can be especially challenging when everyday costs are high, as they are now. Just a couple of months ago, data showed that gasoline prices were up 27.4% from a year earlier, while grocery and housing prices keep rising.

When affordability is straining your budget, keeping more of the income you already have can make a difference. Enter taxes: another cost retirees have long had to contend with.

As you likely know, not all retirement income is taxed the same way. Some income is fully taxable, some is partially taxable, and some can be excluded from your federal taxable income altogether.

Knowing which income is tax-free can help you make the most of your retirement money and keep more of it available for everyday expenses. Here's a look at five common types of retirement income the IRS won't tax.

Nontaxable income in retirement

This is not an all-inclusive list of types of income the IRS won't tax. It's merely a sampling, for educational purposes, of some common sources of retirement income.

Because every individual's financial circumstances are different, consult a trusted tax advisor or certified financial planner who knows your situation and can offer tailored guidance.

1. Life insurance proceeds

Although life insurance typically isn't considered retirement income in a traditional sense, a surviving spouse or other beneficiary may receive a payout that helps cover living expenses or supplement other income.

Important to know: Life insurance proceeds generally aren't taxable income when paid to a beneficiary after the insured person's death.

For example, if your spouse has a $500,000 life insurance policy and you receive the $500,000 death benefit after your spouse passes, you generally won't owe federal income tax on those proceeds.

But...there are exceptions. Interest paid in addition to the death benefit is generally taxable. Special rules can also apply if you transferred a life insurance policy for value.

2. Qualified Roth account withdrawals

Qualified withdrawals from Roth IRAs and Roth 401(k)s are tax-free.

That's a key advantage of Roth retirement accounts. You contribute money after paying income taxes on it, so you don't get an upfront tax deduction. In exchange, you generally don't pay federal income tax on qualified withdrawals in retirement.

• For a Roth IRA, withdrawals are generally qualified if you've met the five-year holding period and are at least 59½.
• The five-year period generally starts with the first tax year for which you made a Roth IRA contribution.
• Other qualifying circumstances include becoming disabled or dying.
• Roth 401(k) distributions are also tax-free when they meet the applicable requirements.

A simplified example: If you withdraw $30,000 from a Roth IRA in retirement and the distribution is qualified, that $30,000 generally isn't included in your taxable income.

Not every Roth withdrawal is automatically tax-free, though. If you take a nonqualified distribution, the earnings portion may be taxable and could be subject to a 10% additional tax.

3. Municipal bond interest

Interest from many municipal bonds is generally exempt from federal income tax.

• States, cities, and other government entities issue municipal bonds to help finance public projects.
• For retirees and others who want investment income, tax-exempt municipal bond interest can provide cash flow without increasing federal taxable income.

For example, if you receive $5,000 in tax-exempt interest from qualifying municipal bonds, that interest generally isn't included in your federal taxable income.

There are exceptions. For instance, interest from certain private-activity municipal bonds can be subject to the alternative minimum tax.

State tax treatment can also vary. Depending on where you live and which bonds you own, you could owe state or local income tax even when the interest is exempt from federal tax.

4. Part of some pension payments

If you contributed after-tax money to a pension or annuity, you generally don't have to pay income tax again on the portion of your payments that represents your original investment.

This situation is more common with certain traditional pensions and annuities than with Social Security benefits or retirement accounts. The IRS generally refers to the after-tax portion as your "investment in the contract."

For example, suppose you contributed $50,000 of after-tax money toward a pension. When you begin receiving payments, you generally won't pay income tax on the portion of each payment that represents a return of that $50,000. The remaining taxable portion is generally included in your income.

The IRS has rules for determining how much of each payment is taxable and how much is tax-free. Depending on when your pension began and the type of annuity or pension you have, different calculation methods may apply.

So don't assume that your entire pension check is taxable simply because it comes from a traditional pension. Check your plan documents and tax forms (and/or consult a tax attorney) to determine whether you have an after-tax investment in the pension.

5. At least 15% of Social Security benefits

Up to 85% of your Social Security benefits can be subject to federal income tax, but the taxable amount depends on your income.

The IRS uses a measure called “combined income” to determine how much of your benefits, if any, is taxable. Generally, it includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.

For 2026, your benefits generally are tax-free if your combined income is less than $25,000 for single filers or $32,000 for married couples filing jointly.

Above those thresholds, up to 50% of your benefits may be taxable. And as mentioned, at higher income levels, that figure can rise to 85%.

Another important consideration: Withdrawals from a traditional IRA or 401(k) can increase your combined income and may make more of your Social Security benefits subject to tax.

And...Under the 2025 Trump tax law, eligible taxpayers age 65 and older can claim an additional "senior bonus deduction" of up to $6,000 per person for 2025 through 2028. The deduction is subject to income limits and can reduce federal income tax owed, but it doesn't change the rules for determining whether Social Security benefits are taxable.

State taxes on retirement income

Federal and state tax rules can vary for retirement income. Income that isn't taxed by the IRS may still be subject to state tax, since states often have their own exemptions or deductions for retirement income.

• For example, nine states don't impose an individual income tax.
• Other states may exempt Social Security benefits but tax some or all pension income, traditional IRAs, 401(k)s, or other retirement accounts.
• Some also provide special deductions or exemptions for older taxpayers or for certain types or amounts of retirement income.

State retirement taxes can make a significant difference if you're considering where to retire. But don't judge a state's tax burden based solely on whether it has an income tax. As Kiplinger has reported, property taxes, sales taxes, estate and inheritance taxes, and other state and local levies can affect your overall cost of living.

If you're comparing states for retirement, look at how each one would tax your specific mix of income and assets, rather than relying on a state's reputation as being "tax-friendly" for retirees.

Retirement taxes: Bottom line

If you're worried about taxes eating into your retirement income, start planning before you need to take distributions. Traditional IRA and 401(k) withdrawals, for example, are generally taxable, as are many other common sources of retirement income, including interest, dividends, and capital gains.

Look at your expected income for the year and consider how a withdrawal, investment sale, or other financial decision could affect your overall tax picture. In some cases, it can help to spread income out when possible, rather than creating a large taxable-income spike in a single year.

As mentioned above, don't forget about state tax. If you're considering a move in retirement, compare the tax rules in the states you're considering based on your actual sources of income.

Related

• Types of Income the IRS Won't Tax in 2026
• Take Our Quiz: How Much Do You Know About Taxable Income?
• 5 Types of Gifts the IRS Won't Tax: Even If They're Big
• How All 50 States Tax Retirees

As Election Day approaches, all eyes are on the races that will determine the political makeup of the Senate and House of Representatives. The outcome could have far-reaching implications for the federal government's legislative agenda in coming years.

But voters will have more to decide than who is taking office in Congress. Many will also have their say on statewide ballot measures, including ones that could affect how much residents pay in taxes. Here are some of the state initiatives that voters will see in November.

State ballot measures on property taxes

In several states, voters will weigh ballot measures related to property taxes.

North Carolina residents will decide whether to support a state constitutional amendment that would require lawmakers to limit how much local governments may increase property taxes. If passed, these restrictions would put a cap on the amount of property tax revenue localities can collect. "If revenue exceeds the limit, tax rates would automatically decrease, but an individual homeowner's bill could still increase," according to the NC Budget & Tax Center.

Oklahoma voters will also decide on a constitutional amendment involving property taxes. The proposal would lower for 2027 the annual growth limit on the calculated fair cash value of property from 5% to 4%, and the cap for property qualifying for a homestead exemption would drop from 3% to 1.75%. For those 65 and older who have a homestead-exempt property, the annual growth limit would be tiered based on the taxpayer's income, with a maximum annual limit of 1.75%.

A proposed Florida constitutional amendment includes a few provisions affecting property taxes, including one that would raise the property-tax exemption for non-school taxes to $150,000 in 2027 and $250,000 in 2028; starting in 2029, the exemption would be indexed to inflation.

Tennessee currently has no state property tax, and voters will decide whether to pass a constitutional amendment that would prohibit the state's legislature from establishing a property tax.

State ballot measures on grocery taxes

As rising food prices strain family budgets, Arizonans will have their say on a measure that would prohibit local governments from adopting or increasing a tax on grocery sales without voter approval. Any new or increased tax on groceries would be limited to a rate of 2%.

State ballot measures on retirement taxes

Known as Proposition 42, an amendment to California's constitution would ban any new taxes on retirement account balances, individually owned assets and other personal savings. The state currently does not impose any such tax on the value of these assets, such as IRAs or 401(k)s. But the state does tax distributions from traditional retirement accounts as ordinary income at a rate of up to 13.3%, and this measure would not affect those taxes.

Proposition 42 conflicts with another proposal that Californians will consider in November: a one-time, 5% tax on the net worth of residents who have more than $1 billion in wealth. If both measures pass, the one that gets more votes will prevail, according to clauses in the initiatives.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Federal taxes often get the most attention, but state and local taxes make up a significant portion of the tax burden for households across the country. As many states grapple with budget pressures and competing revenue demands, whether high earners should pay more taxes is a key question.

That issue will reach voters in several states this November, with 2026 midterm election ballot measures taking different approaches to taxing wealth and high-income households.

Proposals range from changing state income-tax rates to a one-time tax on billionaire wealth — and, in another state, repealing a recently enacted millionaire's tax. Here's more to know.

2026 State tax measures on the ballot

Note: This information is provided for educational purposes only, and the measures highlighted here are just a sampling of the tax-related questions voters will face on state ballots this November.

Colorado income tax: Amendment 87

This fall, Colorado voters will consider a major change to the state's income-tax system.

If approved, Amendment 87 would replace the Centennial State's current 4.4% flat income-tax rate with a six-tier graduated system beginning with tax years on or after Jan. 1, 2027.

• The proposed marginal rates would range from 3.7% to 8.4%, with the highest rate applying to taxable income above $1 million.
• Those rates would apply to individuals, estates, trusts, and corporations.

Under the proposal, Coloradans with taxable income below $500,000 would generally pay less in state income taxes, while those with taxable income of about $500,000 or more would generally pay more. The tax increase would become substantially larger at higher income levels.

The measure is expected to raise additional state revenue, with the Colorado Legislative Council Staff estimating an increase of about $2.7 billion in the first full fiscal year.

The money would reportedly go toward K-12 public education, healthcare, and early childhood care and education.

Supporters: The Protect Colorado's Future coalition and groups including the Bell Policy Center support the measure. They say it would reduce taxes for most Colorado taxpayers while asking higher-income households to contribute more and raising money for education, healthcare, and child care. The Bell Policy Center says 97% of taxpayers would receive a tax cut under the proposal.

Opponents: Americans for Prosperity-Colorado and the Colorado Chamber of Commerce oppose the measure. They have raised concerns about Colorado's business climate, economic competitiveness, and changes to the state's Taxpayer's Bill of Rights.

Note: A competing measure, Proposition 136 (originally introduced as Initiative 232), would instead cap individual and corporate income-tax rates at 4.4%.

California Billionaire Tax: Will Prop 40 pass?

In California, Proposition 40 takes a different approach. Instead of changing the state's income tax rates, the so-called billionaire's tax would impose a one-time levy on individuals who were California residents on Jan. 1, 2026, with their net worth evaluated as of Dec. 31, 2026

• The tax would be 5% of net worth, generally excluding real estate and certain pensions and retirement accounts, and would be due in 2027.
• Affected taxpayers could spread the payments over five years at an additional cost through an annual deferral charge.

The measure would direct 90% of the revenue to health care, with the remainder going toward education, food assistance, and administrative costs.

The state Legislative Analyst's Office estimates that the tax could generate tens of billions of dollars over several years and that changes in taxpayer behavior, including some billionaires potentially leaving California, could reduce state income-tax revenue by less than $1 billion a year.

Supporters: Backers of Proposition 40, led by SEIU-United Healthcare Workers West, say the tax would help replace healthcare funding affected by federal cuts. Supporters include U.S. Sen. Bernie Sanders, the California Democratic Party and other labor and healthcare groups.

Opponents: Gov. Gavin Newsom and a broad coalition of business, healthcare, education, and labor groups, including the California Business Roundtable, California Medical Association, California Teachers Association, California Professional Firefighters, Planned Parenthood Affiliates of California, and the State Building and Construction Trades Council, oppose the measure. They and other critics argue that a one-time wealth tax could make state revenues more volatile, discourage wealthy residents from staying in California, and reduce future income-tax revenue.

Note: Prop 41 (a proposed change to how certain new taxes interact with the state's spending limit ) and Prop 42 (prohibiting new state taxes on personal property) also appear on the Nov. 3 ballot.

If either receives more affirmative votes than Proposition 40, it would not take effect.

Washington Millionaire tax referendum: Will voters repeal?

In Washington state, voters will decide whether to repeal a new tax enacted in March 2026, rather than whether to impose one.

• As Kiplinger has reported, Senate Bill 6346 established a 9.9% tax on individual and household income above $1 million.
• The tax is scheduled to take effect on Jan. 1, 2028, with the first payments due in 2029.
• The $1 million threshold will be adjusted for inflation, and the tax would apply only to income above that amount.

However, if voters approve Initiative 645, it would repeal the tax and prohibit state and local governments in the Evergreen State from imposing taxes measured by or imposed on individual income.

The state's current fiscal analysis estimates that repealing the tax would reduce state revenue by about $11.4 billion over five fiscal years, with most of the loss affecting the state general fund. Additional reductions would affect an account that supports child care and early learning.

If the tax remains, it's expected to raise between $3 and $4 billion a year beginning in 2029. According to the Tax Policy Center, roughly 25,000 households would be subject to the levy.

Supporters: Let's Go Washington, the campaign behind I-645, argues that Washington should preserve its longstanding absence of an individual income tax and says the new tax could affect families, businesses, and the state's economy.

Opponents: Gov. Bob Ferguson and a coalition that includes public-sector unions oppose the repeal. They argue that eliminating the tax would reduce funding available for education, health care, child care, and other public priorities.

Note: The so-called millionaires tax also faces a separate legal challenge over whether it complies with Washington's constitution.

Election Day 2026: What voters should know

For voters evaluating these measures, the state tax rate is only the starting point. Here are some things to consider before voting on these or other measures.

Read the official ballot language. Campaign materials can emphasize different aspects of a measure, but the official ballot language should explain what a "yes" or "no" vote means.

Look beyond the tax headline. A 9.9% tax on income above $1 million, for example, might not be a 9.9% tax on every dollar a household earns.

Check who's affected. Income thresholds, residency requirements, exemptions, and definitions of taxable income or wealth can substantially change who pays.

Compare the arguments on both sides. Supporters and opponents may be making competing claims about revenue, economic effects, and public spending. Independent state analyses can provide another point of reference.

Keep in mind that these three states aren't the only ones with tax-related measures on the November ballot. Check your sample ballot and research what a particular measure could mean for your bottom line, as well as services or funding in your state.

And, as always, stay tuned. If voters approve any of these measures, new court challenges, implementation decisions, and updated revenue estimates could potentially impact what happens next.

Related

• Property Tax Changes Homeowners 65 and Older Should Watch in 2026
• Washington Enacts 9.9% Millionaires Tax
• New California Wealth Tax? What to Know About the Latest Proposal

Whether you pay your property tax directly or through an escrow account, reviewing your assessment each year is important. If you don't, you could miss local tax breaks, or worse, pay a higher bill on incorrect property details.

Research from Realtor.com shows that local governments potentially overassess more than 40% of U.S. properties. That means millions of homeowners miss median property tax bill savings of $539 per year — money that could go toward home improvements or other housing essentials.

So don't let your hard-earned dollars go to waste. Test your knowledge below to unlock potential property tax savings.

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Trusts are a common estate-planning tool, and with trillions of dollars expected to change hands as wealth moves from one generation to the next now and in the coming years, various trust types and the tax rules surrounding them are getting more attention.

But that might not be a good thing if the IRS is taking a second look.

In a current high-profile case, the tax agency is challenging how one family used an irrevocable trust strategy to pass wealth to their children.

Although the dispute involves a specialized trust arrangement, its potential broader lesson is worth watching for anyone using high-value trusts in their estate plan. Here's more to know.

IRS challenges irrevocable trust tax strategy

The current case involves Nashville residents, the Elcans. The IRS is seeking more than $736 million (roughly $614 million in gift taxes and $122 million in penalties), arguing that the couple's use of three irrevocable trusts didn't qualify for the intended tax treatment.

A little background according to court filings:

• In 2018, Mrs. Elcan set up three grantor-retained annuity trusts (GRATs) to pass wealth to the couple's three children. The two-year irrevocable trusts were funded with marketable securities and closely held business and partnership interests.
• As is typical with GRATs, the trusts made fixed annual payments back to the grantor, while investment growth above a set benchmark passed to the children tax-free.
• The strategy yielded roughly $200 million tax-free for their heirs across two of the trusts.

The trust agreements also contained a "substitution power" that allowed the grantor to swap personal property into the trusts to retrieve original trust assets of equal value. The grantor reportedly used that power to pull investments out of the trusts and replace them with promissory notes — essentially IOUs promising to pay the trusts back with interest.

The trusts used the promissory notes to satisfy the required annual payments, effectively canceling amounts the grantor owed the GRATs.

After auditing the arrangement, the IRS issued a notice of deficiency demanding more than $730 million in gift taxes and penalties.

According to court filings, the agency argues that using the personal promissory notes to satisfy the GRAT’s required annuity payments didn't comply with the rules governing qualified annuity interests.

• Specifically, the IRS contends that the arrangement violates Section 2702 of the Internal Revenue Code and Treasury regulations that prohibit GRATs from issuing notes to satisfy annuity payments.
• The agency argues that swapping personal IOUs into the trust, then returning them to cover the required payment was essentially an indirect step transaction designed to bypass the rule.

If that position prevails, the IRS could treat the entire $687.5 million initially transferred to the GRATs as a taxable gift.

Note: The federal gift tax generally applies when someone gives wealth to another person without receiving equal value in return. Certain estate-planning strategies can help limit how much of a wealth transfer is treated as a taxable gift when a trust is created.

However, the taxpayers maintain they followed the letter of the law because the trust didn't issue new debt to pay the annuities. Rather, they argue, the existing notes were already trust assets that were legally returned to satisfy the payment obligations.

*The case is Elcan v. Commissioner (Tax Court Docket No. 3405-25). The Tax Court hasn't yet ruled on the taxpayer's motion for summary judgment.

What is a grantor retained annuity trust, and how does it work?

A grantor retained annuity trust is an irrevocable trust designed to transfer future investment growth to beneficiaries while allowing the grantor to receive annual payments from the trust for a set period.

The strategy generally works like this:

• A grantor transfers assets to a GRAT and reserves the right to receive annuity payments during the trust term.
• The IRS uses a monthly interest rate (the Section 7520 rate or "hurdle rate") to calculate the present value of the grantor's retained annuity payments.
• If the trust's assets grow faster than the hurdle rate, the excess appreciation can generally pass to the trust beneficiaries at the end of the trust term tax-free, depending on how the GRAT is structured.

