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
• Ask the Editor: Tax Rules for Landlords

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?

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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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 actually 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 may 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 above 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.
• Plus, if you anticipate needing long-term care (e.g., a nursing home), an irrevocable trust (like 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.

But 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. So the key question for most families is whether paying those higher fees today will actually 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 may undergo probate for some or all of 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 (like a 401(k) or IRA), probate may be minimal or bypassed entirely.

Below is a cost comparison showing what you may pay today versus 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 may 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.
• Thus, 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 above, the heir can save $3,355 more in Florida compared to Missouri. Why? Well, 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 like 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. So 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 may 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. So 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

• How Your Inheritance Gets Taxed: From Stepped-Up Basis to IRA Rules
• Avoiding the Widows' Penalty Tax Trap After a Spouse Passes
• States That Won't Tax Your Death
• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?

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, like 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.

And because every borrower's situation is different, it's important to consult a tax or financial advisor 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 instead files separately, 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.

So 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 between 2021 and 2025 from federal taxable income.

• However, 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 may also be able to exclude some or all of 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. So whether your state will tax your forgiven student loan amount may 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 some married borrowers face.

• As mentioned, married taxpayers who file separately generally cannot 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 has to 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 cannot 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, at the same time, 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."

But 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.

*Also 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

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.

Yes, you still have to 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 may 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 over the cap being too low, Donald Trump called for increasing the SALT deduction limit. So, 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 may 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 may be deductible, subject to IRS requirements.

Home Sale Gains: Homeowners who sell a primary residence at a profit may 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 Dec. 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

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

• Does Your College Student Really Have to File Taxes This Year?
• 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

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

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

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

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, the Department of Finance extended the deadline to apply for a pied-à-terre tax exemption until Sept. 18, 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, despite stating that 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 following a city appeal. 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."

Those types of 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 the property is occupied for a majority of days during the calendar year by a covered owner.

But…in some cases, that determination may require more than a review of 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.

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• 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

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?

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.

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• States With the Lowest Property Tax Rates
• 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?

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

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

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• 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

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

Because the federal estate tax exemption is $15 million per person in 2026 (indexed for inflation in future years), only a relatively small percentage of estates owe federal estate tax.

Some states impose their own estate taxes, often with exemption amounts much lower than the federal threshold. For example, Massachusetts has a $2 million estate tax exemption, so an estate could owe state estate tax even if it doesn’t owe federal estate tax.

How an inheritance tax impacts heirs

Unlike an estate tax, an inheritance tax is assessed after assets are distributed. If inheritance tax applies, the beneficiary, not the estate, is responsible for paying it.

Even then, many surviving spouses are exempt, and children and other close relatives may qualify for reduced tax rates or exemptions depending on state law.

Whether you owe inheritance tax largely depends on state law, your relationship to the deceased, and any available exemptions.

Who actually pays estate tax vs. inheritance tax?

The biggest differences are who pays the tax, when it’s paid, and when it applies.

Whether estate tax or inheritance tax applies depends on three primary factors:

• The size of the estate
• Where the deceased was domiciled at the time of death (and, in some cases, where certain property is located)
• The beneficiary’s relationship to the deceased (for inheritance tax purposes)

Estate vs Inheritance Tax

How it works

Note: This is a simplifed example. Keep in mind that everyone's financial situation is different and you should consult a trusted tax or estate planning advisor for guidance on your individual circumstances.

Imagine finding out you’ve inherited part of a loved one’s $5 million estate. Before mentally earmarking those assets to pay off debt, boost your retirement savings, or help fund a child’s college education, one question is likely to come to mind: "Will I owe taxes?"

For most families, the answer is no.

Federal estate tax applies only to very large estates, and only a handful of states impose an inheritance tax. If taxes do apply, who pays depends on whether it is an estate tax or an inheritance tax.

Why the difference matters

Estate tax and inheritance tax often get conflated, but the distinction matters. Understanding who pays each tax and when it applies can help you avoid costly misconceptions.

Although most families won’t owe either tax, understanding the rules can help you navigate an inheritance or plan your own estate with greater confidence.

If your estate could approach federal or state exemption thresholds, advanced planning strategies, like lifetime gifting, charitable giving, or trust planning, may help reduce future tax exposure.

Frequently asked questions

Can you owe both estate tax and inheritance tax?

Yes, although it’s relatively uncommon.

A large estate could owe estate tax, while a beneficiary in a state that imposes an inheritance tax could also owe inheritance tax on the same transfer.

Because different laws govern estate and inheritance taxes, both taxes can apply in certain situations.

Which states impose an inheritance tax?

As of 2026, only five states impose an inheritance tax:

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Whether you owe inheritance tax largely depends on state law, your relationship to the deceased, and any available exemptions.

In many cases, surviving spouses are exempt, while children and other close relatives may qualify for reduced tax rates or exemptions.

Who pays estate tax?