But … if the assets don't appreciate as expected, there might be little or nothing left to pass to beneficiaries after the required payments are made, and the grantor receives their principal back through the annuity payments.

In this case, if the U.S. Tax Court agrees with the IRS, the tax treatment of the original transfers could change, potentially making the full value transferred to the GRATs subject to federal gift tax.

A ruling for the IRS could also clarify how similar GRAT arrangements are treated going forward and potentially affect other taxpayers who have used similar strategies.

Trusts and estate planning: Bottom line

The Elcan case (still pending), is a reminder that details matter when using a trust or other potentially high-value estate planning strategies. How trust assets are moved, exchanged, or substituted over time can attract IRS attention.

In this instance, the Tax Court's eventual ruling could provide more guidance on grantor trusts and substitution transactions.

Regardless, always review estate plans periodically and have an estate-planning attorney and tax professional review significant transactions in advance.

Related

• Which Trust Type is Best for Your Heirs?
• Gift Tax Exclusion for 2026
• How Much of Your Inheritance Actually Gets Taxed?
• Capital Gains Tax ETF Strategy Catches Treasury's Attention

In the coming years, older generations — primarily baby boomers — are expected to pass tens of trillions of dollars to their heirs in what's colloquially known as the "Great Wealth Transfer." But cash and stock portfolios aren't the only assets changing hands.

A recent Kiplinger survey found that real estate accounts for about one-third of everything parents expect to leave behind.*

Yet, as houses are passed to the next generation, a surprising amount of uncertainty surrounds what happens next. The same study revealed that 43% of parents and 33% of heirs are left guessing about potential tax bills.

On the surface, inheriting a home comes with significant tax advantages designed to protect against capital gains tax — most notably, the "stepped-up basis" rule. Securing that protection often requires an accurate baseline value, whether through a date-of-death valuation or a retrospective appraisal.

By understanding how tax authorities calculate true property value, where the hidden pitfalls lie and discussing the future with your family, you can safeguard both your financial legacy and their peace of mind.

*Note: Conducted by Morning Consult on behalf of Kiplinger, this survey included more than 5,100 adults age 25 and older. All adult child respondents had at least one living parent, and all parent respondents had at least one child age 18 or older.

How the IRS values an inherited home

When passing a house to the next generation, a home's tax basis typically resets to the property's fair market value (FMV) as of the owner's date of death.

Because the baseline "steps up" to this new standard, heirs who sell the home shortly after inheriting it usually owe little to no federal capital gains tax.

However, whether heirs sell immediately, rent the property or wait years to sell, documenting the home's date-of-death value is essential to claim the stepped-up basis on future tax returns. (If an estate has a federal tax return, executors might be allowed to value the house six months after the date of death).

Unfortunately, when reporting a property's value on tax returns or estate disclosures, families can make the mistake of using one of two incorrect methods:

1. Property tax assessments. Local assessors determine values for property tax purposes, often using automated algorithms, valuation caps, or (at worst) outdated information. Because these figures are usually significantly lower than actual market value, using them might shrink your home's taxable baseline — exposing your heirs to unnecessary capital gains tax rates if they eventually sell.
2. Comparative market analyses (CMAs). A real estate agent's opinion or online estimate offers a helpful starting point for listing a home, but it lacks the formal, standardized methodology that federal tax law requires. As a result, the figure provided might not withstand IRS scrutiny.

To establish an official stepped-up basis for a property you plan to hold, rent or keep long-term, the general IRS "gold standard" requires a formal, qualified appraisal conducted by a licensed or certified real estate appraiser who specializes in retroactive "date-of-death" valuations.

What should an inherited home appraisal look like?

From the IRS point of view, a perfect appraisal occurs on the day of death. In reality, estate administration, probate and the natural grieving process mean months — or years — can elapse before anyone addresses the tax baseline.

That's where a retrospective (or retroactive) appraisal comes in.

Qualified appraisers can evaluate the home today and use historical market data, past comparable sales and public records to determine what the property was worth on a specific past date.

For the IRS to accept the report, the valuation must meet specific criteria:

• Professional credentials. A qualified appraiser with a recognized professional designation and verifiable real estate experience. The valuation must also adhere to the core principles and substance of the Uniform Standards of Professional Appraisal Practice (USPAP®).
• Detailed scope. The report should include specific important information, such as the exact valuation date, localized market comparisons leading up to that date and an analysis of the home's physical condition at the time.
• As-is condition. Reflects whether the property was pristine, outdated or in need of repair. Ideally, the home should not be renovated, repaired or staged before the appraiser documents its baseline state to ensure an accurate date-of-death valuation.

Formal inherited home appraisals typically range from $500 to $1,500 and might vary depending on such factors as area, size or property complexity, according to industry cost guides. Compared with potential tax liabilities and penalties, this can be a modest investment in protecting your estate (more on those later).

Quick sales of inherited homes

Do you always need a retrospective appraisal? No.

For heirs selling an inherited property within a six- to 12-month window in an open-market, arm’s-length transaction, the IRS and the U.S. tax court frequently accept the actual closing price as strong evidence of the date-of-death fair market value.

• This might make a separate date-of-death appraisal unnecessary for federal tax reporting, provided that local market conditions remained stable and no material alterations were made to the property during that time.
• If your heirs must file an estate tax return, tax experts generally recommend obtaining a formal retrospective appraisal to establish a stepped-up basis.
• A formal appraisal is often required to complete local probate court inventories. It could also serve as vital, objective documentation to protect the heirs if the IRS audits the tax basis or if beneficiaries dispute the asset's value.

Related: The Estate Tax Exemption Amount for 2026

The cost of an improper valuation

If the IRS audits an estate or personal tax return and finds an unverified or inflated property basis (resulting in a tax underpayment exceeding $5,000), the financial consequences for heirs can be steep.

Beyond paying back the original capital gains tax, the IRS imposes accuracy-related penalties:

• A 20% substantial valuation misstatement penalty. Applied to the tax underpayment if the reported basis is 150% or more of the actual FMV.
• A 40% gross valuation misstatement penalty. Doubled if the claimed basis is 200% or more of the true market value.
• A 20% consistency penalty. Applied automatically if a larger estate files a federal estate tax return, and an heir claims a higher basis on their individual tax return than what the estate declared.
• Compounding interest. Applied retroactively to both back taxes and penalties from the original tax filing due date.

Note on stacking: The IRS does not stack these three penalties on top of each other for the same pool of money; usually, the federal tax agency applies the single highest applicable rate (capped at 40% for a gross misstatement) plus the compounding interest.

Starting the conversation today

Discussing estate plans can feel daunting. The Kiplinger survey shows that talking about inheritance ranks among the most uncomfortable topics for both parents and heirs — more than politics and even end-of-life wishes.

But approaching the conversation thoughtfully today might help remove confusion during what will likely be an emotionally tumultuous time.

Here are a few steps to take now to ease the process of passing down an inherited home:

• Identify a certified appraiser. If your heirs plan to keep or rent the home, research reputable, state-certified appraisal firms in your area so your heirs have a trusted professional to call when the time comes.
• Organize household records. Maintain a designated folder with home improvement receipts, closing documents and property deeds. Remind heirs to keep records of appraisal fees and closing costs. These documents might help prove the home's tax basis (repairs generally do not add to the basis).
• Clarify the taxes. Many heirs incorrectly assume inheriting a house triggers an immediate, overwhelming tax bill. Explaining how the stepped-up basis works — and how you're setting them up to use it — can help them understand the financial picture more clearly.

By taking these small steps today, you do far more than shield your children from tax headaches and audit risks — you give them space to process their grief without the weight of financial uncertainty.

Estate planning is ultimately an act of care, and properly protecting your home’s value ensures your legacy remains the true gift you intended it to be.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice. Talk to a trusted tax professional when necessary.

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Social Security needs more money, and some Congressional lawmakers want high earners to help provide it.

Sens. Elizabeth Warren, D-Mass., and Bernie Moreno, R-Ohio, are calling for the elimination of the Social Security payroll tax cap. The proposal would require people with higher wages to pay Social Security taxes on more of what they earn.

But changing the Social Security tax cap would be more complicated than simply asking high earners to pay more taxes. Key questions Congress would have to address include how to change the cap and whether additional taxes would increase Social Security benefits for high earners.

The clock is ticking. Without major changes, the Social Security retirement and survivor trust fund is projected to run short of money as soon as 2032, according to the latest Social Security Trustees' report. That could result in an across-the-board 22% reduction in benefits. Here's more to know.

How the Social Security tax limit works

If you receive a regular paycheck, you’re likely familiar with the 6.2% Social Security tax that helps fund retirement and disability benefits for millions in the U.S., since it can shrink your take-home pay. (Self-employed workers also pay Social Security tax on their earnings.)

But you might not know that, depending on your income, the Social Security payroll tax doesn't necessarily apply to all your wages. This is known as the Social Security tax cap or tax limit.

For 2026, Social Security taxes apply to the first $184,500 you earn.

• Employees pay 6.2% on those wages, while employers pay another 6.2%.
• Once your wages reach $184,500, you stop paying the Social Security portion of the payroll tax for the rest of the year.

A worker earning $200,000 and a worker earning $1 million both pay Social Security taxes on $184,500 of wages. The worker earning $1 million doesn't pay the 6.2% Social Security tax on the remaining $815,500.

That tax limit also affects future benefits. The Social Security Administration uses your earnings history to calculate your Social Security benefit, but that calculation doesn't include earnings above the tax limit.

Essentially, the current Social Security payroll tax system caps both how much high earners pay into Social Security and how much those earnings can increase their future benefits.

The question now is: What would happen if Congress lifted that ceiling?

Proposal to eliminate the Social Security tax cap

Warren and Moreno want to eliminate the current tax limit, which would subject wages above $184,500 to the 6.2% employee Social Security tax if enacted at the current rate.

They say the change would ask the highest earners to contribute to Social Security at the same rate as other workers.

"This is a no-brainer: The wealthiest Americans, who have benefited the most from America's opportunities, should contribute the same percentage of their income as a factory worker in Chillicothe, Ohio, or a teacher in Worcester, Mass," Moreno stated in a release regarding the proposal.

• For a worker earning $1 million, that would make another $815,500 of wages subject to the Social Security tax.
• At the current 6.2% rate, that's about $50,561 more in Social Security taxes for the employee.
• The employer would generally owe another $50,561.

Warren and Moreno say the additional revenue could help protect Social Security benefits without raising the payroll tax rate for most workers (i.e., those whose wages remain below the taxable maximum).

"That one reform alone would impact about 6% of all households, the highest-earning Americans, and would protect Social Security benefits for at least two decades," Warren said in a Senate Finance Committee hearing in August.

Eliminating the Social Security tax limit would bring in substantial additional revenue, but how much it would improve the program's finances would depend, in part, on what happens to benefits for high earners.

For example, using its 2025 Trustees Report assumptions, the Social Security Administration modeled what would happen if the tax cap were removed. In one version, high earners would pay Social Security taxes on all their wages but wouldn't receive extra benefits based on the additional taxes they paid. That would close about 67% of Social Security's long-term funding gap.

But what if those extra taxes also counted toward future benefits?

• High earners would get larger Social Security checks in retirement.
• That would mean more money coming into Social Security now, but also more money going back out later.
• Under that approach, the change would close about 48% of the long-term funding gap.

In other words, the more benefits high earners get from their extra taxes, the less the tax increase would help Social Security's finances.

• The Tax Policy Center estimates that taxing all wages for Social Security would bring in about $2.5 trillion over 10 years (2026 through 2036), affecting about 6% of U.S. households.
• The Tax Foundation estimates that the change could bring in about $3.2 trillion over roughly 10 years, from 2027 through 2036. But after factoring in possible economic changes, it estimates the gain would be closer to $1.5 trillion.

*The estimates use different assumptions about how people and businesses might respond to higher payroll taxes and whether high earners would get bigger Social Security benefits in return for paying more.

Either way, the analyses show that eliminating the tax cap could bring more money into Social Security. But such a measure wouldn't be enough to fix the program's long-term money problems on its own.

Impact on high earners?

For most workers, eliminating the Social Security tax cap wouldn't change their paychecks. The proposed change would affect workers who earn more than the 2026 tax limit of $184,500.

At the current 6.2% tax rate, here's what such a tax change might look like for high earners:

• $200,000 salary: About $961 more in Social Security taxes each year
• $500,000 salary: About $19,561 more each year
• $1 million salary: About $50,561 more each year

Employers also pay a 6.2% Social Security tax, so their payroll taxes would also increase on those additional wages.

Note: Such a change would apply to wages, not all income. For example, capital gains and dividends generally aren't subject to the Social Security payroll tax. Two people with the same total income could see different impacts depending on how they earn their money. The above examples are for educational purposes only and are not based on existing law.

The proposal raises another important question: Would high earners get more Social Security benefits because they're paying taxes on more of their wages?

That matters because it could reduce how much the tax change helps Social Security. Giving high earners higher benefits would mean more money going back out of the program later.

The Social Security Administration estimates that eliminating the tax cap without giving high earners extra benefits would close about 67% of the program's projected long-term funding gap. If those newly taxed earnings also counted toward future benefits, the improvement would be about 48%.

Social Security solvency: Bottom line

For now, the Warren-Moreno approach remains a proposal. While eliminating the taxable maximum isn't a novel idea, the latest push is noteworthy since Social Security's financial outlook is top of mind for many lawmakers, workers and retirees.

Whether Congress takes this idea further, or pursues other proposals such as a flat-rate Social Security cost-of-living adjustment (COLA) or adding a new tax on net investment income above $400,000 in addition to eliminating the Social Security tax cap remains to be seen.

In the meantime, the SSA is expected to announce the 2027 Social Security tax limit in mid-October. That number will determine how much of a worker's wages are subject to the 6.2% Social Security tax next year. Stay tuned.

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Question: What if a smaller Social Security benefits increase for many retirees also meant a smaller federal tax bill for some?

That's one potential consequence of proposals floating to replace Social Security's current cost-of-living adjustment (COLA) with a flat-dollar increase. Instead of raising monthly benefits by a matching percentage for everyone, a flat-rate cost-of-living adjustment gives each recipient the same flat dollar amount.

Nonprofit organization AARP opposes such a change, arguing it would cut benefits for roughly 80% of retirees. The Committee for a Responsible Federal Budget says a flat COLA could help close Social Security's long-term financing gap.

Then there's the question of tax impact. A smaller increase means less money for retirees but may also result in a smaller tax bill for those who pay federal income tax on their benefits.

That doesn't make the flat COLA proposal a tax cut. But as lawmakers consider how to shore up Social Security, with the retirement trust fund projected to deplete its reserves in 2032, the effect on retirees' finances is more complicated than the benefit reduction alone. Here's more to know.

Flat-rate Social Security benefit?

Under the current Social Security system, the annual cost-of-living adjustment is a percentage based on inflation. The same percentage applies to each beneficiary's monthly benefit, so the dollar increase varies with the benefit amount.

However, under a flat-rate SS COLA, the inflation-adjusted annual increase would be converted into a dollar amount based on the benefit of someone around the 20th percentile of the benefit distribution. Every beneficiary would then receive that same dollar increase.

As a result, people with smaller benefits would receive a larger increase relative to their existing benefit, while people with larger benefits would receive a smaller increase.

The nonpartisan Committee for a Responsible Federal Budget (CRFB) says a flat-rate cost-of-living adjustment could improve Social Security's finances by directing more benefit growth toward lower-income retirees.

By setting the Social Security COLA at the level for beneficiaries around the 20th percentile, larger benefits would grow more slowly, while people with smaller benefits would receive a larger increase relative to their existing benefits.

However, some lower-income beneficiaries could still receive smaller benefits over time than they would under the current COLA. CRFB estimates the approach could close about half of Social Security's projected 75-year financing shortfall.

AARP opposes a flat-rate COLA. The organization, which advocates for the interests of millions of adults age 50 and older, argues the proposal would amount to a benefit cut for most beneficiaries because their benefits would grow more slowly than under the current system.

• Under the existing 2.8% COLA, the average retired worker reportedly received about a $58 monthly increase.
• Under the flat-rate approach, AARP estimates the increase would have been about $34.
• That's about a $24 monthly difference for the average retired worker in that year.

That may not seem like a lot, but Social Security benefits can often be paid for 15 to 20 years or more, and differences in annual increases compound over time.

Based on those estimates, a person who retired at 65 in 1998 could have received $77,900 less in cumulative benefits by age 93 under the flat-rate COLA proposal.

Smaller Social Security checks can mean less taxable income

A smaller Social Security increase would mean less money in a retiree’s pocket. But for some retirees, it could also mean a slightly smaller federal tax bill.

That’s because depending on income, up to 85% of Social Security benefits may be taxable. The IRS uses a "combined income" formula: adjusted gross income (excluding Social Security benefits) + tax-exempt interest + 50% of your annual Social Security benefits.

The income thresholds for Social Security taxation, however, haven't changed since they were established in 1983: $25,000 for single filers and $32,000 for married couples filing jointly.

As a result, roughly half of Social Security beneficiaries now pay federal income tax on some portion of their benefits. A flat-rate COLA could affect those retirees differently depending on their other income.

Someone who relies almost entirely on Social Security may already be below the tax thresholds. So a smaller COLA would mean less money to spend.

But someone receiving a pension, taking traditional IRA withdrawals, or earning other taxable income could see part of the lost benefit increase offset by a smaller tax bill.

For them, a smaller COLA reduces overall combined income, which can lower the percentage of Social Security benefits added to taxable income or keep them from crossing into a higher tax threshold.

The tax savings wouldn't fully offset the reduction in Social Security income, and the difference could vary considerably from one household to another.

Also worth noting: The tax picture has also changed for older adults due to the 2025 Trump tax law. For tax years 2025 through 2028, eligible taxpayers age 65 and older qualify for a "senior bonus deduction" of up to $6,000 per person, subject to income limits.

That deduction, which can be claimed whether you itemize or take the standard deduction, can also reduce overall taxable income for some retirees who receive taxable Social Security benefits.

Bottom line: Will Social Security remain solvent?

A flat-rate COLA is just one of the ideas being discussed as lawmakers look for ways to address Social Security’s long-term solvency. Other proposals seek to raise payroll taxes, change the retirement age, adjust benefits in other ways, or combine several approaches.

It’s also important to keep in mind that taxes on Social Security benefits provide revenue to the Social Security and Medicare trust funds. The Committee for a Responsible Federal Budget estimates that taxing benefits generated roughly $99 billion in 2025, making that revenue an increasingly important part of the programs’ future.

For now? Retirees are looking at a projected 3.4% to 3.6% COLA for 2027, with the official COLA announcement coming mid-October. Stay tuned.

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As the 2026 midterm elections approach, President Donald Trump is promising Americans money directly from the federal government. So far, that includes a recent proposed $5,000 “dividend” for adults and $500 rebates for certain Affordable Care Act (ACA) enrollees.