Estate tax is generally paid by the estate before assets are distributed to beneficiaries.

The estate’s executor or personal representative is responsible for filing any required estate tax returns and paying any tax due from estate assets.

Who pays inheritance tax?

The beneficiary, not the estate, is responsible for paying any inheritance tax that applies.

How long do you have to pay estate or inheritance tax?

Estate tax: Federal estate tax is generally due nine months after the date of death. The IRS may grant an extension to file, although any tax owed may still need to be paid by the original due date to avoid interest and penalties.

Inheritance tax: Payment deadlines vary by state because inheritance taxes are imposed at the state level. Beneficiaries should check their state’s requirements, as filing and payment deadlines differ.

Do most people have to pay estate tax or inheritance tax?

No. Most Americans won’t owe either tax.

The federal estate tax applies only to estates that exceed the applicable federal estate tax exemption amount, and only a handful of states impose an inheritance tax.

Whether taxes are owed depends on the size of the estate, applicable state law, and, for inheritance tax purposes, the beneficiary’s relationship to the deceased.

Estate tax planning: Bottom line

Whether you’re planning your own estate or navigating an inheritance after the loss of a loved one, a qualified estate planning attorney or tax professional can help you understand how federal and state tax laws apply to your situation.

Though every individual's financial situation is different, if you're engaging in estate planning, you may want to assess whether your total net worth puts you close to any state-level tax thresholds. And if you think you're receiving an inheritance, you may want to consider how your relationship to the deceased impacts your state tax exemptions, or if the estate covers the bill.

Overall, remember this simple rule: If the estate writes the check, it’s an estate tax. If the beneficiary writes the check, it’s an inheritance tax.

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A new analysis takes that long view, estimating that the average U.S. taxpayer will pay hundreds of thousands of dollars in federal, state, and local taxes over the course of their lives. The high six-figure total includes income taxes, property taxes, sales taxes, and vehicle-related taxes.

And depending on where you live, your lifetime tax bill could be hundreds of thousands of dollars higher, according to the study from fintech company Self Financial.

These tax burden findings arrive amid rising frustration in the U.S. over high prices and lack of affordability, and as lawmakers in several states and Congress debate eliminating or reducing income taxes and, in some cases, property taxes.

Here's more to know.

How much tax people pay in the U.S.

According to a recent analysis by Self Financial, the average American will pay an estimated $762,272 in total taxes over their lifetime. (Notably, that represents a roughly 45% increase from the 2024 estimate of $524,625 in lifetime taxes.)

The study adds up various taxes Americans pay throughout life across several major categories:

• Federal and state income taxes
• Property taxes
• Sales taxes
• Vehicle-related taxes

As you might expect, income taxes make up the largest share of the lifetime tax burden. (The analysis estimates that the average U.S. taxpayer pays about $532,910 in federal and state income taxes over a lifetime.)

Property taxes add roughly more than $145,000 over a lifetime, according to the study.

• Then there are the taxes we often pay without thinking much about them: Sales taxes at the register and taxes tied to car ownership.
• For example, the study data show that "owning the most popular car (i.e., a Ford F-Series) will cost an additional $31,817 in tax payments."

While these taxes might seem relatively small in any given transaction, over a lifetime, the average U.S. taxpayer will pay an estimated 33.6% of their earnings in taxes, according to the study.

Which states have the highest taxes

Where someone lives can impact their tax payments. However, when it comes to lifetime tax burden, the latest analysis reveals significant differences due to income levels, housing costs, tax structures, and spending patterns.

For example, residents of New Jersey face the highest estimated lifetime tax burden. The study projects Garden State residents will pay roughly $1.35 million in taxes over their lifetimes.

Other states with high lifetime tax burdens:

At the other end of the ranking, Florida residents have the lowest estimated lifetime tax burden, at about $508,000, according to the study. The difference between the highest- and lowest-tax states exceeds $800,000 over a lifetime.

Note: The analysis estimated lifetime taxes by combining federal, state, local, property, sales, and vehicle-related taxes using median earnings, consumer spending, housing, and vehicle ownership data. Researchers assumed a typical working life from ages 22 to 67 and applied current tax rates and spending patterns over an average lifespan of 79.6 years.

Proposals to eliminate state income tax and property tax

This tax burden analysis comes as lawmakers nationwide advance tax cut proposals.

Several states have recently lowered income tax rates or adopted flat-tax systems, while others are debating further cuts to attract residents and businesses.

For example, in Missouri, voters will decide in August on Amendment 5, a measure that would phase out the state's individual income tax.

• Supporters of eliminating the state's income tax argue it would let residents keep more of their earnings.
• Some opponents warn that Missouri might need to rely more on other taxes, e.g., sales taxes, to make up for lost revenue and fund public services.

Property taxes have also become a major target in recent years, particularly in states where rising home values have pushed up tax bills.

As Kiplinger has reported, in Florida, lawmakers are considering a constitutional amendment that would increase the state's homestead exemption for non-school property taxes to $250,000 in 2028 and beyond.

• Supporters of the proposal for November's vote say it would help homeowners and gradually eliminate property taxes on homesteaded properties.
• Critics, however, are concerned about how local governments would replace lost revenue for essential services like public safety and infrastructure.

Several members of Congress have introduced plans to exempt certain income levels from federal income tax.

The Working Americans' Tax Cut Act, proposed by Sen. Chris Van Hollen (D-Md.), would eliminate federal income taxes on the first $46,000 for individuals and $92,000 for couples while imposing a surtax on higher-income households.

Sen.Cory Booker's (D-N.J.) "Keep Your Pay Act" would increase the standard deduction to effectively eliminate federal income taxes on the first $75,000 of earnings. However, neither has gained traction in Congress

For his part, President Donald Trump has floated eliminating income taxes (initially to be replaced with tariffs, many of which have since been struck down by the U.S. Supreme Court).

Also worth noting: Some users across social media platforms like Reddit, X, and TikTok have shared posts expressing support for tax resistance or a "tax strike" to stop paying taxes.

How to lower your taxes

To reduce your tax liability, it can help to plan for taxes that you can influence to some degree. However, each financial situation is unique, so consult a trusted tax advisor or financial planner for guidance.

Review your property tax bill.

Property taxes can be a major expense for homeowners. Review your assessments and apply for any eligible exemptions, homestead exemptions, and property tax breaks.

Pay attention to other state and local taxes.

No-income tax states aren't always the ones with the lowest overall tax burden. Sales taxes, gas taxes, vehicle fees, and other costs can sometimes offset income tax savings. So take all of these factors into consideration when deciding where to live.

Use available federal tax breaks.

You can lower taxable income by taking advantage of tax deductions and credits you're eligible for, along with leveraging tax-advantaged accounts like HSAs and retirement savings accounts.

Plan for retirement taxes

Taxes don't necessarily end in retirement due to income from required minimum distributions (RMDs), pensions, Social Security benefits, etc. Planning the timing of withdrawals and other income sources can help retirees manage tax burden.

Consider the tax impact of major financial decisions.

Remember that major life changes and financial decisions, from getting married or divorced to buying a home, changing jobs, having a child, or making certain investment moves, can affect tax liability.

Also, keep an eye on tax law changes.

With the November 2026 midterm elections approaching and special elections taking place across the country, voters in several states could have their say on major tax policy changes. Stay tuned.

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However, getting selected isn't entirely random. Common red flags like disproportionate deductions, omitted income, or simple reporting mismatches can increase your chances of a manual review.

Think you can spot the warning signs? Take our quick five-question quiz to test your knowledge of IRS audit red flags.

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One way is through your federal tax return. By utilizing the medical expense deduction, you can deduct qualifying, unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). While this strategy requires electing to itemize rather than claiming the standard deduction, heavy medical bills might justify the extra paperwork.

Plus, more than just standard doctor visits or hospital stays may qualify for the deduction. For instance, you might be able to deduct the cost of your weight-loss program or service animal on your federal return.

But because the IRS heavily scrutinizes unconventional claims, navigating these deductions requires ample preparation. So carefully consider whether or not you are eligible for these five unusual write-offs before claiming them on your 2026 federal return.

This list focuses exclusively on federal tax deductions. You may qualify for other tax breaks on your state income taxes. Also, the article does not constitute legal or financial advice. Always consult a qualified tax professional before filing.

The medical expense deduction: Ground rules

To be eligible to claim any of the medical tax deductions listed below, you must first meet the specific criteria for the medical expense deduction. This includes:

1. Itemizing your deductions on Schedule A (Form 1040) instead of claiming the standard deduction.
2. Filing your itemized deductions under the medical expense deduction (which is technically available to taxpayers of any age, but is heavily utilized by older adults).
3. Exceeding the adjusted gross income (AGI) threshold. You can only deduct the portion of your total qualifying medical expenses that exceeds 7.5% of your AGI. (For example, if your AGI is $100,000, the first $7,500 of your medical expenses won't count; only the amounts above that are deductible.)

Also, you can't deduct an expense on your federal return if it was already covered by your insurance, health savings account (HSA), or flexible spending account (FSA).

Additionally, the IRS recommends that you maintain all applicable tax records for qualifying medical expenses for at least three years (though most tax experts advise six or more years). This covers the IRS's tax audit period.

1. Home modifications for medical care

If you have a home improvement project planned to accommodate a medical condition or physical disability, the net cost may qualify for a medical expense deduction. These are the requirements:

• What qualifies. The modification must directly treat or accommodate a diagnosed condition. A formal letter of medical necessity from a doctor is typically necessary.
• Documentation needed. Keep your doctor's letter, a home appraisal from before and after the project (to document changes in property value), all itemized contractor receipts, and any other applicable tax records.
• Value calculation. You can only deduct the amount by which the cost of the improvement exceeds the increase in your home's market value.