Understandably, the promises are causing confusion about where the money is coming from, how certain the payments might be, and who may be in line to receive the funds.

So far, the administration has indicated that the ACA rebates are expected to begin in October.

The $5,000 dividend remains a campaign promise that would require congressional action and could cost more than $1 trillion. Here's more to know.

Trump's $5,000 dividend checks

Trump announced his latest payment proposal at a Republican midterm convention in Dallas, telling the crowd: “A dividend of at least $5,000 a person, not including high-income people, will be paid to almost everybody.”

Trump said the money would come primarily from tariff revenue and that the payments would be made if Republicans retain control of Congress in November.

With roughly 260 million adult Americans, $5,000 payments would cost about $1.3 trillion, not including administrative costs or any income-based exclusions.

Vice President JD Vance has since suggested that higher-income Americans wouldn't receive the money.

Trump has pointed to tariff revenue as a source for the dividend, but the available numbers don't come close to matching the potential cost.

• The federal government reportedly collected about $264 billion in customs duties in the most recent fiscal year, according to reporting on the administration's tariff receipts.
• That's far below the potential $1.3 trillion price tag.

Another complication: The administration is now refunding some of the tariff money it collected.

As Kiplinger has reported, the United States Supreme Court's February ruling against Trump's use of the International Emergency Economic Powers Act to impose broad tariffs has resulted in a massive refund process, with roughly $100 billion already paid out by the end of July. That means tariff revenue isn't necessarily a pot of available funds the administration can count on for future checks.

The promise also comes as the national debt has surpassed $39 trillion, making the math behind a $1 trillion-plus payout even more difficult.

The newly promised dividend would require Congress to approve the necessary legislation and funding. Trump hasn't provided a plan showing how the government would finance payments of that size. And the idea, which reportedly caught many even in his own party off guard, is already receiving blowback.

Also worth noting: The latest $5,000 Trump proposal follows two earlier similar ideas that never materialized: Trump's proposal for $2,000 tariff rebate checks and his DOGE dividend, which was supposed to return a portion of government savings to taxpayers.

$500 ACA rebate checks?

The ACA payments Trump announced on October 10 are different.

In an online video message, Trump announced that nearly 1 million ACA enrollees would receive $500 refunds. “Nearly one million hardworking Americans in 30 states will soon be getting refunds of $500 each, with a check sent to their home address,” Trump said.

The Trump administration says that nearly 1 million people in 30 states will receive refunds beginning September 30, with the money coming from excess user fees paid by insurers that sell plans through HealthCare.gov.

(Those fees help pay for the federal exchange, including the website, call center, and enrollment assistance programs.)

• Insurers incorporate the fees into premiums, so consumers generally don't see a separate “user fee” on their bills.
• For 2025, the fee was 1.5% of premiums; for 2026, it was increased to 2.5%.
• The Biden administration set both rates roughly a year in advance, anticipating higher costs and lower enrollment after the enhanced ACA subsidies expired.

Trump says those fees were "massively overcharged" and that consumers should be refunded. But the explanation seems to be more nuanced.

Cynthia Cox, Kaiser Family Foundation's senior vice president and director of the Program on the ACA, told Reuters that the surplus doesn't necessarily mean consumers were overcharged. She said it also reflects the Trump administration's decision to reduce spending on programs like enrollment assistance while continuing to collect the fee. Cox added that she didn't know of any precedent for returning excess user fees directly to consumers.

Who gets $500?

The administration says payments will go to certain people who purchased coverage through the federal marketplace, HealthCare.gov, and did not receive premium assistance.

According to the White House, most recipients have incomes around 400% of the federal poverty level — about $64,000 for an individual or $132,000 for a family of four.

• Some people with incomes between 100% and 400% of the federal poverty level also qualify.
• The administration says it has already identified eligible recipients, so they don't need to apply.
• According to the White House, the program applies to people in the 30 states that use HealthCare.gov rather than operating their own ACA marketplaces.

Those states are Alabama, Alaska, Arizona, Arkansas, Delaware, Florida, Hawaii, Indiana, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wisconsin, and Wyoming.

The first payments are going out Sept. 30, although recipients shouldn't necessarily expect the money to arrive that same day. More than 950,000 people are expected to receive $500 each.

Recipients will also reportedly receive a letter signed by Trump explaining the payment.

However, it's unclear how the administration will deliver these payments. The Trump administration has referred to them as “refund checks,” but it has not specified whether recipients will receive paper checks or electronic payments. Treasury generally requires federal payments to be made electronically, with limited exceptions for paper checks.

ACA premiums 2027

The timing of both the $500 rebate and the $5,000 dividend announcement is interesting. First, the upcoming November midterm elections and the fact that millions of ACA enrollees already face higher health insurance costs, with open enrollment season just around the corner.

The enhanced ACA premium tax credits, made available by legislation passed during the pandemic, expired at the end of last year after the Republican-led Congress didn't extend them.

The Kaiser Family Foundation found that the average monthly premium payment for Marketplace enrollees rose 58% in 2026, from $113 to $178, including people who did not receive premium tax credits.

Against that backdrop, if the administration has the legal authority to issue them, a one-time $500 rebate might potentially help some consumers. But it wouldn't address the broader increase in the cost of maintaining ACA coverage.

Meanwhile, some see Trump's announcement at the midterm Republican convention as a way to win votes in an upcoming election in which Democrats are widely expected to take back at least one chamber of Congress. Right now, the GOP controls the White House, the U.S. Senate, and the House of Representatives.

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Affordability has emerged as a defining issue in many states this election cycle, and Texas, where Gov. Greg Abbott is seeking a fourth term, is no exception.

Abbott has placed property-tax relief at the center of his campaign agenda, while his Democratic challenger, state Rep. Gina Hinojosa, is offering a different approach: a one-time $1,500 payment to every Texas household, funded with $17 billion from the state's "Rainy Day Fund."

Although Texas is a no-income-tax state, the proposals come as Texans contend with higher costs across major household expenses. Over the past decade, energy prices in Texas have reportedly gone up 65%, housing costs 44%, and food prices 41%, according to an analysis by The Texas Tribune.

Abbott and Hinojosa have responded with competing proposals to put money back in Texans' pockets.

Their plans, however, take different approaches: Abbott wants to reduce an ongoing tax burden for homeowners, while Hinojosa wants to make a one-time payment to Texas households. Here's more to know.

Texas Gov. Abbott property tax plan

Gov. Abbott has proposed eliminating school property taxes for homeowners and placing additional limits on property-tax growth.

His five-point property-tax plan calls for limits on local government spending, two-thirds voter approval for property-tax increases, and greater authority for voters to roll back taxes.

He also wants changes to property-appraisal rules and a lower annual cap on homestead appraisal growth from 10% to 3%. His plan would also extend appraisal limits to additional property types.

Abbott's campaign says its broader affordability agenda could reduce property taxes by up to 50% and save the average homeowner roughly $3,000 a year.

(Those figures are campaign estimates. The amount an individual homeowner would save would depend on the property and the legislation ultimately enacted.)

The proposal follows property-tax changes enacted during Abbott's current term.

• Last year, as Kiplinger reported, Texas increased the general homestead exemption to $140,000, with a $200,000 exemption for seniors and disabled homeowners. (Those changes took effect for tax assessments impacting the 2025–2026 tax cycles.)
• State officials also said the 2025 changes would significantly reduce school property taxes for homeowners.

It's worth noting that eliminating school property taxes would affect how Texas finances public education since school districts currently receive substantial revenue from property taxes.

• The Tax Policy Center recently reported that Texas school districts collected about $42 billion in property taxes in 2024, with roughly 45% to 50% coming from homesteads.
• The center estimated that eliminating school property taxes on homesteads could create an annual revenue gap approaching $20 billion, depending on how the policy is structured.

That estimate is one reason the proposal is about more than the property-tax bills homeowners pay. Such a measure would also raise important questions about how the Lone Star State would replace the revenue.

Hinojosa $1,500 cash rebate proposal

Rep. Hinojosa, who represents Austin in the Texas House, has proposed sending $1,500 to every Texas household, at an estimated total cost of $17 billion.

Her proposal would use money from the state's Economic Stabilization Fund, known as the Rainy Day Fund. Hinojosa's campaign calls the payment a "corruption tax refund." But the proposal would be a one-time distribution from state reserves, not a refund of a particular previously paid tax.

When Hinojosa announced the proposal earlier this summer, her campaign said the Rainy Day Fund stood at nearly $25 billion and that the $17 billion distribution would leave roughly $10 billion.

• The Comptroller's current 2026-27 revenue estimate projects a $27.43 billion Rainy Day Fund balance for fiscal 2026 and $28.48 billion for fiscal 2027.
• Those figures are projections and assume no additional legislative appropriations from the fund.

Hinojosa's campaign notes on its Money in Your Pocket website that Texas has accumulated enough money in the fund to return some to residents, citing experts who say the Rainy Day Fund needs only about a $10 billion balance to remain fiscally responsible.

However, policy analysts at Rice University's Baker Institute for Public Policy note that pulling $17 billion from the Rainy Day Fund would require a legislative supermajority to clear statutory floor limits, and warn that injecting cash into consumers' hands could temporarily heighten local inflation.

More on affordability in the Texas governor platforms

Both Abbott's and Hinojosa's affordability agendas go beyond taxes.

For example:

• Gov. Abbott has proposed allowing developers to use home designs approved by at least three Texas cities without needing further approvals and enabling homeowners to build property additions.
• He has also suggested a $400 million roof fortification grant program, similar to an Alabama initiative, which his campaign has said could help lower homeowners' insurance costs.

Abbott wants to allow small businesses to offer health plans exempt from certain state insurance mandates, potentially expanding coverage for some uninsured Texans. He also proposes to cap monthly copayments for inhalers and epinephrine at $25 for state-regulated health plans.

Additionally, Abbott's "Keep Texas Affordable" initiative includes expanding competition in the electricity market by allowing consumers in Austin and San Antonio to choose retail electricity providers, which he claims could lower costs.

However, officials from Austin Energy and CPS Energy have reportedly expressed concerns that deregulating city-owned utilities might reduce municipal revenue and not ensure lower rates.

Meanwhile...Rep. Hinojosa has also called for a freeze on residential electricity rates until the state requires data centers and other high-load electricity users to pay for necessary infrastructure.

• Hinojosa proposes eliminating over $1 billion in state tax exemptions granted to data centers. She argues that tech giants should bear the full cost of their grid demands.
• In response to growing pressure over grid demands, Gov. Abbott recently directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas (ERCOT) to review data center grid connections to ensure companies contribute to the power infrastructure.

Hinojosa also wants to restrict private-equity purchases of single-family homes. During the 2025 session, she introduced state legislation that would have prevented institutional investors from buying more than 10 single-family homes during a housing shortage.

On the high cost of groceries, Hinojosa has proposed banning so-called predatory surveillance pricing. The measure would prohibit retailers from using consumer data and algorithms to charge different prices based on what they know about customers.

Regarding healthcare, Hinojosa's campaign notes on its website that "Texas has the highest uninsured rate and the highest number of uninsured children in the country."

As a result, Hinojosa has proposed banning what she describes as bad-faith insurance denials and strengthening the state's rural hospital system.

Texas governor race: Bottom line

It's important to note that neither the property tax nor the cash rebate proposal is currently law, and Texans won't vote directly on Abbott's property-tax changes or Hinojosa's $1,500 payments on the November ballot.

So, the election results alone won't determine whether either tax measure eventually becomes a reality.

Instead, Texas voters will choose which candidate gets to champion these and other measures from the Governor's mansion for at least four years. Stay tuned.

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As the final quarter of 2026 approaches, you may be taking a closer look at your investment portfolio, weighing which losses are temporary setbacks and which positions no longer make sense to hold.

Thankfully, selling an underperforming investment can not only free up cash to put elsewhere but also offer a tax benefit.

When you sell an investment for less than you paid, the loss can offset capital gains from other investments, reducing the amount of profits subject to tax. And if your losses exceed your gains, federal tax rules allow you to use some of those losses to reduce your other taxable income. The key number to know? $3,000.

Knowing how the IRS nets your gains and losses before December 31 — and how unused losses can carry forward to future years — can potentially make a difference in your tax bill. Here's more to know about the capital loss deduction.

How the $3,000 capital loss carryover works

If your capital losses exceed your capital gains for the year, under IRS rules, you generally may deduct the lesser of your net capital loss or $3,000 against other income on your federal income tax return. For taxpayers who are married filing separately, the annual limit is generally $1,500.

Capital losses first offset capital gains, without the $3,000 limit.

For example, if you realize $10,000 of capital gains and $7,000 of capital losses in 2026, the losses generally offset $7,000 of the gains, leaving a $3,000 net capital gain.

If you instead have $10,000 of capital losses and $4,000 of capital gains, you have a $6,000 net capital loss. You can generally use $3,000 of that net loss to reduce other income on your 2026 federal return, and carry the remaining $3,000 forward.

*This is a fictional, simplified example for educational purposes only.

Unused capital losses generally carry forward indefinitely. In future years, they offset capital gains first; if losses still exceed gains, you can generally deduct up to $3,000 per year against other income ($1,500 if married filing separately) until the carryforward is used.

The carryover must be reported on future returns and is subject to the IRS’s netting and carryover rules.

The loss must be realized

It's important to note that an investment that has fallen in value isn't necessarily a tax loss yet.

Suppose you paid $20,000 for an investment and it is now worth $12,000. As long as you continue to hold that investment, you generally cannot claim the $8,000 decline as a capital loss on your tax return. The loss generally becomes realized when you sell the investment.

This is a fictional, simplified example solely for educational purposes.

That's the principle behind tax-loss harvesting. Investors may sell investments that have declined in value and use those realized losses to offset gains from other investments.

Whether to sell, however, is both an investment and a tax decision. A potential tax deduction doesn't necessarily make selling an otherwise appropriate investment worthwhile.

Selling at a loss doesn't always mean you can claim the loss

The IRS wash sale rule can affect investors who sell an investment at a loss and then buy a substantially identical security.

• Generally, if you sell a security for a loss and acquire substantially identical securities within the 30-day period before or after the sale, the loss may be disallowed for current tax purposes.
• That 30-day window on either side of the sale matters at year-end. Selling an investment at a loss in December and buying it back in January can still result in a wash sale.

The rules can also become more complicated when purchases are made across different accounts or through certain investment plans.

For more information, see our report: The Wash Sale Rule: 6 Things to Know.

Capital loss deduction: What to check before Dec. 31

If you've sold investments during 2026, look at the gains and losses you've realized before the year ends. From a tax perspective, the investments currently showing a gain or loss in your account aren't necessarily the same as the ones that appear on your federal return.

The key is to look at the full picture — not just the investment that is up or down, but what you've already realized this year and how a potential sale might affect your tax strategy.

Also, of course, always be sure to follow applicable IRS rules.

Note: Since this information is provided solely for educational purposes and everyone's financial situation is different, consult a trusted tax professional or financial advisor who can help with your specific circumstances.

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When money or property changes hands after a loved one passes, the tax rules surrounding inheritance taxes and estate taxes can feel daunting.

Additionally, many people may have heard claims about owing IRS tax bills after an inheritance or intimidating phrases like "death taxes," which can blur the lines between myth and reality. In fact, a new survey conducted by Morning Consult for Kiplinger's Trillion Dollar Talk campaign found that a third of both older adults and adult children are unsure whether heirs will owe taxes on an inheritance, demonstrating the confusion around this topic.

As with all tax rules, knowing the facts is important. So why not test your knowledge with this short quiz to see if you can separate inheritance tax facts from fiction.

More Trillion Dollar Talk

• We Asked 5,000 Americans About Inheritance and the Great Wealth Transfer. Here's What We Learned
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• What Happens With Taxes When You Inherit a House?

When most people picture retirement, they think of the traditional "hard stop": handing in a resignation and walking away from a career overnight. But some of today's retirees are rewriting the rules.

According to a Fidelity Investments® study, 72% of Americans expect to retire "on their own terms," with 61% opting to phase out full-time work — embracing what many now call a "soft retirement" by transitioning into part-time consulting, freelancing, or passion-driven roles.

"Retirement is being reframed," said Rita Assaf, Vice President of Retirement Offerings at Fidelity Investments, in the Fidelity study's release. "It's no longer a single date and instead is an adaptable stage."

Yet while stepping down gradually may offer lifestyle benefits, like maintaining a sense of structured routine, blending part-time earnings with long-term tax planning takes precision.

For instance, dropping into a reduced federal income tax bracket can open a prime window for lower-cost Roth IRA conversions, but stacking wages on top of those conversions can limit how much you convert.

Here are the ways to navigate this modern trend and coordinate your income without running into unexpected tax pitfalls in 2026.

What is 'soft retirement'?

"Soft retirement" describes working in a reduced capacity during your traditional retirement years. It often pairs with a sister concept, "soft saving" — prioritizing present-day experiences over more aggressive saving strategies like FIRE (Financial Independence, Retire Early).

"Soft saving is the opposite of a movement like FIRE," Melissa Almuttar, H&R Block Director of Financial Services, told Bankrate. "It's the moment where you've had enough, and you want to do something different."

• Soft saving strategies include micro-saving habits like setting up small automatic transfers of your paycheck (like 5% or 10%) into savings or retirement accounts before spending the rest.
• Soft savers direct their discretionary funds toward meaningful purchases like hobbies or self-care while minimizing spending on less significant items (see also: 3 Creative Ways to Lower Retirement Taxes).
• By setting aside less for retirement, soft savers commit to a "soft retirement" — or working more during their golden years — but in a part-time capacity and with something that brings them joy (like getting a job at the local bookstore, for instance).

According to AARP's "The Push and Pull of Work and Retirement" survey, roughly 7% of retirees return to work after retiring, driven largely by economic need (48%) or a desire to stay active (18%).

Soft retirement embraces that flexibility for those who want (or need) additional income. But it comes with certain financial risks.

How soft income impacts 2026 Roth conversions

A common strategy in any retirement plan is converting traditional IRA funds into a Roth IRA. In essence, you pay ordinary income tax on the converted amount from a 401(k) (or other traditional IRA) today, so the funds can compound and be withdrawn federally tax-free from a Roth account later.

However, executing a Roth conversion strategy during soft retirement creates a balancing act. You have to weigh two competing dynamics:

• On one hand, leaving a high-salaried job for a lower "soft retirement" job may drop you into lower federal marginal tax brackets (like the 10% or 12% brackets). This can allow you to convert pre-tax IRA dollars at significantly lower tax rates than during your peak earning years.
• Conversely, unlike a 100% full retirement — where taxable income starts at $0 — part-time earnings create a baseline income floor. So if you earn $30,000 in consulting income, your Roth conversions start on top of that $30,000. This leaves less "space" in lower tax brackets before you push yourself into a higher tier.

Contributing to a Roth as a part-time retiree in 2026

Working part-time in 2026 also allows you to make direct Roth IRA contributions using cash from your paycheck.

To do this, you must meet two IRS rules: your contribution cannot exceed your actual job earnings, and your modified adjusted gross income (MAGI) must stay below the IRS phase-out limits.

• Annual contribution limits for 2026. $7,500 for workers under 50, or $8,600 for those age 50 and older (which includes a $1,100 catch-up contribution).
• Income phaseout thresholds for 2026. Full contributions are allowed up to a MAGI of $153,000 for single filers ($168,000 upper phaseout limit) and $242,000 for married couples filing jointly ($252,000 upper phaseout limit).

So, depending on when (or if) your "soft retirement" becomes a "full retirement," you might want to prioritize funding a direct Roth IRA alongside smaller, strategically timed conversions to help maximize tax-free growth.

Related: New 2026 Tax Change Could Mean More for Your IRA and 401(k) Savings

Four tax traps to avoid during a soft retirement

By stepping away from a financially lucrative career into a lower-paying one, retirees with a soft retirement strategy may face more tax complexities. For instance:

1. Increased health insurance costs. Leaving employer-sponsored healthcare before age 65 requires buying private health insurance or ACA marketplace coverage, which can offset much of your part-time income.
2. Reduced Social Security benefits. Transitioning from full-time to part-time work may incentivize you to claim Social Security early to offset lower wages. However, claiming Social Security before your full retirement age (FRA) permanently reduces the monthly payment amounts you receive — and could push your taxable income higher (and more of your Social Security benefits may be taxed with a part-time job).
3. Higher IRMAA Medicare surcharges. Some retirees may also find that part-time income combined with investment income pushes their modified adjusted gross income (MAGI) higher, triggering the income-related monthly adjustment amount (IRMAA). For 2026, the IRMAA threshold sits at $109,000 for single filers and $218,000 for joint filers.
4. Added self-employment (SE) Tax. Freelancing or consulting income is subject to a 15.3% self-employment tax (covering 2.9% Medicare and 12.4% Social Security) on top of standard federal and state income taxes. If you've never done freelance or contract work before, this may come as a surprise.

Is a soft retirement right for you?

A soft retirement isn't for everyone. It requires lifestyle changes, shifting your professional identity from a senior role to a part-time position, and sacrificing the complete free time you would get in a "full" retirement.

And then there are the financial shifts required. Balancing your retirement budget as you move from higher to lower paychecks, potentially drawing on savings, and entering into complex tax situations all take discipline.

But the payoff may be worth the sacrifice.

"The heart of the new retirement playbook is keeping things personal and practical," Assaf said in the Fidelity release. "Planning is what turns preference into payoff. With the right plan — built around retirement income, taxes, health care, and consolidation, investors can have the tools in their corner to help define a successful retirement journey."

So whether or not you adopt a soft retirement, sitting down with a tax professional can help ensure your golden years hit the ground running — and not a hard stop when you expect a soft landing.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice.

Read More

• How $1 More of Income Can Cost Thousands in Retirement
• When to Convert an IRA to a Roth (and When You Shouldn't)
• Preparing Taxes for a Longer Life in 2026
• 5 Little-Known Senior Tax Deductions

For many people looking for a tax-friendly retirement, no-income-tax states like Florida usually top the list. But recent data indicate an interesting trend: More and more older adults are choosing a small Mid-Atlantic state where the retirement math is more interesting than some might expect.

We’re talking about Delaware.

According to U.S. Census Bureau data, Delaware’s population of residents age 65 and older has increased by 23% since 2020. That’s the fastest growth rate in the nation for the 65-and-older population, according to Census estimates.

Part of the draw might be that newcomers to beach communities like Lewes, Rehoboth Beach and Milton can enjoy a coastal lifestyle without moving far from family and friends elsewhere in the Northeast and Mid-Atlantic.

Interestingly, though Delaware isn't a zero-income-tax state like retirement powerhouses Florida or Texas, taxes factor into the equation for some retirees running the numbers. Here’s more to know.

Why Delaware is becoming a retirement destination

Delaware is becoming increasingly popular with older adults.

• Seniors now make up nearly 22% of the state’s population, according to USAFacts, compared with roughly 18% nationwide.
• In Sussex County, older adults make up nearly a third of residents, pushing the median age to just over 53 years, according to U.S. Census estimates.

New residents are also arriving with financial resources. The latest available IRS migration data show that households moving into southern Delaware from higher-cost states have average annual incomes over $136,000.

So what makes Delaware appealing as a retirement destination? The answer lines up in several ways with what many retirees say they want in a place to live.

• A 2025 survey from the Transamerica Center for Retirement Studies found that an affordable cost of living was the top consideration, cited by 65% of retirees, followed closely by proximity to family and friends at 61%.
• Access to excellent health care and hospitals ranked third, cited by 49%, while 28% pointed to leisure and recreational activities.

Delaware's healthcare infrastructure is geared toward an aging population. For example, in Sussex County, Beebe Healthcare operates a 210-bed medical center in Lewes, while ChristianaCare has reportedly expanded primary care and senior-focused services in Rehoboth Beach and Milford.

Additionally, retirees from neighboring Mid-Atlantic states may choose Delaware for its proximity to children, grandchildren, and longtime friends without giving up a coastal lifestyle.

There’s also plenty to do beyond the beaches.

Southern Delaware offers miles of hiking and biking trails, including those at Cape Henlopen State Park and the Junction & Breakwater Trail linking Rehoboth Beach and Lewes, along with boating, fishing, and golf. Other areas are bustling with restaurants, boutiques, and galleries, plus live music, festivals, and other events throughout the year.

Those amenties help explain the First State’s appeal. But for some retirees from higher-cost states, the retirement math also includes taxes.

How Delaware taxes retirement income

Delaware levies a progressive state income tax with rates ranging from 2.2% to 6.6%. However, retirees rarely pay Delaware income tax on their full income. That’s because:

Delaware exempts Social Security benefits from state tax. (The state also doesn’t tax Railroad Retirement benefits.)

Delaware offers retirement income exclusions. Residents age 60 and older can exclude up to $12,500 of eligible pension and retirement income from state taxable income. Qualifying sources include distributions from IRAs and 401(k)s, as well as dividends, capital gains, interest, and net rental income.

For a married couple where both spouses are at least 60, each spouse can generally claim up to a $12,500 exclusion for eligible retirement income, for a combined potential exclusion of $25,000.

For some retirees, those exclusions could result in a lower state tax bill than they would face on the same retirement income in other states.

Note: We're talking about state tax liability. You still may have federal taxes on retirement income to consider.

Sales and property tax tradeoffs

However, income taxes are only part of the tax equation. Delaware offers zero sales tax and relatively low property taxes.

• No sales tax: Delaware has no state or local sales tax, which can reduce the cost of everyday purchases and larger expenses. (Florida, by comparison, has a 6% statewide sales tax, plus local surtaxes in many counties.)
• Low property taxes: Delaware’s effective property tax rate is about 0.54%, compared with 0.78% in Florida, according to 2026 Tax Foundation data. The actual difference depends on the home’s value, location, and applicable exemptions.

But…that doesn't necessarily make Delaware the cheaper place to own a home.

Sussex County's growth (nearly 40,000 residents in the past six years) has reportedly increased housing demand and pushed prices higher. That can be good news for people who already own homes there, but it can be a different story for retirees just arriving.

Someone moving to Delaware for retirement from a high property-tax state might see lower property taxes while paying more for the house itself.

Delaware vs Florida cost of living

While Florida draws attention for having no state income tax, the full financial picture can change once other costs enter the calculation.

The following table shows how various costs might add up.

Average Annual Costs in Florida and Delaware

Note: This comparison, for educational purposes only, assumes a $500,000 primary residence, $500,000 in homeowners insurance dwelling coverage, and $20,000 in annual taxable purchases. Property-tax estimates use 2026 statewide effective rates; insurance estimates use 2026 published rates; and Florida sales tax uses the 2026 average combined state and local rate.

State income taxes are excluded because they vary by income, deductions, and exemptions. Actual costs vary by location, coverage, exemptions, and spending.

Is retiring in Delaware a good idea? Bottom line

For some retirees, the appeal of a retirement state isn't always about finding the lowest income-tax rate. It's about what happens when you add up all the smaller pieces of the budget.

Before choosing a retirement destination, consider the sometimes seemingly "hidden" costs that follow you into retirement — including how retirement income is taxed, what you'll pay to own a home, and how much you plan to spend each year.

The state you might assume to be cheapest due to having no income tax might not necessarily be the one that leaves you with the most money to spend.

Related

• College Towns Are Becoming Popular Retirement Destinations
• Retirement Taxes: How All 50 States Tax Retirees
• How the IRS Taxes Retirement Income
• The Five States With No Sales Tax

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on various tax proposals in Congress that taxpayers and preparers should keep an eye on this year and next. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Higher home-sale exclusions

Question: My wife and I have lived in our home for many years, and it has greatly appreciated in value since we bought it. If I sell now, my gain will be way above the current $500,000 gain exclusion for selling a home. I have heard that Congress is thinking of raising the gain exclusion cap for home sales. Do you think that will happen this year?

Joy Taylor: Since 1997, individuals who own and use a home as their primary residence for at least two of the five years before the sale can exclude from taxable income up to $250,000 of the gain. The exclusion is $500,000 for joint filers. These figures have never been adjusted for the appreciation in residential real estate during this tax break's 30-year history.

Some congressional lawmakers want to increase the home-sale gain-exclusion amounts. Identical House and Senate proposals introduced by Representative Jimmy Panetta (D-CA) and Senator John Cornyn (R-TX) would hike the exclusion to $1 million for joint filers and $500,000 for others. The bills would also index these amounts to inflation each year.

The odds of enactment into law of these higher home-sale gain-exclusion amounts are a bit better than they have been in past years. But it's still a steep climb. Neither bill will be enacted as stand-alone legislation, so it must be attached to a bigger tax package or to a must-pass legislative priority. We certainly don't see anything happening before the November midterm elections.

2. Age-in-place home modifications

Question: My husband and I want to stay in our home during our golden years. So we are starting to add some age-in-place modifications to it. Will Congress ever give us a tax break for these changes?

Joy Taylor: A Senate proposal by Senators Angela Alsobrooks (D-MD) and Kirsten Gillibrand (D-NY) would do just that. The "Senior Accessible Housing Tax Credit Act of 2026" would give individuals age 60 and older a nonrefundable tax credit of up to $10,000 per year for the cost of specific home improvements. They include:

• Widening doorways
• Replacing toilets and faucets
• Installing non-slip flooring
• Putting in chair lifts and wheelchair ramps
• Installing handrails and shower seats
• Putting in furniture risers

The credit would begin to phase out at modified adjusted gross incomes (MAGI) of over $200,000 for joint filers and $100,000 for single filers.

The odds of passage this year are pretty slim, but we are definitely keeping a close eye on this idea because we expect it will come back again as the U.S. population continues to age.

3. IRS regulation of unenrolled preparers

Question: I am a tax return preparer. I am not a CPA, enrolled agent or lawyer. I heard that Congress wants to make it harder for me to get a preparer tax identification number (PTIN) each year. Can you explain exactly what Congress is proposing for tax return preparers?

Joy Taylor: Last month, the Senate Finance Committee approved a bipartisan bill called "The Taxpayer Assistance and Service Act" that has over 60 proposals covering 10 broad topics:

• Tax administration and customer service
• U.S. citizens who live abroad
• Streamlining judicial review for filers who challenge IRS in court
• Tax return preparers
• IRS's Taxpayer Advocate's office
• IRS's appeals office
• Whistle-blowers
• U.S. citizens held hostage overseas
• Small businesses
• Miscellaneous provisions

One of the secitons in this bill would let the IRS regulate unenrolled paid tax return preparers. An unenrolled preparer is someone who prepares tax returns for money, but is not a CPA, lawyer, enrolled agent or a comparable state-license holder.

Under the bill, unenrolled preparers would have to meet various requirements in order to apply for or renew a PTIN each year. These preparers must provide information about their competence and character, pass criminal background and tax compliance checks, and take up to 18 hours of continuing education courses. Importantly, the proposal does not require unenrolled preparers to pass a competency exam. Under the proposal, the IRS would be able to deny, revoke or suspend PTINs for unenrolled preparers who don't comply with the rules.

Giving the IRS power to regulate unenrolled preparers has been tried before. Since 2014, after an appeals court struck down the IRS's administrative oversight rules for unenrolled preparers, the IRS's National Taxpayer Advocate, Treasury inspectors, government auditors and tax practitioner groups have pleaded with Congress to let the IRS regulate unenrolled preparers. But this has always faced a wall of naysayers in the House and Senate, mainly Republicans, with added pressure from key free-market groups that oppose giving the IRS more statutory authority to regulate preparers.

But some tax professionals say this time could be different. The current language in the bipartisan Senate bill is more modest when compared with prior proposals. Democrats have made preparer oversight a top priority. And it is well documented that unenrolled preparers make more errors with their clients' refundable credits and certain other tax breaks, when compared with filers who do their own returns, CPAs, enrolled agents, attorneys, and volunteers with tax-filing assistance programs.

Maybe we will see Congress act on the Taxpayer Assistance and Service Act in the short time period after the mid-term elections and before lawmakers head home again for the Christmas holidays. There are many factors that will determine this, including which party comes out ahead in the mid-terms, other items on Congress's plate, and the determination of legislators to focus on taxes.

4. Losses from natural disasters

Question: My car was destroyed last fall in a flood that ended up being a federally declared disaster. I didn't have the car insured. I already filed my 2025 Form 1040 and didn't claim a disaster loss because I took the standard deduction. I heard that a new law retroactively allows disaster loss deductions for all of 2025 without having to itemize on Schedule A. What should I do to claim the loss?

Joy Taylor: Before the Senate left Washington, D.C., for its August recess, it approved a House-passed bill. We expect President Trump to sign this bill soon. The legislation provides easings for personal disaster loss write-offs identical to those given to victims of disasters in 2018 through July 4, 2025. The relief applies to losses incurred in federally declared disasters that begin before January 1, 2027. The IRS refers to these as "qualified disaster losses."

Individuals can deduct these disaster losses in excess of a $500 threshold without regard to the 10%-of-adjusted-gross-income offset that generally applies. The relief is available for filers who claim standard deductions and for individuals who itemize on Schedule A of Form 1040.

Since your disaster loss occurred last year after July 4, 2025, and you relied on the old tax rules when preparing your 2025 Form 1040, you can amend your return by filing Form 1040-X to take advantage of the new law.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
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• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
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If you’ve inherited a house, you’re not alone. Data show that 38% of people in the U.S. report real estate as part of their past or expected inheritance.

But once the deed is in your hands, you’re probably wondering what comes next. Beyond deciding whether to keep it, sell it, or rent it, there’s one almost universal question: What are the tax implications?

There's good news: Inheriting a house doesn’t automatically mean you’ll owe taxes to the IRS or your state. But what happens next depends on several factors, including whether you decide to sell the property and how the step-up in basis affects your tax bill.

Here’s more of what you need to know.

What happens with taxes if you inherit a house

Inheriting a house doesn’t automatically trigger federal taxes. Instead, you’ll need to decide what to do with the property. Whether you sell it, keep it, or turn it into a rental, each option can have different tax implications.

One of the most important tax rules for inherited property is the step-up in basis. A home’s basis is the amount the IRS uses as the starting point for calculating capital gains tax.

Think of the home’s basis like a car’s trip odometer. Resetting the trip odometer doesn’t erase the miles already driven. Instead, it creates a new starting point, tracking only the miles driven from that point forward.

• When you inherit a home, the IRS generally measures your gain from the home’s fair market value on the date of death instead of what the previous owner originally paid.
• The step-up in basis doesn’t change what the house is worth. It changes where the IRS starts measuring your gain.

For example, your parents bought a home decades ago for $150,000. By the time you inherit it, it’s worth $700,000. If you later sell the home for $750,000, your taxable gain would be $50,000, not $600,000.

That’s because your taxable gain is based on the appreciation that occurred after you inherited the home, not when your parents owned it.

Selling, keeping, or renting inherited property

Selling an inherited home is often one of the biggest financial decisions you’ll make after inheriting property. A Real Estate Inheritance Report from Trust & Will finds that 56% of heirs choose to sell an inherited home, making it the most common path forward.

• Fortunately, you won’t pay capital gains tax on the difference between what the original owner paid for the home and its fair market value when you inherited it. Instead, the IRS uses the home’s stepped-up basis as the starting point for calculating your taxable gain.
• That means when you sell, you’ll owe capital gains tax only on any appreciation that occurs after you inherit the home.
• If you sell the home soon after inheriting it for about its fair market value, your taxable gain may be minimal.

What if you decide to keep the house? Keeping an inherited home doesn’t create an immediate federal tax bill. You’ll still be responsible for ongoing costs like property taxes, homeowners insurance, and maintenance. If you eventually decide to sell the home, the stepped-up basis will determine how your capital gains are calculated.

Some beneficiaries—roughly 17%—decide to turn an inherited home into a rental property. If you do, rental income is typically taxable. You may also be able to deduct certain expenses related to the property.

Depending on your situation, you might qualify to claim depreciation, which can affect both your annual taxes and your capital gains calculation if you eventually sell.

Estate and inheritance tax considerations

If you’ve inherited a house, you may also be wondering whether you’ll owe inheritance tax or estate tax.

For most families, the answer is no.

The federal government doesn’t impose an inheritance tax, and only a handful of states do. Furthermore, the federal lifetime estate and gift tax threshold sits at $15 million per individual ($30 million for married couples), meaning it generally applies only to exceptionally large estates.

Whether either tax applies depends on factors like the overall size of the estate, where the deceased lived, and state law.

Where you live matters with inheritance

While federal tax rules dominate the conversation, state-level rules can create unexpected financial surprises. But the baseline rule is the same: Nearly all state tax codes conform to the federal step-up in basis, resetting the property's starting value to its fair market value on the date of death for state capital gains purposes.

However, state rules diverge from IRS rules in several key areas:

State Capital Gains Rates: If you hold the home and sell it after it appreciates further, any post-inheritance gain is subject to state income tax alongside federal capital gains tax.

In high-tax states like California, New York, or Minnesota, state capital gains tax rates can add 8% to 13%+ to your tax bill.

State Inheritance and Estate Taxes: Five states—Pennsylvania, New Jersey, Maryland, Kentucky, and Nebraska—levy a state inheritance tax on certain heirs.

Additionally, twelve states and Washington, D.C. enforce state estate taxes with exemptions far lower than the federal threshold—in places like Oregon or Rhode Island, kicking in on estates valued as low as $1 million or $1.8 million.

Local Property Tax Reassessments: In some jurisdictions, transferring title triggers a local property tax reassessment. The capped property tax rate the previous owner enjoyed could reset to current fair market value, significantly increasing annual holding costs.