The last bullet point might sound confusing. But here's an example:

• Say you install a home elevator for $35,000 to accommodate a mobility issue.
• A licensed appraiser determines that it increases your home's total property value by $25,000.
• Thus, your potentially deductible medical expense is the difference between the two: $10,000.

(Note: If an upgrade increases your home's value by more than it costs to build, the potential deduction drops to $0).

The IRS also explicitly states in its Medical and Dental Expenses Guide that certain standard accessibility modifications are presumed not to increase a home's market value, and are thus 100% potentially deductible. These include adding ramps, widening doorways, modifying stairways, etc.

For more information, check out Kiplinger's report, Tax-Deductible Home Improvements for Retirement.

2. Guide dogs and service animals

Service animals trained to assist with physical disabilities (like visual impairments or mobility limitations) or medical alerts may qualify for the medical expense deduction. Typical qualifying expenses include the total cost of purchasing, training, and maintaining the animal.

• What qualifies. The animal must be individually trained to perform tasks for a person with a disability. Emotional support animals (ESAs) or general family pets are not tax-deductible and do not qualify.
• Documentation needed. You must retain training invoices, veterinary bills, grocery/supply receipts, and other applicable tax records.
• Value calculation. You may write off the vet care, grooming, food, and specialized training supplies associated with your service animal.

3. Prescribed swimming pools

This is a highly scrutinized deduction by the IRS, but it may be medically necessary under special circumstances.

If a doctor explicitly prescribes hydrotherapy to treat a severe, specific medical condition (like advanced arthritis), the cost of installing and operating a home pool might be eligible for a medical expense deduction.

• What qualifies. You can deduct not only the qualifying home pool installation fees but also the ongoing operational costs — like heating, chemicals, and electricity — only for the portion of the year the pool is used strictly for medical treatment.
• Documentation needed. You will need a letter of medical necessity, appraisal documents, and utility bills to prove your operation costs.
• Value calculation. Like home modifications, the installation cost is deductible only to the extent it exceeds the value the pool adds to your real estate. So, if a pool costs $50,000 to build but adds $20,000 to your home's equity, you can potentially claim only $30,000 as a medical expense.

Special note: Because the IRS looks closely at pool deductions, it is very rare to claim this home improvement as a tax deduction. However, if a pool is medically necessary, you can consult with a tax professional to see if it would qualify for a potential write-off.

4. Prescription weight-loss programs

If you're enrolled in a weight-loss program to manage or mitigate a specific diagnosed health condition — like type 2 diabetes, heart disease, or severe hypertension — the enrollment and attendance fees may be tax-deductible as a medical expense deduction.

• What qualifies. Only fees related to your prescribed diagnosis. The IRS strictly prohibits deductions for programs designed for general health, well-being, or cosmetic appearance.
• Documentation needed. A written diagnosis from your physician stating the specific disease being treated, along with itemized monthly statement receipts from the program.
• Value calculation. You generally cannot deduct the cost of specialty diet foods, nutritional supplements, or standard gym memberships. All qualifying healthcare expenses related to your program are potentially deductible under the medical expense deduction.

5. Oral and facial physical therapy

In a landmark IRS ruling, a parent successfully argued that clarinet lessons for their child were deductible because an orthodontist formally prescribed them to correct a severe overbite.

For older adults, the equivalent is specialized physical therapy for the mouth and jaw muscles, like treatment for Temporomandibular Joint (TMJ) disorders or myofunctional therapy.

• What qualifies. As with other qualifying expenses on this list, you can only claim out-of-pocket expenses that were not otherwise covered or reimbursed by your insurance, HSA, or FSA.
• Documentation needed. A formal referral and script from a dentist, orthodontist, or primary physician, alongside detailed treatment logs specifying the dates of service and itemized payment receipts.
• Value calculation. Any qualifying medical expenses above the 7.5% AGI limit may be potentially deductible under this federal tax deduction.

For more information on what qualifies as AGI, check out Kiplinger's report, How to Calculate Your Adjusted Gross Income — and What It Means.

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Most states tax capital gains as ordinary income, while others have special rules, exemptions, or separate capital gains taxes. So, depending on where you live and how much you earn, your gains may escape state tax altogether or be taxed at rates as high as 10% or more.

Here's more to know about state capital gains tax rates and how they could impact your total tax burden for 2026

How capital gains tax works

A capital gain occurs when you sell a capital asset for more than you paid for it. (Common examples include stocks, bonds, mutual funds, exchange-traded funds (ETFs), investment real estate, and certain business interests.)

The amount subject to tax is generally the difference between your purchase price (your cost basis) and the sale price.

Whether you owe tax, and how much, depends in part on how long you owned the asset.

• Short-term capital gains apply to assets held for one year or less and are generally taxed as ordinary income.
• Long-term capital gains apply to assets held for more than one year and typically qualify for lower federal tax rates.