Key questions to consider before making a decision

Before deciding whether to sell, keep, or rent an inherited home, take time to evaluate a few financial factors:

• What is the home’s official stepped-up valuation? Securing a professional, independent appraisal as of the date of death establishes your baseline basis and protects you if you sell later.
• Can you afford the ongoing carrying costs? If you plan to keep the home, calculate the true cost of holding it — including updated local property taxes, insurance premiums, utilities, and deferred maintenance.
• Are there co-heirs or sibling dynamics to navigate? If you inherit with siblings, clarify whether everyone agrees on selling or keeping the property, or if one party needs to buy out the others.
• What are the local property tax reassessment rules? Check with the local tax assessor to see if transferring title triggers an immediate tax reassessment that could increase annual property taxes.

Inheriting a home: Frequently asked questions

Tax laws are complex, and every beneficiary's tax situation is unique. The information provided here is for general educational and informational purposes only and does not constitute formal tax, financial, or legal advice. Be sure to consult a qualified tax professional, CPA, or estate planner to evaluate your specific circumstances before making any financial decisions.

Do you automatically pay taxes when you inherit a house?

No. Inheriting a house by itself won’t trigger federal taxes. Taxes may arise later depending on what you do with the property.

Can you sell an inherited house immediately?

Generally, yes. Many beneficiaries sell an inherited home shortly after probate or once they have the legal authority to do so. However, the timing depends on the estate administration process and state law, so consult a trusted professional to understand any timing restrictions that may apply to your situation.

How is capital gains tax calculated on an inherited house?

In many cases, capital gains are calculated using the stepped-up basis, meaning the home’s fair market value on the date of death becomes the starting point for measuring future gain.

What if I inherit a house with my siblings?

If you inherit a house with your siblings, you may become co-owners of the property. Together, you’ll need to decide whether to keep the home, sell it, or rent it out. If you sell the home, each beneficiary’s share of any capital gain is based on their ownership interest and the home’s stepped-up basis.

Can I live in an inherited house without paying taxes?

Usually, yes. Moving into an inherited home doesn’t automatically create a federal tax bill. However, you’ll likely become responsible for ongoing expenses like property taxes, homeowners insurance, and maintenance.

If you later sell the home, your taxes will depend on the selling price and your stepped-up basis.

What if the house was held in a trust?

It depends on the type of trust. Many homes held in a revocable living trust receive the same step-up in basis as homes passed through a will.

Some trusts, however, have different tax rules that can affect your tax situation. If you’re unsure how the trust is structured, consider consulting a tax professional before selling the property.

Do I have to pay property taxes on an inherited house?

Yes. Once you inherit a home, you’ll typically become responsible for ongoing property taxes, just as any other homeowner would be. Depending on where the property is located, you may also need to update or reapply for property tax exemptions after ownership changes.

Related Content

• Ask the Tax Editor: Tax Basis in Inherited Property
• Capital Gains Tax Rates 2026: What You Need to Know
• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?

Whether you're currently retired, just starting your post-career transition, or still years away, how your state taxes retirement income is important.

State taxation impacts how much of your nest egg is truly yours. It shapes your monthly budget during your golden years and can give you a clearer sense of your long-term financial security.

And depending on where you live, your state may not tax retiree income at all. This can save you thousands on Social Security benefits taxes, pension payouts, and 401(k) withdrawals in retirement.

So check out these five quick questions to test your knowledge and see if your state makes the cut.

Good luck!

Remember that no matter where you live, federal income tax still applies. You may want to consult a tax professional for advice tailored to your specific financial situation.

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• Test Your Knowledge of IRS Retirement Tax Rules
• States That Don't Tax Retirement Income in 2026
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Passing down your life savings shouldn't require surrendering thousands of dollars to court fees and probate lawyers. Yet every year, millions of families watch their inheritances chipped away by those costs.

To bypass the costly court process, some households turn to a trust.

It sounds simple enough — until you look at the price tag. With trust setup costs routinely running into the thousands, plus a dizzying choice between revocable and irrevocable options, it's easy to wonder:

Is a trust worth the headache, or is a basic will enough?

The short answer: it depends.

While an irrevocable trust can shield your wealth from taxes and nursing home costs, its legal complexity and ongoing maintenance fees might not suit your family.

On the other hand, a revocable trust can spare your kids the nightmare of probate court, but paying higher setup costs upfront doesn't always guarantee a net payoff for smaller inheritances.

We'll break down the differences between wills and trusts, what each really costs, why your state's laws change the math and how to choose the option that leaves the most money for your heirs.

Wills vs revocable and irrevocable trusts: Key differences

Before we dive into the numbers, let's start with the structural differences between a standard will, a revocable trust and an irrevocable trust.

Key differences are highlighted in the table below.

*Changes might be made easier by an independent trustee through a process of "decanting" — pouring assets from an old trust to a new one with approval — if your state allows.

**However, if you have a "grantor trust," the creator of the trust still pays the taxes on their personal return, thus potentially saving some money.

As you can see from the table, one of the general main advantages of a fully funded trust is skipping probate court.

• This can save your heirs time, keep legal filings private and prevent your personal estate details from entering public record.
• In addition to these benefits, an irrevocable trust removes assets from your taxable gross estate, shielding wealth from transfer taxes and potential creditors.
• If you anticipate needing long-term care (e.g., a nursing home), an irrevocable trust (such as a Medicaid Asset Protection Trust) can safeguard your savings while helping you qualify for government assistance, provided it's established well outside Medicaid's look-back window.

All those advantages come with one big disadvantage: Higher upfront costs.

You'll typically pay higher legal and accounting fees to set up your trust than you would for a standard will. The key question for most families is whether paying those higher fees today will save their heirs enough in court costs and taxes down the road to make the investment worthwhile.

How much do wills and trusts really cost you?

From a purely financial standpoint, the cost-benefit analysis of a trust hinges on location, estate complexity and overall asset value.

For instance, an estate that passes through a standard will might undergo probate for some or all its assets. Probate expenses (court and attorney fees and filing costs) generally run 3% to 8% of the probate estate's gross value, according to industry-wide averages.

But if your assets pass automatically through joint ownership or designated beneficiaries (such a 401(k) or IRA), probate might be minimal or bypassed entirely.

Below is a cost comparison showing what you might pay today vs what your heirs could pay later if you chose a will vs a trust. The data is compiled from nationwide legal surveys, consumer finance benchmarks and historical probate data.

Note: The table utilizes national averages for probate and administrative costs, not estate tax rates. Exact numbers vary depending on your geographic location, state laws, attorney rates and complexity of assets.

Households who opt for a revocable trust might do so to pay a larger amount upfront today to help save their kids from paying thousands in probate fees decades later.

But the savings aren't quite as high as you might think. Consider these facts, assuming a standard 2.5% to 3% long-term inflation rate, and an estate worth roughly $300,000 to $400,000.

• If a revocable trust saves your kids $15,000 in probate fees 30 years from now, those future savings might only be worth roughly $6,000 to $7,000 in today's dollars.
• If you paid $2,000 in setup costs today to save a net $5,000 in inflation-adjusted dollars down the road, it's still a win — but it's not the huge $13,000 windfall it would appear to be on paper.
• Whether those net savings of $5,000 justify the upfront effort and expense depends on your family’s priorities, estate complexity, and location.

Why where you live matters

Federal estate taxes typically only apply to very high-net-worth individuals ($15 million per person in 2026). However, individual state laws can dramatically alter the math for average-income families.

First, a handful of states impose their own estate or inheritance taxes with much lower thresholds. Second — and more commonly — probate fees, legal mandates, and court procedures vary widely from state to state.

That's why where you live (and die) matters to your heirs.

To see how this works, consider the following scenario.

A parent passes away, leaving $100,000 in non-real-estate probate assets to a child serving as an executor. In one scenario, the parent lived in Florida. In another, they lived in Missouri.

Note: The example provided represents averages and is not indicative of a particular taxpayer's financial situation.

In the table, the heir can save $3,355 more in Florida compared with Missouri. Why? There's a specific state rule about inherited personal property in the Show-Me State.

Under Missouri law, the threshold to file a simplified small estate return is capped at $40,000. That means the heir is forced into a standard, full court-supervised administration (the $3,300 in attorney fees).

Conversely, Florida allows a $100,000 estate to bypass the traditional court-supervised administration via Summary Administration (which applies to nonexempt personal assets up to $150,000 and exempt primary homestead property), meaning the heir can avoid formal executor appointments and ongoing court oversight entirely.

Meanwhile, in higher-cost states such as California or New York, statutory attorney fees and executor commissions can push probate expenses significantly higher, making revocable trusts far more attractive than standard wills in those states.

Do tax benefits outweigh the setup costs?

It depends entirely on your estate size and which type of trust you choose.

Revocable trusts vs wills.
A revocable trust or a standard will offers no direct income tax savings during your lifetime (beyond basic inheritance tax rules). Any income generated by assets inside either flows to your personal tax return (Form 1040) using your standard individual tax brackets.

From an annual tax perspective, a revocable trust and a standard will are treated almost identically. Don't expect to recoup your upfront setup costs through annual tax savings; they simply don't exist for wills and revocable trusts.

Irrevocable trusts.
An irrevocable trust offers structural estate tax savings by removing assets from your taxable personal estate. However, that benefit comes with two important annual tax trade-offs:

• Compressed tax brackets. If an irrevocable trust retains income rather than distributing it to beneficiaries, that income might be subject to the top federal tax bracket at much lower thresholds than an individual return. As a result, maintaining an irrevocable trust (non-grantor) can actually lead to higher annual taxes, even if it lowers the overall tax burden for your heirs when you pass away.
• Recurring maintenance costs. Because trust assets are legally separate from your estate, you must file a separate annual fiduciary tax return (Form 1041). This adds recurring accounting expenses every year.

Typically, irrevocable trusts make the most financial sense if your total net worth exceeds the federal estate exemption (over $15 million in 2026), if you live in a state with high death taxes, or if you need to protect assets from creditors or long-term care costs. In those specific scenarios, the long-term tax and asset protections can outweigh the setup and maintenance fees.

How to save your kids the most money

Ultimately, whether a trust or a will saves your kids the most money depends on high-end estate and gift taxes, as well as how you want to approach probate.

Here are a few sample scenarios outlining when a will vs a trust could be more beneficial for you or your heirs:

However, these scenarios don't cover every person's unique financial situation. Before deciding, review your state’s specific inheritance and probate rules, take inventory of how your accounts are titled, and consult a qualified estate planning attorney or tax professional.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice.

Read More

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• Avoiding the Widows' Penalty Tax Trap After a Spouse Passes
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• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?
• How the IRS Values (and Audits) an Inherited Home

For more than 40 million people in the United States, federal student loans are an increasingly difficult financial burden to manage.

The high cost of living is part of the problem, but President Donald Trump's second administration has also introduced major student loan repayment changes, including the new Repayment Assistance Plan.

While attention usually focuses on monthly payments, important student loan tax consequences can be overlooked. Some can work in your favor, such as the student loan interest deduction, while others, surrounding tax-filing status or employer benefits, can be complex.

If that weren't enough to worry about, 2026 marks the return of federal taxes on some forgiven student loan debt. Here's more to know about that shift and navigating other student loan "tax traps."

Student loan repayment changes

Before we dive into student loan tax issues, it helps to look at how much the student loan landscape has changed in recent years.

New repayment options took effect on July 1, 2026, including the Repayment Assistance Plan (RAP) and Tiered Standard Plan. Other repayment plans have been restricted, and various rules governing which loans qualify for which plans have also changed.

The Trump administration has also pursued changes involving student loan forgiveness while tightening loan limits for some graduate and professional degree programs and adjusting collections processes.

Those shifts all matter, especially with average student loan monthly payments reportedly hovering around $430.

Avoiding student loan tax traps in 2026

It's important to note that this is not an all-inclusive list of potential tax issues and concerns surrounding federal student loans. It highlights some key concerns merely for educational purposes.

Because every borrower's situation is different, it's important to consult a tax or financial adviser familiar with your situation to determine the best course of action to potentially reduce your tax liability and student loan payment amounts.

1. The student loan 'marriage penalty'

If you’re married with student loans, your tax filing status can affect both your student loan payment calculation and your tax bill. This is especially important this year because of the new federal student loan Repayment Assistance Plan (RAP).

• RAP uses a borrower's income and family information to determine the federal student loan monthly payment.
• For married borrowers, tax-filing status can affect whether the calculation includes a spouse's income.

That creates a potentially significant trade-off for some couples.

Consider a married couple with $100,000 of combined adjusted gross income (AGI), split evenly between the two spouses. If only one spouse has federal student loans, filing jointly would put the couple's full $100,000 of income into the RAP calculation.

Under RAP's payment schedule, that could translate to a base payment of roughly $750 a month. If the borrower files separately instead, only the borrower's $50,000 in income would be used, potentially resulting in a base payment of about $167 per month. That's a difference of roughly $583 a month — or nearly $7,000 a year.

But that lower student loan payment comes with a glitch: Filing separately can increase a couple's income tax bill and generally makes them ineligible for the student loan interest deduction and/or other potentially valuable tax deductions or credits.

The couple would need to compare the potential $7,000 in annual student loan savings with the additional taxes and lost tax benefits of filing separately.

Disclaimer: This is a fictional illustrative calculation, not a prediction of what every borrower of $50,000 or $100,000 will pay. RAP also reduces payments for borrowers with dependents.

Remember:

• Married taxpayers who file separately generally cannot claim the student loan interest deduction.
• Other federal tax credits and deductions can also be limited or unavailable to married couples filing separately.
• That means borrowers shouldn't decide on filing status just by looking only at their student loan payment.

It’s good to consult with a trusted tax professional who can help you select the best filing status for you.

2. Taxes on student loan forgiveness

The idea of having the federal government forgive your student loan debt can be exciting. But if you anticipate having your loan debt forgiven in 2026, that relief could come with tax liability.

Why? A little history: During the pandemic, the American Rescue Plan Act (ARPA) temporarily excluded certain student loan debt discharged from 2021 to 2025 from federal taxable income.

• That broad temporary exclusion expired at the end of 2025.
• As a result, some borrowers whose student debt is forgiven or discharged this year (2026) could face federal income tax on the canceled amount.

Keep in mind: Whether forgiven student debt is taxable at the federal level depends on when and why the debt was discharged and whether a specific exception or exclusion applies.

• For example, the IRS says certain types of forgiveness and discharge remain excluded from federal taxable income, including Public Service Loan Forgiveness, Teacher Loan Forgiveness, and certain discharges due to death or total and permanent disability.
• Borrowers who are insolvent when debt is canceled might also be able to exclude some or all the canceled amount under general cancellation-of-debt rules.

But state taxes can add a wrinkle. States don't necessarily follow the federal tax treatment of forgiven student debt. Whether your state will tax your forgiven student loan amount might depend on the type of forgiveness and whether your state conforms to federal tax law.

If you expect a significant amount of debt to be discharged this year, try to understand the tax treatment before the forgiveness takes place. That might give you time to set aside money, adjust withholding or make estimated tax payments rather than being surprised when tax season rolls around.

3. Overlooking the student loan interest deduction

Student loans aren't all negative for your taxes. One commonly overlooked benefit is the federal student loan interest deduction.

• Eligible borrowers can deduct up to $2,500 of interest paid on qualified student loans during the year.
• The deduction is available even if you don't itemize deductions, although income limitations and other eligibility requirements apply.

The student loan interest tax deduction can be easy to miss because it doesn't reduce your tax bill dollar-for-dollar. Instead, it reduces the amount of income subject to federal income tax.

Your loan servicer generally reports qualifying interest payments on Form 1098-E, Student Loan Interest Statement. But receiving the form isn't enough to establish eligibility for the tax break. Your income, filing status and other circumstances come into play.

The student loan deduction can also interact with the filing-status decision that some married borrowers face.

• Married taxpayers who file separately generally can't claim the student loan interest deduction.
• If you're a couple considering filing separately to reduce an income-driven student loan payment, you should carefully consider the tax trade-offs.

4. Missing out on tax-free employer student loan assistance

Under federal educational assistance rules, employers can provide up to $5,250 a year in tax-free educational assistance, including qualifying payments toward an employee's student loans.

The 2025 Trump/GOP tax law made this student loan provision permanent.

• But there is an important distinction: This isn't a tax deduction an individual borrower can claim on their own.
• The employer must offer a qualifying educational assistance program.

It’s also important to note that employer educational assistance and tuition reimbursement are different.

Educational assistance programs can cover a broader range of expenses, including tuition, fees, books, supplies and student loan repayments. Tuition reimbursement programs, on the other hand, typically cover only tuition and related expenses for courses taken while employed.

Check with your employer if you’re unsure about education-related benefits they do or don’t offer.

5. Skipping retirement contributions while paying student loans

Student loan payments can also affect your retirement savings even if your employer doesn't directly help pay the loans.

Under the SECURE 2.0 Act, employers can treat certain qualified student loan payments as elective deferrals for purposes of making matching contributions to a workplace retirement plan.

That means some borrowers can receive an employer retirement match based on their student loan payments even if they're not making equivalent contributions to the retirement account themselves.

• To qualify, you must be making student loan payments and have a direct legal obligation to repay the loan (guarantors do not qualify).
• Parents paying installments on Parent PLUS loans* taken out for their children's education are also eligible.
• Total matched loan payments and direct 401(k) contributions combined can't exceed the annual federal IRS deferral limit ($24,500 for 2026, excluding catch-up contributions).

The provision could help address an increasingly common financial dilemma: Some people with student loan debt might not have enough money to make student loan payments and contribute enough to a 401(k) to receive an employer match.

As Kiplinger recently reported: "According to the American Institute of CPAs (AICPA), over half (53%) of personal and parent borrowers say student debt directly hinders their ability to save for retirement. For these households, the default reaction may be to reduce or even pause monthly 401(k) contributions."

This is optional for employers. Not every workplace retirement plan offers student loan matching, and the workplace plan's specific rules determine which payments qualify and how the match is calculated.

*Keep in mind that Parent PLUS loans (and consolidation loans containing Parent PLUS loans) are excluded from the Repayment Assistance Plan (RAP). These loans are now generally at $20,000 per year per student (with a $65,000 lifetime limit).

Check your employer retirement plan documents or ask your benefits administrator whether student loan payments qualify for matching contributions.

Related

• A Little-Known Tax-Free Way to Help Pay Your Student Loan
• Don't Miss the $2,500 Student Loan Tax Break
• What's in the 2025 Trump Tax Bill?
• The Silent 401(k) Drain Costing Thousands in Retirement Growth

For homeowners facing steep property tax bills alongside high housing costs, the state and local tax deduction (SALT) might offer some federal tax relief in 2026 — especially for those in high-tax states who itemize their deductions.

The SALT deduction is larger than before 2025, and this year's limit gets another increase due to scheduled inflation adjustments. These changes could allow some taxpayers to deduct substantially more of their property and state income taxes than they could under the $10,000 cap that had been in place for years.

Here's more to know.

New SALT tax deduction 2026 limit

The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income.