While the federal government provides preferential tax rates for most long-term capital gains, many states don't.

Instead, they generally include capital gains in taxable income and apply the state's regular income tax rates. But…other states have their own rules or exemptions that are important to know.

State capital gains taxes

Bottom line first? Where you live can make a meaningful difference in your overall tax bill.

For example, investors in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, and New Hampshire generally pay no state tax on capital gains because those states don't impose a broad individual income tax.

Missouri also now provides a 100% deduction for qualifying capital gains, effectively eliminating the state tax on those gains.

At the other end of the spectrum, taxpayers in states like California, Hawaii, New York, Oregon, Minnesota, and the District of Columbia may face some of the nation's highest state tax rates on investment gains.

Washington also imposes a separate capital gains tax on certain high-dollar long-term gains rather than a traditional income tax.

Still, as mentioned, in most states, capital gains are taxed as ordinary income. As a result, the rates below generally represent the highest state income tax rate that could apply to capital gains for individuals in 2026.

Also, keep in mind:

• This table is based on the most recent 2026 state tax data from the Tax Foundation and state revenue department publications available as of mid‑2026.
• State tax rates and rules can change with new legislation or inflation adjustments that are filed late or implemented mid‑year.
• Some states have special capital gains deductions, tiered rates, or local taxes that are not captured by a single number or have unique rules or exemptions that may apply.

Capital Gains Tax Rates by State

States with special capital gains rules

Note: Not every state with a special capital gains tax rule is listed here.

Under Arkansas state tax law, 50% of long-term capital gains are tax-exempt. Because Arkansas taxes the remaining half at ordinary income rates, the state's maximum effective capital gains tax rate is 1.85%. Arkansas also has a unique "super-exclusion" where any net capital gains exceeding $10 million in a single tax year are 100% tax-free.

Massachusetts taxes capital gains at a 5% base rate, but high-income investors may pay more. A 4% “millionaire’s surtax” applies to income above $1,107,750 in 2026 and can affect certain gains, pushing the effective rate above 5% for some taxpayers.

Montana’s top ordinary income tax rate is 5.65%, but long-term capital gains are taxed at lower rates ranging from 3.0% to 4.1%.

New Mexico’s capital gains deductions can reduce the effective rate below its 5.9% top ordinary income tax rate.

South Carolina allows a 44% deduction on qualifying long-term capital gains.

As Kiplinger has reported, Washington imposes a separate capital gains tax, with taxable gains taxed at 7% up to $1 million and 9.9% above that threshold after applicable deductions.

Wisconsin offers a 30% exclusion for net long-term capital gains (60% for qualifying farm assets), and up to a 100% exclusion for long-term investments in qualified Wisconsin businesses.

In some states, local taxes can raise the overall burden. Maryland counties impose additional income taxes, while many Ohio residents pay municipal income taxes that can increase the total tax bill. Other jurisdictions, including the District of Columbia, may also impose local taxes.

What about states with no capital gains tax? Nine states do not impose a state capital gains tax: Alaska, Florida, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.

Missouri is a newer exception when it comes to capital gains taxes. As of last year, individuals can subtract 100% of federally reported capital gains from Missouri taxable income, effectively eliminating the state tax on qualifying capital gains.

Federal Capital Gains Tax Rates for 2026

As mentioned, state taxes are only part of the picture when it comes to navigating capital gains taxes. For federal taxes, most long-term capital gains qualify for one of three tax rates:

• 0%
• 15%
• 20%

The rate you pay depends on your taxable income and filing status.

Taxpayers with higher incomes may also owe the 3.8% Net Investment Income Tax (NIIT) on top of their regular capital gains tax.

Short-term capital gains, meanwhile, are generally taxed at ordinary federal income tax rates rather than the preferential long-term rates.

Ways to reduce capital gains tax

While paying some tax on investment profits is often unavoidable, there are strategies you might consider to help reduce or potentially defer capital gains taxes.

Remember that every investor's situation is different, so you may want to consult with a trusted financial planner or tax professional for strategies tailored to your circumstances.

Holding investments for more than one year. Long-term capital gains generally qualify for lower federal tax rates than short-term gains. Depending on your income, that difference can significantly reduce the tax owed on a sale.

Leveraging tax-advantaged accounts. Investments held in traditional IRAs, Roth IRAs, and many employer-sponsored retirement plans generally are not subject to annual capital gains taxes while the money remains in the account. Qualified Roth withdrawals can be taken tax-free.

Offsetting gains with investment losses. If you sell investments at a loss, those losses can be used to offset capital gains. "Tax loss harvesting" can reduce the amount of gain subject to tax and, in some cases, allow taxpayers to deduct up to $3,000 of excess losses against ordinary income each year. But don't forget about the wash sale rule.