For the 2026 tax year, taxpayers who itemize can deduct up to $40,400 in qualifying state and local taxes. The limit is $20,200 for married couples filing separately

That's a $400 increase from the $40,000 limit that applied for the 2025 tax year.

• The deduction can include qualifying state and local income taxes, sales taxes and property taxes, subject to the overall limit.
• Taxpayers generally can deduct either state and local income taxes or sales taxes, but not both.

The expanded limit is particularly notable for homeowners because property taxes can account for a significant portion of the annual cost of owning a home. Under the old rules, taxpayers could be limited to a $10,000 SALT deduction even if they paid far more in state and local taxes.

Higher-income SALT deduction phaseout

But keep in mind that the $40,400 deduction isn't available in full to every taxpayer.

• For 2026, the expanded SALT deduction begins to phase down when modified adjusted gross income (MAGI) exceeds $505,000, or $252,500 for married couples filing separately.
• The deduction is reduced by 30% of the amount by which income exceeds the applicable threshold.
• The reduction can't push the SALT deduction below $10,000, or $5,000 for married couples filing separately.

That means some higher-income taxpayers can still claim a SALT deduction, even after the expanded portion of the benefit has phased out.

You must still itemize

The higher SALT cap doesn't mean every homeowner gets a $40,400 tax deduction. (SALT is an itemized deduction, so taxpayers need to compare their itemized deductions with the standard deduction.)

For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.

For some homeowners, property taxes, combined with state income taxes, mortgage interest and other deductible expenses, could make itemizing worthwhile. For others, the standard deduction might still provide the larger tax benefit.

And remember: A tax deduction isn't a dollar-for-dollar reduction in taxes. It reduces the amount of income subject to tax.

The big SALT change came in 2025

The 2026 $40,400 SALT cap is part of a temporary expansion created by the Trump/GOP 2025 tax law overhaul.

First, a little background: Before 2018, there was no limit on the amount that could be deducted. But the 2017 Tax Cuts and Jobs Act (TCJA), also known as the "Trump tax cuts," imposed a $10,000 SALT deduction cap ($5,000 for married individuals filing separately) from 2018 through 2025.

In his second term as president and amid political debate about the cap being too low, Donald Trump called for increasing the SALT deduction limit. The SALT cap increased from $10,000 to $40,000 for 2025 and is scheduled to increase by 1% each year through 2029. The income threshold for the phaseout also increases by 1% annually.

Under current law, the SALT cap is scheduled to be:

2025: $40,000

2026: $40,400

2027: $40,804

2028: $41,212

2029: $41,624

2030: $10,000

*Income phase-outs for each of those years will also adjust accordingly.

Beginning in 2030, if Congress doesn't act with new legislation, the SALT deduction cap is scheduled to return to $10,000 for most taxpayers and to $5,000 for married couples filing separately.

Other homeowner tax breaks to know

SALT isn't the only federal tax break that might help offset some of the costs of owning a home.

Mortgage interest: Homeowners who itemize generally can deduct interest paid on qualifying mortgage debt, subject to federal limits. Interest on a home equity loan or line of credit can also qualify when the money is used to buy, build or substantially improve the home.

Mortgage points: Points paid on a mortgage used to buy or substantially improve a primary residence might be deductible, subject to IRS requirements.

Home sale gains: Homeowners who sell a primary residence at a profit might be able to exclude up to $250,000 of the gain, or up to $500,000 for married couples filing jointly, if they meet the ownership and use requirements.

Homeowner tax breaks that don't carry into 2026 are the federal credits for energy-efficient home improvements. The 2025 tax law ended the Energy Efficient Home Improvement Credit and Residential Clean Energy Credit for qualifying activity after December 31, 2025.

Related

• Federal Tax Brackets 2026 and Marginal Rates
• Capital Gains Tax Exclusion for Homeowners: How It Works
• The Mortgage Interest Deduction: What to Know
• New Bill Proposes $1 Million Capital Gains Exclusion for Homeowners 65-Plus

Back-to-school brings a familiar cash-flow crunch for parents. Between upcoming college tuition bills, essential supplies, and student loan obligations, families face tough financial trade-offs.

One of the costliest compromises is saving less for later in life.

According to the American Institute of CPAs (AICPA), over half (53%) of personal and parent borrowers say student debt directly hinders their ability to save for retirement. For these households, the default reaction may be to reduce or even pause monthly 401(k) contributions.

However, scaling back 401(k) savings may trigger a higher income tax bill and forfeit compounding growth — all while causing taxpayers to miss out on federal relief. Here's what you can do.

The hidden tax penalty of pausing 401(k) contributions

AICPA data shows that over 70% of parent and personal student loan recipients are worried about their ability to keep up with payments. To cope with this financial pressure, many borrowers may be quietly cutting back on long-term retirement savings.

But reducing pre-tax 401(k) contributions doesn't just free up cash; it can immediately raise your federal tax bill.

What does that look like in practice?

Suppose a family pauses their $8,000 annual pre-tax 401(k) contribution to pay down student loans.

Because 401(k) contributions lower their adjusted gross income (AGI) dollar-for-dollar, pausing them exposes $8,000 to the following potential tax traps:*

• Tax bracket creep: a higher AGI can push a portion of that income into a higher federal marginal tax bracket (e.g., jumping from 22% to 24%).
• Shrinking loan deductions: the student loan interest deduction (worth up to $2,500) phases out at higher income levels, meaning your tax break shrinks just as your taxable income rises.
• Loss of credits and Roth eligibility: a higher AGI can reduce your eligibility for child tax credits, education credits, and direct Roth IRA contribution limits.

*Note: The exact impact depends on your filing status and overall income.

In short, cutting retirement savings to cover student loans may improve cash flow today, but create a financial headache at tax time.

The SECURE 2.0 solution: the 'student loan match'

While it may feel like an all-or-nothing choice: pay off student debt or capture workplace retirement matching funds, you can actually use federal tax law to achieve both.

Thanks to the SECURE 2.0 Act, some employers now provide matching contributions to 401(k), 403(b), governmental 457(b), and SIMPLE IRA plans based on your qualified student loan payments (QSLPs).

How the rule works:

• To qualify, you must be making student loan payments and have a direct legal obligation to repay the loan (guarantors do not qualify).
• Parents paying installments on Parent PLUS loans taken out for their children's education are also eligible for this match (which may provide much-needed relief, as new caps of $20,000 per year and a $65,000 lifetime limit per student went into effect under the 2025 Trump tax bill).
• Total matched loan payments and direct 401(k) contributions combined cannot exceed the annual federal IRS deferral limit ($24,500 for 2026, excluding catch-up contributions).

Here's an example. Say your employer offers a 4% match on your 401(k), and you contribute at least 4% of your salary toward eligible student loans. Your employer can deposit the full match into your 401(k).

You also don't need to send every bank receipt to HR to qualify. Under IRS guidelines, you only need to provide a simple annual certification confirming your payment amounts and loan details.

The bottom line. You receive 100% of your employer's free retirement match money without putting a single new dollar directly into the 401(k) plan yourself. For more information, check out Kiplinger's report on the SECURE 2.0 Act.

How to find out if your employer offers a student loan match

However, not all companies offer student loan matching. So follow these steps to check your options and protect your budget:

1. Ask HR about "QSLP matching": Review your company's 401(k) plan documents to see whether student loan matching is enabled. Because employer adoption is optional, companies must proactively add this feature to their plan.
2. Scale back to a "micro-contribution" (if unsupported): If your employer doesn't offer student loan matching yet and you can't afford the full match amount, try contributing a small amount to your 401(k). Even contributing just 1% or 2% to a tax-advantaged account is better than nothing.
3. See if you're eligible for the $2,500 interest deduction: Check if you qualify for the federal student loan interest deduction. This tax break helps claw back some of the interest you pay to your loan servicer — and best of all, you can still claim the standard deduction.

Strategies for borrowers to protect retirement funds

If your employer hasn't adopted a 401(k) student loan match, here are some further ideas to help balance retirement savings with your monthly budget.

• Look into income-driven repayment (IDR) plans: An IDR plan bases your federal student loan payments on your income and family size instead of your total debt. This lowers monthly payments for some and may free up extra cash to put toward your 401(k). (Keep in mind: Parent PLUS loans have special rules and may need to be combined into a single direct-consolidation loan first.)
• Explore other tax-free employer assistance: Under Section 127 of the tax code, employers can provide up to $5,250 annually in tax-free student loan repayment assistance directly to employees. Ask your benefits department if this student loan benefit is available.
• Time extra payments wisely: If you have extra cash to save, prioritize capturing your full employer 401(k) match before making accelerated principal payments on low-interest student debt. An employer match represents an immediate 50% to 100% return on your investment, a rate that typically outperforms the interest saved by paying down low-rate loans early.

Managing student debt shouldn't force you to sacrifice your long-term financial security. By taking advantage of federal tax law, you may be able to pay down loans today without putting your retirement on hold.

Read More

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• Don't Overpay the IRS: 6 Mistakes That Could Be Raising Your Tax Bill
• SECURE 2.0 Act Summary: New Retirement Savings Changes to Know

Proposed legislation targeting "mega" retirement accounts has put high-net-worth IRAs and 401(k)s back in Washington's crosshairs.

The bill would force wealthy account holders to take mandatory distributions and block new contributions — a response to data showing some investors have accumulated multi-million-dollar balances through early-stage private equity and startups.

But while similar proposals have stalled in the past, this bill may reflect a broader policy trend. The legislative effort coincides with recent U.S. Department of the Treasury measures targeting other "aggressive planning" strategies like Section 351 ETF exchanges.

So whether this specific measure advances through Congress or not, the debate highlights key considerations for long-term tax, liquidity, and asset-location planning.

Here's what high-earning IRA account holders need to know in 2026.

Newly proposed limit cap on IRAs and 401(k)s

Sen. Ron Wyden (D-Ore.) and Rep. Richard E. Neal (D-Mass.) recently introduced legislation to cap IRA and 401(k) balances for high-net-worth accounts.

But the proposed restrictions don't apply to everyone with a large account balance. Instead, to trigger mandatory withdrawals and contribution bans, a taxpayer must meet two criteria in the same tax year:

• High-income floor: Modified adjusted gross income (MAGI) over $400,000 for single filers (or $450,000 for married couples filing jointly).
• Total asset cap: Combined retirement balances exceeding $10 million across all traditional IRAs, Roth IRAs, and defined contribution plans (like 401(k)s and 403(b)s).

If passed, the legislation would bar any individuals meeting both rules from making further contributions to their tax-advantaged retirement savings accounts for that year.

Additionally, forced withdrawals of the aggregate excess would be required (more on that below).

The two-tiered forced withdrawal rule

For high earners with over $10 million in affected accounts, the proposal requires accelerated withdrawals from tax-advantaged accounts. Yet the withdrawal rules are slightly different depending on how much you have saved for retirement.

Traditional IRAs and 401(k)s are normally subject to required minimum distributions (RMDs) beginning at age 73 or 75, under the SECURE 2.0 Act. By requiring a 50% payout of the aggregate excess over $10 million, this proposal creates a much steeper payout schedule that applies regardless of age.

Additionally, while Roth accounts are funded with after-tax dollars and allow tax-free withdrawals without lifetime RMDs, the bill targets high-net-worth Roth IRAs by requiring excess funds to be transferred to standard taxable accounts (if an account is worth $20 million or more).

Once forced money leaves a Roth, it enters a regular brokerage or bank account. From that day forward, any dividends, interest, or capital gains generated by those funds are subject to annual federal and, where applicable, state income taxes.

Why it's proposed (and why it faces resistance)

Wyden and Neal introduced their mega-IRA cap legislation in conjunction with Joint Committee of Taxation (JCT) data showing that over 32,000 Americans hold more than $10 million in tax-advantaged accounts.

Notably, the data presented a core group of about 200 individuals who hold an average of $409 million each — largely through early-stage private equity or startup investments placed inside self-directed IRAs, as reported by The Wall Street Journal.

"Tax-preferred retirement accounts are not supposed to be a loophole for the ultra-rich to shelter immense fortunes," Wyden stated in a press release. "They’re a lifeline for working Americans who may not otherwise have a dignified retirement.”

However, this is not the first attempt at a cap. A similar provision was included in early drafts of the Biden-era Build Back Better Act before lawmakers removed it from the final bill.

The primary pushback came from the financial services industry, including groups like the Retirement Industry Trust Association (RITA) and alternative asset custodians.

Critics claimed that forcing rapid distributions on private equity, startup stock, or real estate assets would force account holders to sell non-public assets at fire-sale prices just to satisfy cash distribution mandates.

Congressional Republicans and conservative think tanks, like The Heritage Foundation, also opposed these measures. They claimed that forcing new distribution rules onto existing balances would unfairly penalize investors who followed the law as originally written.

What high-net-worth investors should watch in 2026

While the debate over this specific bill continues, the renewed discussion signals that mega-retirement accounts remain in the legislative limelight. High earners and savers can use these proposed rules as a "stress test" for their long-term estate and tax plans:

• Diversify across account types. Holding all your wealth in a single tax-deferred vehicle can create legislative risk, or, at the very least, increase your total lifetime tax burden. Spreading assets across traditional, Roth, and taxable brokerage accounts gives you flexibility to manage your adjusted gross income (AGI) if distribution rules or federal tax brackets shift.
• Build liquidity alongside private assets. Self-directed IRAs containing private equity, startup stock, or real estate face liquidity risks when required distributions apply. Maintaining liquid buffers, like public equities or cash equivalents, may help prevent forced sales of illiquid assets during regulatory changes or normal RMD years.
• Keep alternative asset valuations audit-ready. IRAs holding private stock or real estate may draw increased IRS scrutiny because misvalued assets can trigger accidental "self-dealing" or other prohibited transactions. Thus, keeping annual, independent appraisal records could help your portfolio stay compliant if valuation enforcement tightens.

For high earners, watching Washington is wise, but you don't have to wait for a final vote on a key piece of legislation. A flexible tax plan built on true asset diversification remains one of the single best protections against an ever-shifting tax code.

Read More

• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)
• SECURE 2.0: New Retirement Savings Changes to Know
• 2026 IRA and 401(k) Contribution Limits
• 5 Retirement Tax Traps to Watch This Year

As more people in the U.S. remain in their homes as they grow older ("age in place"), the cost of making a home safer and more accessible can be a significant hurdle.

A new proposal in Congress would ease that burden by creating a federal tax credit for older homeowners who invest in accessibility upgrades.

The Senior Accessible Housing Tax Credit Act of 2026 would provide a credit of up to $10,000 for taxpayers age 60 and older who make qualifying improvements to help them remain safely and independently in their homes.

The legislation addresses a gap for older adults because Medicare generally doesn't cover structural home modifications, like installing wheelchair ramps, widening doorways, or remodeling bathrooms for accessibility. As a result, many homeowners must pay those often substantial costs out of pocket.

Here's more to know.

New $10,000 home tax credit for older adults?

The Senior Accessible Housing Tax Credit Act of 2026, recently introduced by Sens. Angela Alsobrooks (D-Md.) and Kirsten Gillibrand (D-N.Y.), would create a federal tax credit of up to $10,000 for taxpayers age 60 and older who make qualifying accessibility improvements to their homes.

"This critical legislation allows for seniors to stay in their homes — for many that means homes they love and have been in for decades —and install essential, aging-related modifications," Sen. Alsobrooks stated in a release announcing the proposal.

Sen. Gillibrand, top Democrat on the U.S. Senate Committee on Aging, added that "a safe, accessible place for seniors to live should be a right, not a privilege."

The measure, which has received support from the National Association of Realtors, also has companion legislation in the House, introduced by Democratic Rep. George Latimer of New York. According to the bill's sponsors:

• If enacted, the bill would create a nonrefundable tax credit for eligible taxpayers age 60 or older for expenses related to certain home modifications on their principal residence or a qualifying second home
• The credit would be equal to the cost of eligible expenditures, with an annual limit of $10,000
• Qualifying expenditures would also include certain labor costs related to the preparation, assembly, or installation of an eligible modification

What kind of projects are lawmakers talking about? Installing wheelchair ramps, grab bars, non-slip flooring, bathtub cuts or shower seats, furniture risers or chair lifts, or widening doorways would generally qualify under the proposal.

Replacement of toilets and bathroom vanities and kitchen or bathroom faucets are also mentioned in the bill. However, a general remodeling project, like a kitchen renovation designed primarily for appearance, likely wouldn't qualify.

Aging in place home modifications

The proposal comes as more older adults in the United States look for ways to remain in their homes. According to AARP's 2024 Home and Community Preferences Survey, 75% of adults age 50 and older want to remain in their current homes as they age.

But so-called "aging in place" often requires more than simply remaining in a longtime home. As some people get older, features like stairs, narrow doorways, high thresholds, and traditional bathrooms can make everyday tasks more difficult or increase the risk of falls.

As a result, some homeowners may need to install grab bars or step-free entrances, widen doorways or make other accessibility upgrades to continue living safely and independently.

Those improvements can vary widely in cost. According to data compiled by NerdWallet on aging-in-place home renovations:

• Installing grab bars can cost about $100 to $400
• Widening doorways can cost roughly $600 to $2,000 per doorway
• A stair lift can cost about $7,000 on average

For homeowners who need multiple changes, the expense can be significant.

As mentioned, another challenge is that Medicare generally doesn't pay for these types of home modifications.

Medicare Part B may cover certain medically necessary durable medical equipment (DME) prescribed by a doctor for use in your home (e.g., walkers, wheelchairs, hospital beds), provided deductible and supplier rules are met. But Medicare doesn't cover structural modifications to a home or, for example, bathroom "convenience" items like grab bars or raised toilet seats.

That leaves many paying these expenses out of pocket or looking for other sources of assistance.

Home accessibility tax deductions under current law

Keep in mind that the proposed $10,000 tax credit isn't currently available. Congress would need to pass the legislation and have it signed into law by President Trump before eligible taxpayers could claim it. It's unclear if there's sufficient bipartisan support for the measure to gain traction.

But…all is not lost. As Kiplinger has reported, under current IRS rules, certain home modifications may qualify as deductible medical expenses.

Under existing law, a taxpayer generally must itemize deductions to claim medical expenses, and only eligible medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted.

Reimbursed medical expenses are not deductible, and the modification(s) must be made primarily to provide medical care for the taxpayer, a spouse, or a qualifying dependent.

Additionally:

• The improvement generally must be tied to a specific medical need. A homeowner who installs a ramp because of a diagnosed medical condition may be able to deduct some of the cost, but someone who adds accessibility features simply as a precaution generally would not receive a tax benefit.
• If a home improvement increases the value of the property, only the portion of the cost that exceeds the increase in the home's value generally qualifies as a medical expense deduction.

For example, if an accessibility improvement costs $20,000 but increases the home's value by $8,000, generally only the remaining $12,000 may qualify as a medical expense deduction, assuming the other IRS requirements are met.

For more information and specific rules, see IRS Publication 502. Consider speaking with a trusted tax professional if you're unsure whether a specific upgrade might be deductible on your return, as this information is provided for educational purposes.