Considering the timing of a sale. Selling an asset in December instead of January — or vice versa — can affect which tax year the gain falls into. Taxpayers expecting a significant change in income might benefit from carefully planning when gains are realized.

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Starting this summer, the IRS will automatically review taxpayers for First-Time Abatement relief, a program that can waive certain failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean compliance history.

The agency estimates the change could eventually help more than 1.5 million taxpayers each year. That’s compared with roughly 220,000 taxpayers who reportedly obtained similar relief under the previous process, which required taxpayers to request a penalty waiver after the IRS assessed a penalty.

The new system will roll out for eligible 2025 individual federal income tax returns and 2026 quarterly returns, with a full transition expected in 2027.

But…While the IRS is changing how taxpayers receive penalty relief, the rules for who qualifies for so-called first-time relief haven't changed. Here’s what you need to know.

New IRS automatic penalty relief

Under the previous first-time penalty abatement program, taxpayers generally had to wait until an IRS penalty was assessed and then request relief from the agency by phone, in writing, or using Form 843

That meant taxpayers had to know that penalty relief existed and then take action to request it.

The problem? Some eligible taxpayers never received relief simply because they were unaware of the program or didn't know they qualified. Others found it challenging to obtain IRS assistance by telephone or to complete the required forms and processes without professional support.

The new Automatic Exemption from Penalty (AEP) process essentially moves the review earlier in the process and automates it.

• Now, during return processing, the IRS will check a taxpayer’s compliance history to determine whether the taxpayer qualifies.
• If the requirements are met, the IRS will automatically suppress the penalty before it is ever officially assessed.
• The taxpayer will receive a written notice explaining the relief.

“By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted," IRS CEO Frank J. Bisignano stated in a release.

Although the process is just beginning, the new automated system is intended to replace the First-Time Abatement process for eligible returns due on or after Jan. 1, 2027.

To qualify, taxpayers generally must have:

• Filed required returns or requested a valid extension
• Paid any tax due or established an approved payment arrangement with the IRS
• No significant penalties during the previous three years (or 12 consecutive quarters for quarterly filers) on the same type of tax return

Keep in mind that the new automated process doesn't mean all IRS penalties will disappear.

The relief generally applies only to eligible failure-to-file, failure-to-pay, and failure-to-deposit penalties. Additionally, certain returns, including information returns and some estate and gift tax returns, are not included.

Also worth noting: This new AEP process doesn't eliminate the underlying tax owed or the interest that accrues on that tax.

Why the IRS changed the first-time penalty process

The change addresses a long-standing problem with First Time Abatement: Eligible taxpayers often missed out on relief because they did not know the program existed or that they needed to request it. That can be notable for some taxpayers, since a failure-to-file penalty, for example, is 5% of your unpaid taxes for each month the return is late, up to a maximum of 25%.

The Taxpayer Advocate Service (TAS) has argued that penalty relief should not depend on whether taxpayers understand the process, can reach the IRS, or have access to professional tax assistance.

National Taxpayer Advocate Erin Collins highlighted that concern when discussing the new system, writing the following in a blog post:

"For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them. That is especially true for low-income taxpayers and taxpayers who cannot afford representation. A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses."

Take, for example, a taxpayer who filed and paid their federal income taxes on time for years but accidentally files a return late. Under the previous system, that taxpayer could incur a failure-to-file penalty, wait for the penalty notice to arrive, contact the IRS, and request First-Time Abatement relief.

Under the new process, the IRS can review the taxpayer’s compliance history while processing the return and automatically remove the penalty if the taxpayer qualifies.

The three-year clean history

When the IRS talks about a "clean compliance history," that generally means the taxpayer hasn't had a significant penalty assessed during the three years before the penalty year. For taxpayers who file quarterly returns, the IRS will generally look at the previous 12 consecutive quarters.

• A clean history also doesn't mean a taxpayer has never made a mistake on their income tax return.
• The IRS will look at whether the taxpayer has generally met their tax obligations.
• As mentioned, that generally includes timely filing required returns and paying taxes owed/establishing an approved payment arrangement when needed.

Additionally, the three-year lookback applies to the specific (same) return type being filed. So a penalty on a business partnership return won't disqualify your individual filing from automatic relief.

According to the IRS, the three-year rule also doesn't mean a taxpayer can receive relief only once. If a taxpayer receives automatic relief and then maintains a clean compliance history for the required period, that taxpayer could potentially qualify for relief again in the future.

However, if a taxpayer fails the automated "clean history" check and doesn't receive AEP relief, they aren’t necessarily out of luck. Taxpayers can still manually request a penalty waiver under the traditional IRS "reasonable cause" framework, which evaluates various sound reasons for non-compliance.

What happens if you receive an IRS penalty relief notice?

Under AEP relief, the IRS will issue a notice explaining that the penalty wasn't assessed because the taxpayer met the relief requirements. Taxpayers who receive that notice generally don't need to contact the tax agency or take additional action, according to the agency.

However, during the transition period, the IRS says some qualifying taxpayers may still receive penalty notices for eligible 2025 tax-year returns or 2026 quarterly returns.

• If you receive a penalty notice, it's important to review it carefully.
• If you believe you qualify for first-time penalty relief and the penalty wasn't automatically removed, you may still need to request relief under the existing process during the transition period.
• There should be a 1-800 number on the penalty notice for contacting the IRS.

If you want to track whether a penalty was removed, you can also review your official IRS Online Account.

Records there should show whether a penalty was assessed, whether relief was applied, and when the three-year compliance period begins for potential future eligibility.

As always, however, consult a qualified and trusted tax professional if you have questions or concerns about IRS penalties.

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And that's usually smart. After all, the IRS famously warns that it "will not contact [you] by text message or social media."

But dropping the hammer too quickly might cause you to miss a legitimate government notification — or, worse, an alert that a scammer is trying to compromise your tax data. (According to the U.S. Congress Joint Economic Committee, almost 25% of Americans have reported being victimized by tax scams, including spoofed text messages and QR codes.)

Adding to the confusion is the fact that the IRS can now text you. In recent years, the federal tax agency has introduced three very specific reasons it will text your mobile phone, and one glaringly obvious reason it still won’t.

Here's how to know who's on the other side of that "message received" prompt.

The IRS rolls out text messaging

The IRS only began rolling out SMS text messaging in the last eight years or so. Things like opt-in account updates, initiated system reminders, and requested callback confirmations that may have required paper letters or wait times in the past may now land in your digital inbox.

However, there are two important caveats to receiving an IRS text message.

First, the IRS will only text you if you opt in. Second, the federal tax agency uses strict, dedicated short codes to send texts to your phone.

So if you receive a text claiming to be from the IRS via a standard 10-digit phone number, it's likely a fake. Legitimate short codes are below:

• Short code 91040: Used for official IRS news bulletins (like changes in the tax code), appointment reminders, account notifications, and one-time security codes.
• Short code 34381: Reserved for IRS customer service callback reminders.

(Note: While these are the primary codes deployed by the agency, the list may expand as digital services evolve.)

Furthermore, receiving an unexpected short-code text — like a sudden two-factor authentication code you never requested — doesn't necessarily mean the message itself is inherently fake. Instead, it might be a sign that a hacker is attempting to breach your online IRS portal account.

Never give that security code to any individual, even if they claim to be an IRS agent. If you suspect fraudulent activity, log directly into your IRS portal to check your account status.

To help keep your identity and wallet safe, here are three key reasons you might receive a text claiming to be from the IRS, and one reason you won't.

1. You subscribed to IRS news bulletins

Not many people realize you can subscribe to direct IRS communications and receive a text message.

Everything from new tax law regulations (like those governing the recently launched Trump Accounts) to IRS criminal investigation tax case highlights can be delivered right to your inbox.

Taxpayers initially subscribe to these notifications via email (usually coming from irs@service.govdelivery.com). However, the IRS system allows you to opt in to text alerts as well, as demonstrated by this snapshot of a Tax Stats Dispatch Mailing List email sent from the IRS:

If you decide to receive IRS bulletins via text, the updates will always originate from the secure short code 91040. A different number delivering the tax law updates is likely a phishing attempt designed to steal your credentials.

2. You have an upcoming IRS appointment

When you schedule an in-person meeting at an IRS Taxpayer Assistance Center (TAC), you can opt in to receive text confirmations and scheduling updates about that appointment.

The IRS will also text you a notification once you're checked in at the building or when it is your turn to be seen (a screenshot of what an appointment reminder may look like can be found on Reddit).

Just like news bulletins, these automated operational texts will come from short code 91040.

However, scammers can use fake IRS appointment reminders to trick you into "confirming your appointment" by clicking a link or handing over personal or financial information.

To play it safe, never click a text link. Instead, log directly into your secure IRS online account to verify your appointment status. If you're still unsure, call the IRS customer service line directly at 1-800-829-1040 to double-check your appointment time.

3. You requested an IRS callback

Holding on the line for an IRS agent can feel grueling. According to the Taxpayer Advocate Service, taxpayers this past filing season had more difficulty reaching the federal tax agency than last year, with an average reported wait time of 14 minutes (up from 8 minutes). Only about 21% of calls were answered by an agent.

To alleviate the gridlock, the IRS offers a digital callback service for select high-volume phone topics, like refund inquiries and how to pay the IRS if you owe taxes. So instead of waiting on hold, you can opt in to receive a text when an agent is ready to call you back.

These text alerts generally only come from short code 34381.

But as you might've guessed, scammers can take advantage of this method as well.

Potential fraudsters can impersonate the IRS callback service to gain your trust before trying to extort personal information or demand immediate payment.

You can typically verify the text by its timing: the message should arrive within a predictable window after you personally initiated a call to the IRS. If you get a random "callback" text out of the blue, it's probably a red flag.