If you're concerned about the costs of making a home upgrade, you may also want to check for programs or organizations in your state or community that may provide assistance for eligible aging-in-place improvements.

What to Read Next

• Tax-Deductible Home Improvement in Retirement
• New Bill Proposes $1 Million Capital Gains Home Exclusion
• 5 Little-Known Senior Tax Deductions
• Property Tax Changes Homeowners Over Age 65 Should Watch in 2026

One of the first questions many people ask after learning they’ll receive an inheritance is: "Will I owe taxes?"

It’s an understandable worry. Taxes can be confusing, especially during an already emotional time when someone has passed away. But there is some good news — receiving an inheritance doesn’t automatically mean you’ll owe taxes to the IRS.

That's because for most people, the inheritance itself isn’t a taxable event. Whether you owe anything depends on what you inherit, where you live, and whether those assets later produce income or are sold.

Still, before you decide what to do next, it helps to understand which tax rules might apply to your situation and when. Here's more to know.

Do you owe taxes on an inheritance?

When you first inherit money or property, your instinct might be to prepare for a heavy tax bill on your next federal income tax return. It's a natural concern, but the IRS actually treats inheritances with a surprising amount of grace.

As a general rule, the federal government doesn't handle inherited assets as taxable income.

Simply receiving cash, a house, a stock portfolio, or other property won't trigger an automatic tax event or change your baseline tax situation for the year. In most cases, you aren't required to report the initial inheritance on your federal return.

Where tax responsibilities tend to enter the picture is not from the gift itself. The inheritance itself is generally a "clean slate," so to speak; what you choose to do with those assets is what determines which tax rules may apply.

Different inherited assets come with different tax rules

If you inherit cash: For most people, inheriting cash doesn’t create a federal income tax bill. That's because, as mentioned, the inheritance itself isn’t taxable. But any income it earns afterward might be.

For example, if you deposit inherited money into a high-yield savings account, any interest you earn is generally taxable. The same applies if you invest the money and later receive dividends or realize capital gains.

If you inherit a house: Inheriting a home generally isn’t a taxable event. If you later sell the property, however, capital gains tax rules may apply.

That’s where the tax picture can start to change.

• Most inherited homes receive a stepped-up basis, which adjusts the property’s value to its fair market value at the time of the owner’s death.
• That can reduce the amount of taxable gain if you later sell the home.

For example, if you inherit a home worth $400,000 and later sell it for about that amount, you may owe little or no capital gains tax. If the home’s value increases after you inherit it, you may owe tax only on the appreciation that occurs after the inheritance.*

*This is a simplified example solely for educational purposes. Consult a trusted financial professional to help determine possible capital gains tax liability if you plan to sell an inherited home.

If you inherit stocks or investments: Stocks, mutual funds, and other investments generally aren’t taxable when you inherit them.

Much like inherited real estate, inherited stocks, mutual funds and other investments generally receive a stepped-up cost basis. If you sell them later, you may owe capital gains tax only on the appreciation that occurs after you inherited the assets.

If you inherit an IRA or retirement account: Inherited retirement accounts follow different tax rules than most other inherited assets.

While inheriting the account itself usually isn’t taxable, withdrawals often are. The rules depend on your relationship to the original account owner, the type of retirement account, and other factors.

• For example, distributions from an inherited traditional IRA are generally taxable, while qualified withdrawals from an inherited Roth IRA are typically tax-free.
• However, even though inherited Roth IRA distributions aren't taxed, most non-spouse beneficiaries are required under the SECURE 2.0 Act to withdraw all funds from the account within 10 years.

Because inherited retirement account rules can be complex, it’s important to understand these distribution timelines before taking money out and to consult a trusted tax advisor who knows your individual circumstances.

Common inherited assets and when taxes may apply

State inheritance taxes

Although there is no federal inheritance tax, a handful of states impose an inheritance tax paid directly by the beneficiary.

(Note: This is separate from a state estate tax, which is paid from the deceased person’s estate before assets are distributed.)

Whether you’ll owe state inheritance tax depends on where the deceased lived or owned property and your relationship to them — spouses and close relatives are often exempt.

If you’re unsure whether your state imposes an inheritance tax, our guide might help, but also consult a trusted tax professional or financial planner since every beneficiary's situation is different.

Keep in mind: Whether you’ll owe an inheritance tax largely depends on the state involved and your relationship to the deceased.

Frequently asked questions about inheritance taxes

Even though most inheritances aren’t subject to federal income tax, there are a few situations that can confuse beneficiaries.

Can you owe taxes years after receiving an inheritance?

Yes. While the inheritance itself usually isn’t taxable, you may owe taxes later if inherited assets earn interest or dividends, appreciate before you sell them, or require taxable withdrawals from a retirement account.

Does every state tax inheritances?

No. Only a handful of states impose an inheritance tax, and many exempt spouses and other close relatives. In most states, beneficiaries don’t owe a state inheritance tax.

Should you talk to a tax professional?

If you inherit a retirement account, real estate, a business, or other high-value assets, a qualified tax professional can help you understand how federal and state tax rules apply to your situation.

You can also find additional guidance in IRS Publication 559, Survivors, Executors, and Administrators, which explains the tax responsibilities of beneficiaries, executors, and estates.

Related

• Inherited an IRA? Key Distribution Rules to Know
• States That Won’t Tax Your Death
• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?
• Filing a Deceased Person's Final Income Tax Return

New York City’s new tax on high-value second homes is moving from the policy stage to enforcement. But the first challenge involves determining which property owners actually owe it.

The pied-à-terre tax was approved as part of the state budget signed into law in May 2026 and applies to certain non-primary residences in NYC beginning the 2026-2027 property tax year.

But as the city begins implementing the new levy, some homeowners are questioning why they received notices indicating their properties might be subject to the tax.

In response to the confusion and amid legal challenges, the Department of Finance extended the deadline to apply for a pied-à-terre tax exemption from Sept. 18 to Oct. 6, 2026. The move is designed to give property owners more time to review their notices and provide documentation showing why the tax shouldn't apply.

"We are announcing the extension of the exemption application deadline to ensure that New Yorkers who received the ‘You may be subject to...’ letters have the time and information they need," New York City Mayor Zohran Mamdani said in a statement.

The administration has said the goal is to ensure that residents who shouldn't owe the tax have an opportunity to establish their exemption eligibility.

So, how does New York City’s pied-à-terre tax work, and who's actually affected?

NYC Pied-à-Terre Tax exemption deadline extended

NYC’s pied-à-terre tax is a surcharge on certain residential properties that are not used as an owner’s primary residence.

The measure is designed to raise revenue from high-value homes and apartments maintained as second residences, particularly those owned by people who live elsewhere.

Mamdani has described the tax, which is expected to generate about $500 million annually, as "an important new tool to help our city collect the revenue we need for safer streets, cleaner parks, and other critical investments across the five boroughs."

Some key points:

• The new law, which took effect July 1, 2026, applies during the 2026–27 (phase-one) and 2027–28 property tax years.
• The levy applies to certain non-primary residences. That includes one-, two- and three-family homes, condominiums and cooperative units, based on property type and market value.

• One-, two- and three-family homes are subject to the surcharge if the property has a market value of $5 million or more. Condominium and cooperative units are subject to the surcharge if the unit has a market value of $1 million or more.
• Properties used as a primary residence by the owner or an immediate family member are exempt. Properties leased for at least one year as a primary residence may also qualify for an exemption.

It's important to note that the surcharge is not part of a homeowner’s regular property tax bill. Instead, it creates an additional tax obligation for qualifying non-primary residences that meet the applicable value threshold and don't qualify for an exemption.

How much is the tax? The amount a homeowner could owe will depend on the property’s standardized fair market or assessed value and the applicable surcharge rules.

Class 1 (one-, two-, and three-family homes)

• $5 million to $15 million: 0.8%
• More than $15 million to $25 million: 1.05%
• More than $25 million: 1.3%

Condominiums and co-ops (FY 2026-27 and FY 2027-28)

• $1 million to $3 million (Phase One Market Value): 4.0%
• More than $3 million to $5 million (Phase One Market Value): 5.25%
• More than $5 million (Phase One Market Value): 6.5%

Which homeowners actually owe the tax

As the city began implementing the new levy, confusion has emerged over which properties might be subject to it.

• On July 24, the Department of Finance published a list of more than 900,000 properties, prompting some homeowners to question why their homes appeared on the list.
• The city later added a disclaimer clarifying that inclusion on that larger list didn't necessarily mean a property was subject to the pied-à-terre tax.

The city's Department of Finance has since reportedly sent notices to about 17,000 property owners who may be affected by the new surcharge. (That number was larger than the state’s earlier estimate of roughly 10,000 to 13,000 affected non-primary residences, which has raised questions about how many properties will ultimately qualify once exemptions are reviewed.)

Some homeowners are concerned about the notices they received.

For example, a Brooklyn homeowner told The Wall Street Journal that he received a notice indicating a potential $44,048 surcharge, even though he said the property was his primary residence. The Gothamist reported on another New York resident who said she would owe close to $43,000 in tax without an exemption for a property she says has always been her primary address.

Legal Challenge Update: On August 7, 2026, a group of homeowners filed a lawsuit challenging the city’s rollout process. A Staten Island Supreme Court judge issued a temporary restraining order on August 10, pausing enforcement, but an appellate court stayed that order on August 13 after the city appealed. As a result, the city is moving forward with enforcement while litigation continues, but was required to take down the public online roll while the court evaluates its legality." As of late August, the city sent notices to about 10,800 homeowners.

These disputes highlight why implementation could prove difficult. The city is not only identifying valuable properties — it's trying to determine how those properties are actually used.

Under NYC law, the surcharge generally applies to qualifying properties that are not used as a primary residence. The Department of Finance determines primary residency based on legal factors, including whether a covered owner occupies the property for a majority of days during the calendar year.

But…in some cases, that determination may require more than reviewing ownership records.

• A property deed may show who owns a home, but it doesn't necessarily establish how the property is used
• Properties held through trusts, limited liability companies, or other ownership structures may require additional review
• The city may request documentation related to residency, occupancy, ownership details, or other information relevant to an exemption

For homeowners who received notices, a key challenge could be showing their property doesn't meet the criteria for the surcharge.

What NYC homeowners need to know

Keep in mind: Receiving a notice does not automatically mean a homeowner owes NYC’s second-home tax. Instead, it means the property has been identified as potentially subject to the new rules, and the owner may need to submit information showing why an exemption applies.

City officials have said that homeowners who believe their properties shouldn't be taxed under the measure should complete the exemption application by Sept. 18, 2026.

Note: Despite the ongoing legal battle, the appellate stay means the September 18, 2026 exemption deadline remains active. The court has scheduled a hearing for August 31, 2026, where a judge will decide whether to grant a longer preliminary injunction.

The documentation required will depend on each homeowner’s circumstances. The Department of Finance has a webpage that includes frequently asked questions, an eligibility tool, and instructions for submitting documentation.

And since every homeowner's situation is different, you may want to consult a trusted tax professional who can help you determine whether your property qualifies for an exemption.

Related

• New York POWER Utility Rebates Are Coming: What to Know
• Mamdani's Millionaire Tax: Will a New York Exodus Begin?
• New York STAR Tax Relief Checks Being Sent This Year

Historically, summer is a quieter period for trading as market volumes slow down. But 2026 is breaking the rules. With recent tech-sector rotations and unexpected volatility shaking portfolios, putting your investments on autopilot right now could be a costly mistake.

In fact, research shows that 86% of financial advisors ramp up tax management strategies during volatile periods, rather than waiting for a particular season, like year-end.

And one of those employed strategies is tax-loss harvesting — selling underperforming investments to offset capital gains, or even ordinary income. Not only does this practice lock in paper losses early, but it positions your portfolio for tax advantages before filing season arrives.

Here's how to target the right assets to turn your tax losses into a potentially lower federal income tax bill.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice. Consult a certified financial advisor before making trading decisions based on your individual tax situation.

Why market dips are the strategic time to harvest

Tax-loss harvesting means selling losing investments in taxable accounts to lower the capital gains tax you owe on your winning ones. By taking advantage of this strategy during market dips, you gain three strategic advantages:

• Capturing market dips before they disappear. Selling during dips locks in tax offsets before potential year-end rallies erase your paper losses.
• Avoiding the year-end rush. Executing trades in late November or December (or other times of the year where tax planning is "trending") comes with liquidity pinches, trade execution delays, and wider bid-ask spreads as everyone rushes to rebalance at once. Selling losses as they occur can help avoid all that.
• Proactive portfolio rebalancing. Reviewing your holdings periodically throughout the year gives you breathing room to realign your asset allocation and see trends like asset class drift, sector overconcentration, or performance divergence before they expose you to unintended market risks.

Identifying your tax harvesting targets

But, of course, you don't want just to sell an investment because it's underperforming. Otherwise, you could lose out on savings that would bring more benefit than tax-loss harvesting might (more on that below).

Review your portfolio for these key indicators that an investment might be a good candidate for tax-loss harvesting:

• Focus only on taxable brokerage accounts. Tax-loss harvesting only applies to taxable brokerage accounts where you buy stocks, bonds, mutual funds, or ETFs. Tax-advantaged accounts like IRAs, Roth IRAs, and 401(k)s are ineligible.
• Target assets below cost basis. Focus on positions trading noticeably below what you originally paid for them to generate the most usable realized losses. When placing your sell orders, ensure your brokerage uses "specific identification" or "highest-in, first-out" (HIFO) lot selection so you can sell your specific underwater shares instead of triggering default "first-in, first-out" (FIFO) rules on older, more profitable shares.
• Look for temporary displacements. Identify high-quality assets that have decoupled from their long-term fundamentals during volatility swings.

For instance, in the summer of 2026, the tech sector saw a global sell-off as investors grew increasingly anxious that AI investments were outstripping immediate revenue returns. This anxiety impacted Nvidia (NVDA), Advanced Micro Devices (AMD), and Alphabet (GOOGL) stocks.

For more information on up-to-date stock news, check out Kiplinger's reporting on Stocks: News, Features and Analysis.

How tax savings actually add up: Tax-loss benefits

Selling an asset at a loss in a taxable account gives you a potentially powerful tool to lower your overall tax burden at year-end. This happens across three tiers:

• Offset capital gains dollar-for-dollar. Your losses directly cancel out capital gains realized from winning stock sales or real estate. So, if you made $10,000 in profits earlier this year, $10,000 in harvested losses brings your federal taxable capital gain to $0.
• Deduct up to $3,000 against ordinary income. If your total capital losses exceed your capital gains for the year, you can deduct up to $3,000 ($1,500 if married filing separately) of the excess against ordinary income, like wages or retirement distributions.
• Carry forward the excess indefinitely. Do you have more than $3,000 in net losses with no other gains to net them against? No worries. Unused capital losses don't expire. So you can carry them forward into 2027, 2028, and beyond to offset future gains.

Examples: when tax-loss harvesting can lower your tax bill

How does tax-loss harvesting benefit other items on your tax bill? Here are a couple of examples:

• If you’re subject to the highest tax rate on capital gains (20%), you can potentially avoid that tax through tax-loss harvesting, resulting in valuable savings. Those savings can be reinvested in securities or used to help rebalance your portfolio. (Note: If your income falls into the 0% long-term capital gains tax rate, harvesting long-term losses might not offer immediate savings, as your gains are already tax-free.)
• By deducting up to $3,000 of capital losses against ordinary income, you can save on taxes typically levied on retirement plan distributions, pensions, and other ordinary income sources. An unlimited amount of capital loss might be carried forward to offset gains you anticipate from real estate sales, mutual funds, ETFs, etc.

But don't forget: While the top federal capital gains rate is 20%, there's a net investment income tax (NIIT) that may apply an extra 3.8% on top of that, bringing the total federal rate to 23.8% for some high-income earners.

Navigating the IRS wash sale rule

Before executing trades for tax-loss harvesting, you must navigate the IRS "wash sale" rule.

The rule: If you sell a security at a loss and buy a "substantially identical" security within a 61-day window (30 days before, the day of, or 30 days after the sale), you cannot claim the loss on your current-year tax return. Instead, the loss is deferred — the disallowed amount is added to the cost basis of the new shares, which adjusts your future tax obligation when you eventually sell them.*

This means that, if you want to preserve your target market exposure (without breaking IRS rules), you might:

• Switch to a non-identical replacement. Reinvest sale proceeds into a similar (but not substantially identical) asset. For example, swapping a tech ETF tracking the S&P 500 Information Technology Index for one tracking the MSCI USA IMI Technology Index.
• Try the "double-up" strategy. Buy a matching block of the same security today using available cash. Hold both positions for at least 31 calendar days (so the original purchase falls outside the 30-day pre-sale window), and then sell the original, underwater lot to harvest the loss. (Keep in mind this temporarily doubles your exposure to that investment for 31 days and carries additional market downside risk.)

You should also watch out for other, "hidden" wash sale tax traps, like:

• Automatic Dividend Reinvestment (DRIP). Some portfolios are set up so that dividends are automatically reinvested in the harvested stock or fund during the 61-day window. If a dividend automatically reinvests, that could trigger the wash sale rule.
• The IRA wash sale trigger. While IRAs and Roth IRAs are disallowed from claiming a tax-loss harvest, they can accidentally trigger the wash sale rule if one of them buys back a harvested asset inside the 61-day window. Because retirement accounts don't track cost-basis adjustments, this can permanently eliminate your potential tax deduction rather than just deferring it.

Your financial advisor may have other strategies. But whichever you choose, ensure you account for trading fees or bid-ask spreads (the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to sell). You don't want these costs to outweigh the savings you generate through tax-loss harvesting.

*Note: The rule applies across all accounts you or your spouse own.

What you can do now

If you're ready to turn current or future market volatility into tax savings, follow this summary checklist:

1. Audit year-to-date gains. Tally up any capital gains you've already realized in 2026.
2. Scan taxable accounts. Locate positions affected by recent rotations that are trading below cost basis.
3. Analyze the impact of a sale. If you were to sell the chosen investment, how would you utilize the cash proceeds? How much would brokerage fees eat into your profit margin? Be sure you know the answer to these (and other) applicable questions before making any trades.
4. Execute and swap. Sell chosen losing positions and immediately deploy your capital into suitable, non-identical replacement assets or another strategy. Remember to pause any automatic DRIP reinvestment plans on that security.
5. Document everything. Maintain clean trade receipts and cost-basis logs to help streamline your income tax preparation come spring.

Market volatility is inevitable, but paying unnecessary taxes isn't. By taking a proactive, year-long approach rather than reacting in December, you can transform short-term paper losses into immediate tax savings — freeing up capital to stay invested and compound over time.

So use an hour this week to review your portfolio, consult your tax advisor, and make the next market dip work for you.

Read More

• Here Are The Capital Gains Tax Rates for 2026
• Taxable Income: What It Is and How to Calculate It
• 2026 Tax Brackets and Federal Income Tax Rates: What to Know
• How Long Should You Keep Tax Records?

Even after paying off a mortgage, rising property taxes can be a significant financial challenge, especially for retirees living on fixed incomes.

Recent data show that property tax bills nationwide average $4,427 annually per single-family home, a more than 3% jump from the previous year.

But…several states are currently considering changes to their property tax systems. As a result, this November, many voters will decide whether to freeze taxable home values, expand homestead exemptions, or cap annual assessment spikes — changes that could provide relief to many homeowners struggling with affordability.

So, if you're an older adult homeowner, or someone helping an aging loved one manage housing costs, here are some key property tax changes to watch this year.

Louisiana property tax exemption for seniors

Voters in Louisiana will decide in November whether to expand property tax relief for some older homeowners through a proposed constitutional amendment created by House Bill 514 (Act 274).

• The measure would allow parishes and municipalities to provide an additional property tax exemption for qualifying homeowners age 65 or older.
• Eligible taxpayers must own and occupy a homestead and qualify for Louisiana’s existing special assessment level program.

How it could affect older homeowners: The proposal wouldn’t eliminate property taxes for older adults statewide. Instead, the measure would give local governments the option to offer this additional benefit.

• If a parish or municipality adopts the exemption, qualifying homeowners age 65 and older could receive an additional reduction in their taxable home value.
• That could, in turn, potentially lower their property tax bills.

Supporters say the tax measure would help older adults stay in their homes as property values rise. It could also provide relief to retirees whose incomes may not keep pace with housing costs.

Note: Louisiana already provides a special assessment level program that protects certain qualifying seniors from increases in the assessed value of their homes. But advocates see the proposed exemption as an additional layer of protection.

Opponents’ concerns focus primarily on the effect on revenue. Property taxes help fund schools and local services, and expanding exemptions could mean less money for local government priorities.

If approved by voters on the November 3, 2026 Louisiana ballot and adopted by local governments, the exemption would apply to tax years beginning January 1, 2028.

Oklahoma property tax cap & senior protection tiering

Oklahoma voters will decide this fall whether to approve State Question 847, a constitutional amendment to slow property valuation growth statewide while restructuring tax protections for older adult homeowners.

For homeowners overall, the measure would reduce the annual cap on homestead property valuation growth from 3% to 1.75% and non-homestead real property from 5% to 4%.

How it could affect older adult homeowners: Unlike general property tax caps, State Question 847 would modify Oklahoma's existing Senior Valuation Limitation (senior freeze) program for homeowners age 65 and older:

• Seniors with low-to-moderate income: Retirees earning at or below their county's HUD median income would retain a 0% freeze on taxable property value increases.
• Seniors with higher income: Currently, seniors earning over the median income receive no valuation protection. Under the proposed measure, senior property valuation increases would be capped between 0.35% and 1.75%, scaled according to household income brackets.

Supporters argue that replacing the "all-or-nothing" income threshold with a sliding scale ensures that older adults with middle incomes on fixed pensions aren't suddenly exposed to full market-value spikes, while keeping baseline caps predictable for all Oklahomans.

Opponents argue that altering senior freeze structures creates uncertainty for local school districts and municipal services that rely heavily on property tax revenues to fund local infrastructure and career centers.

State Question 847 will appear on the November 3, 2026 ballot. If approved, the new valuation caps and senior income tiers would take effect for tax year 2027.

Florida homestead exemption: Amendment 3

Florida voters will decide in November whether to approve a constitutional amendment that would significantly increase the state’s homestead exemption.

The measure, known as Amendment 3, would raise the exemption from $50,000 to $150,000 in 2027 and then to $250,000 in 2028 for qualifying homesteaded properties. The increased exemption wouldn’t apply to school district taxes.

Those who qualify for the homestead exemption would have a larger portion of their home’s value excluded from tax, potentially lowering their property tax bills.

How it could impact older adult homeowners: Unlike the Louisiana proposal, Florida’s measure isn’t limited to those 65 and older. It would apply broadly to homeowners who qualify for Florida’s homestead exemption.

However, the measure could have a significant impact on older homeowners in part because of the state’s large retiree population. The savings could be particularly helpful for Florida retirees with fixed incomes, who are increasingly facing rising insurance, housing, and living expenses.

• Supporters argue that Florida homeowners need relief after years of rising property values and higher housing costs. They say expanding the homestead exemption would allow residents to keep more of their income and make it easier for some of them to remain in their communities.
• Critics argue that the proposal could reduce funding for vital public services or force local governments to find other revenue sources.
• Legal Challenge to Watch: The measure is currently facing legal challenges in state court over its ballot language. Opponents contend the title and summary written by lawmakers are overly promotional rather than objective. While the court challenges don't contest the proposed tax cuts, a new ruling could potentially force revisions to how the measure appears on the November ballot.

Update: On August 5, 2026, a Leon County Circuit Court judge ruled that the ballot wording for the proposed Florida property tax amendment is misleading. The court found it uses promotional language, e.g., describing the measure as "constitutional protections for Florida homeowners," instead of neutrally describing what the measure would do.

As a result, the Florida Attorney General's Office has until August 14 to rewrite the ballot title and summary in more objective terms.

It's important to note that this ruling doesn't remove the amendment from the November ballot. Instead, it requires voters to receive more neutral ballot language before casting their votes.

Amendment 3 would need at least 60% voter approval to pass. If approved, it would represent one of the largest expansions of Florida’s homestead exemption.

Ways to lower a property tax bill

While voters in these and some other states decide on tax changes this November, homeowners across the country don't necessarily have to wait for election day to potentially lower their property tax bills.

Check whether your state, county or local government offers property tax exemptions, freezes or deferral programs for older homeowners.

Keep in mind that eligibility rules vary, and some programs require homeowners to apply each year.

It also could be worth reviewing your property assessment.

If your home’s assessed value appears too high compared with similar properties in your area, you may be able to appeal the assessment and potentially lower your taxable value.

For more information, see our report: How to Lower Your Property Tax.

This article has been updated to include a new ruling on the Florida property tax amendment.

Related

• Income Tax Changes on the November Ballot: What to Watch
• New Bill Proposes $1 Million Capital Gains Tax Exclusion for Those 65 and Older
• College Towns Are Becoming Retirement Destinations: How Does the Tax Math Add Up for Retirees?

When planning for retirement, state taxes on your 401(k), pension, and Social Security benefits should be part of your strategy.

Yet while some states offer no retirement taxes on any of these sources, a zero-percent tax rate can lose its shine if you can't get a doctor's appointment when you need one.

After all, an average 65-year-old retiring in 2026 can reportedly expect to spend $185,500 on healthcare and medical expenses throughout retirement. And living comfortably on a fixed income requires balancing healthcare costs with other top retiree concerns, like housing and daily living expenses.

To help you navigate this balancing act, we cross-referenced states that don't tax retirement income against property tax data, cost-of-living metrics, and senior healthcare rankings. The final list highlights the five most tax-friendly states for retirees, ranked by the quality and accessibility of their older-adult healthcare.

How we ranked these retirement states

Our list draws from Kiplinger's analysis of states that do not tax retirement income. Among the 13 states meeting that baseline, we filtered for the ten with the lowest median property taxes paid on mortgage homes (using PropertyShark data referenced from the latest U.S. Census Bureau data points).

Cost-of-living data was drawn from the Missouri Economic Research and Information Center (MERIC) index, where a score of 100 represents the national average.

Then, states were ranked using the United Health Foundation's "America's Health Rankings Senior Report," specifically focusing on "Clinical Care for Seniors." This metric evaluates:

• Healthcare access: Including availability of dedicated primary care providers, home health aides, and care affordability.
• Clinical services: Including rates of routine cancer screenings, avoided care rates due to high costs, and flu and pneumonia vaccinations.
• Quality of care: Including hospice care usage, nursing home quality ratings, and preventable hospitalization stays (per Medicare beneficiaries aged 65 to 74).

Scores range around a national benchmark of 0.00. Positive scores indicate above-average healthcare performance, while negative scores reflect below-average metrics. However, it's important to note that these scores are statewide averages and are not indicative of any one area within a specific state.

This list evaluates state income tax only. Federal income taxes still apply. Consult with a qualified tax professional when necessary.

1. Washington: Outstanding healthcare, higher cost of living

Senior healthcare ranking: +0.528 (Top 10 nationwide)

Median property taxes paid: $4,556

Cost-of-living score: 114.6 (14.6% above national average)

Washington takes the top spot on our list. The Evergreen State exempts all retirement income from state tax, meaning your Social Security, pensions, 401(k)s, and IRAs remain untouched by local authorities.

Another retiree benefit is its healthcare system. With a score of +0.528, per the Clinical Care report, Washington's medical care for older adults is above average, placing it in the top 20% of all states nationwide, just behind Colorado.

Yet everyday affordability remains an issue.

• Washington's median annual property tax bill exceeds $4,500, and overall living expenses — like groceries and housing costs — run roughly 14.6% higher than the national average.
• Plus, Washington recently approved an increased capital gains tax structure ranging from 7% to 9.9% on certain high-value investments, which can make the state more expensive for higher-wealth individuals.

But if you're retired and can comfortably afford the often higher price tag of Pacific Northwest living, Washington delivers an ideal combination of state retirement tax income exemptions and top-tier healthcare.

Related: 10 Cheapest Places to Live in Washington

2. Pennsylvania: Strong healthcare and moderate living costs

Senior healthcare ranking: +0.320 (#16 nationwide)

Median property taxes paid: $3,311

Cost-of-living score: 96.2 (3.8% below national average)

Pennsylvania slides into second on our list. The Keystone State exempts retirement income from state tax, including Social Security, pension payouts, and 401(k) or IRA distributions.

Senior healthcare access also remains strong here. With a score of +0.320, older adults may expect high-quality medical care, placing the state in the top 32% nationwide, according to data from the United Health Foundation. Plus, the average cost of living sits nearly 4% below the national average.

• But while retirement income is exempt from state taxes, all other income sources (like interest and dividends) are subject to a flat 3.07% state income tax.
• Additionally, the median property tax bill, while lower than Washington, remains 11% above the national average according to data from PropertyShark.

For retirees, Pennsylvania may offer a more balanced financial profile than higher-tax northeastern neighbors, like New York. However, elevated property tax bills can be difficult on a fixed income.

3. Iowa: Affordable living with above-average care

Senior healthcare ranking: +0.185 (#21 nationwide)

Median property taxes paid: $2,897

Cost-of-living score: 88.6 (11.4% below national average)

Iowa may be a true hidden gem for budget-conscious retirees. The state exempts retirement income from state taxes for residents aged 55 and older, meaning you don't have to wait long before you get state income tax relief.

On top of that tax exemption, Iowa boasts the lowest property tax bill among our top three states on this list, at just under $2,900. This is right below the national average, according to the U.S. Census Bureau, and the savings don't stop there. The Hawkeye State's cost of living is more than 11% below the national average, according to MERIC.

And perhaps more importantly, low cost doesn't automatically mean low healthcare quality, either. Iowa's senior healthcare ranking sits in the top 42% of the nation (ranking 21st overall in the Clinical Care United Health report), supported by lower rates of preventable hospitalizations.

• While Iowa ranks high nationally for average senior clinical care, its rural geography can create more care disparities for some areas than in, say, Washington or Pennsylvania.
• Plus, if you're used to a top #20 state for prime medical care, Iowa falls just short of that in the Clinical Care report.

Yet for fixed-income retirees seeking a balance of affordability and dependable healthcare (at least in more urban areas), Iowa may be considered a standout choice among tax-friendly states.

4. Florida: Low taxes, but rising costs and healthcare strain

Senior healthcare ranking: -0.103 (#31 nationwide)

Median property taxes paid: $2,730

Cost-of-living score: 100.7 (0.7% above national average)

Florida remains a classic choice for retirement because it levies no state income tax at all, protecting not just retirement distributions but also interest and dividends (and who doesn't love the weather?).

However, the Sunshine State's significant influx of retirees in recent years has created new friction points.

• Rapid population growth stretches the doctor-to-patient ratio, lowering Florida's senior healthcare access score to slightly below the national benchmark, according to the United Health Foundation.
• Additionally, rising housing expenses and skyrocketing home insurance rates have pushed Florida's overall cost of living slightly above the national average, according to MERIC.

So while Florida remains viable, a 2026 retirement plan in the Sunshine State might mean preparing for higher everyday expenses and longer waits for medical specialists than in previous decades.

Related: 10 Cheapest Places to Live in Florida

5. South Dakota: Maximum tax relief, lower healthcare access

Senior healthcare ranking: -0.263 (#35 nationwide)

Median property taxes paid: $2,724

Cost-of-living score: 94.1 (5.9% below national average)

Like Florida, South Dakota levies no state income tax on personal income (though its cold weather stands in sharp contrast to the Sunshine State).

South Dakota also has the lowest median property tax bill on this list, per U.S. Census Bureau data, and a cost of living roughly 6% below the national average.

One drawback for seniors requiring medical care in the Mount Rushmore State is medical availability, per the Clinical Care report.

• South Dakota ranks 35th in older adult clinical care, with a score below the national average.
• Rural geography and fewer medical centers mean accessing specialized care can require travel.

But if your primary goal in retirement is stretching your dollars as far as possible and you are comfortable with traveling for specialty care, South Dakota may offer your retirement nest egg significant financial benefits.

Read More

• How All 50 States Tax Retirement
• States That Won't Tax Your Death
• 5 Retirement Tax Traps to Watch in 2026
• How to Prepare Your Retirement Taxes for a Longer Life

Investors with large, highly appreciated stock positions can face a challenge: how to diversify those holdings without triggering a large capital gains tax bill.

Enter Section 351 exchanges.

Instead of selling an already diversified basket of appreciated securities, qualifying investors can contribute those holdings to seed a newly created ETF and receive ETF shares in return, deferring capital gains taxes.

Not surprisingly, the strategy has attracted interest from some wealth managers, ETF sponsors, and investors. But as the transactions become more popular, they are also attracting federal government attention.

U.S. Treasury Department officials have recently identified Section 351 transactions as one of several tax-focused investment strategies under review.

So how does this exchange work, and why has it become a closely watched approach?

What is an IRS Section 351 exchange?

This ETF exchange strategy gets its name from Section 351 of the Internal Revenue Code, which generally allows investors to transfer property to a corporation without immediately recognizing gain if certain strict requirements are met.

In a Section 351 ETF transaction, investors contribute appreciated securities during the initial launch phase of a new exchange-traded fund.

Note: Because IRS rules require the initial contributor (or group of contributors) to own at least 80% of the new ETF's total shares immediately after the exchange, this strategy cannot be used with existing, established ETFs. It is an opportunity that only occurs during the launch/seeding phase of a new fund.

• Instead of selling their holdings and receiving cash, which could trigger capital gains taxes in the year of the sale, investors receive shares of the ETF.
• If the transaction qualifies under Section 351, investors generally don't recognize the involved capital gains at the time of the exchange.

It's important to note that the tax benefit is a deferral, not a permanent elimination of tax. Investors' built-in gain generally carries over to the ETF shares and may become taxable when those shares are sold.

For example: Consider an investor who holds a broad, diversified portfolio of 30 different stocks worth $1 million, with an original purchase price of $200,000 — meaning there is an $800,000 unrealized capital gain.

No single stock makes up more than 25% of the portfolio.

Selling all 30 stocks to buy a traditional ETF would trigger an immediate tax bill on the $800,000 gain. So, the investor contributes their entire diversified stock portfolio as part of the launch of a new ETF, following all applicable IRS rules.

In exchange, they receive shares of the ETF. Because the contributed portfolio was already diversified before the transfer, the investor generally defers the $800,000 gain via the qualifying Section 351 exchange.

Note: The above is a highly simplified example. Every investor's situation is different, and you should consult a trusted tax advisor for guidance tailored to your financial circumstances.

Why some investors are turning to 351 ETFs

For some, the appeal of a 351 exchange is fairly straightforward: diversification without an immediate capital gains tax bill.

• Large stock positions can develop for many reasons, including years of investing, executive compensation, business ownership, or inherited assets.
• As mentioned, for investors with substantial unrealized gains, selling a position that has appreciated significantly can create a major tax liability.

Some supporters of the strategy argue that Section 351 exchanges represent legitimate tax planning within existing rules. They emphasize that investors aren't eliminating tax liability for the gains; they are merely changing the timing of when those gains are recognized.

The table below highlights some key differences between selling appreciated assets, in this case, stock, and a qualifying 351 ETF transaction.

Selling Stock vs. Using a Qualifying 351 ETF Exchange

Why Treasury is taking a closer look

Meanwhile, Treasury Department officials’ recent comments highlight growing attention toward investment strategies designed around tax deferral.

Officials at a Wall Street Tax Association seminar reportedly said the agency is reviewing several tax-focused transactions, including Section 351 ETF structures, to determine whether certain arrangements could lead to abusive tax outcomes.

According to Bloomberg News, Kevin Salinger, Treasury's deputy assistant secretary for tax policy, said: "We’re not here to be over-broad or disruptive, but we are also not prepared to turn the blind eye to aggressive planning."

The concern is not necessarily that every Section 351 ETF transaction is improper. Rather, Treasury seems to be considering whether some structures achieve results that Congress didn't intend when it created the underlying tax legislation.

351 exchange ETFs: What happens next?

Keep in mind: Treasury has not announced that Section 351 ETF transactions are prohibited, nor has it issued guidance, new restrictions, or enforcement actions regarding the tax treatment of qualifying exchanges.

So, for now, the strategy remains available for investors who meet the IRS requirements.

Still, the debate over 351 ETFs reflects a broader question in tax policy: How far can investors go in using existing rules to reduce or postpone tax bills before regulators decide the strategy has gone too far? Stay tuned.

Related

• What's the Capital Gains Tax Rate in Your State?
• New Bill Proposes $1 Million Capital Gains Tax Exclusion
• Another State Eliminates Capital Gains Taxes
• Capital Gains Tax Rates for 2026: What to Know Now

If you’ve ever wondered whether your family could face a tax bill after inheriting money or property, you’re not alone.

While estate tax and inheritance tax both involve assets passed on after death, they differ in who pays them, when they’re paid, and when they apply. Understanding the distinction can help you better navigate estate planning and inheritance decisions.

The good news? According to the Center on Budget and Policy Priorities, fewer than 1 in 1,000 estates owe federal estate tax.

Inheritance taxes are even more limited.

So, what does this mean for you? Here’s more of what you need to know.

How an estate tax works

An estate tax is a tax on the transfer of a person’s assets after death.

Rather than taxing each beneficiary individually, the tax is calculated based on the total value of the deceased person’s estate before assets are distributed.

The estate’s executor or personal representative generally pays any estate tax owed before beneficiaries receive their inheritances.

According to the IRS, an estate may include:

• Cash and investment accounts
• Real estate
• Business interests
• Life insurance proceeds (in certain situations)
• Trust interests
• Retirement accounts
• Personal property and other assets