The one thing the IRS will never text you

Although the IRS will text you for administrative and scheduling updates you opt into, the federal tax agency will never initiate a text message demanding payment.

The hallmark of a text tax scam is typically a claim that you owe back taxes, have an "unclaimed refund" waiting to be deposited, or must urgently click a link to "fix" a suspended account, per the IRS' latest Dirty Dozen report (an annual list of the current tax scams).

And if an unsolicited message lands on your phone offering "free tax advice," demanding your Social Security number, or asking you to scan a QR code, do not engage. Instead, take a screenshot (or copy the text) and forward it to phishing@irs.gov with the following information.

• Subject line: "Text."
• Sender's phone number and your phone number
• Date, time, and time zone received.

Then forward the text to 7726 (SPAM) to alert your mobile carrier and delete the message.

Stay alert.

Read More

• What Are Your Chances of an IRS Audit? 15 Audit Red Flags
• Gifting Cash for a Wedding or Graduation? Here's a Quiz on IRS Gift Tax Rules
• How Benjamin Franklin's Simple Money Rules Could Help Lower Your 2026 Taxes

The federal tax agency recently issued guidance clarifying how contributions to the children’s savings accounts will be treated for federal gift tax purposes. This clarification comes as the accounts officially launched on July 4 with a full-court press on July 6.

Here's more of what you need to know.

Trump Accounts $1,000 seed money

"Trump Accounts" were created under the 2025 Trump-GOP tax overhaul as a new tax-advantaged savings vehicle for kids.

• Eligible children born between Jan. 1, 2025, and Dec. 31, 2028, may receive a $1,000 federal contribution if an account is opened on their behalf and program requirements are met.
• In addition to the federal seed deposit, parents, grandparents, employers, charitable organizations, and others can contribute cash or eligible assets, subject to annual limits and program rules.
• The money is invested and grows on a tax-advantaged basis, with withdrawals restricted to specific permitted uses under the law.

Trump Accounts are designed as long-term investment vehicles to help young people build assets early. Account assets are generally invested in a diversified stock index fund, allowing children to benefit from potential market growth over time. Withdrawals are generally limited until adulthood and subject to rules governing how the money can be used.

Notably, the program has also attracted support from some major employers and philanthropists.

One commitment that gained a lot of attention is a $6.25 billion pledge from Michael and Susan Dell to help fund accounts for millions of children. According to the Trump administration, several large employers also plan to contribute to the accounts as an employee benefit.

Supporters of the program say the accounts could help encourage early saving and broaden access to long-term investing for children, particularly by giving families a structured way to build assets over time.

During a July 6 Oval Office launch event, President Donald Trump touted, "Trump Accounts are absolutely incredible for children. They come into the world with no money and by a certain age end up rich."

Critics, however, have questioned whether the benefits will be widely accessible. They cite contribution limits, withdrawal restrictions, and concerns that higher-income families may be better positioned to take full advantage of the program than households with lower incomes.

Some also question whether other savings vehicles make more sense, as they see Trump Accounts functioning as traditional IRAs minus the up-front tax deduction.

On TikTok, personal finance guru Dave Ramsey said of Trump Accounts: "They're not as revolutionary as a Roth IRA. They're not on the level of a 529. This feels more like a political stunt than a wealth-building breakthrough."

More recently, as Kiplinger has reported, comments by Sen. Ted Cruz (R-Texas) suggesting the accounts could serve as a backdoor to privatizing Social Security have added to the debate.

IRS gift tax exclusion rules for Trump Accounts

Then, there are the practical tax-law questions surrounding how Trump Account contributions would be treated under federal gift tax rules.

Under federal law, individuals can give up to $19,000 per recipient in 2026 without triggering gift tax reporting requirements, provided the gift qualifies for the annual exclusion.

Amounts above that limit generally require filing IRS Form 709, even when no tax is owed due to the lifetime exemption.

So, a key question was whether contributions to a Trump Account would qualify for the annual exclusion. The issue attracted attention because gift-tax reporting requirements can apply even when no gift tax is ultimately due.

• Some tax professionals had raised concerns that the structure of the accounts could cause contributions to be treated as gifts of a future interest.
• Future-interest gifts don't qualify for the annual gift tax exclusion, which can trigger tax reporting requirements even for relatively small amounts.
• If that view had applied, contributors to a child's account could have been required to file a gift tax return.

The IRS guidance resolves that issue by establishing a safe harbor that treats qualifying contributions as present-interest gifts, allowing them to qualify for the annual gift tax exclusion.

As a result, contributions within the annual limit can generally be made without triggering a federal gift tax filing requirement, provided they meet the conditions in the guidance.

Note: The issue here is largely about tax reporting rather than tax liability. Most U.S. taxpayers don't pay federal gift tax because gifts above the annual exclusion generally count against the donor's lifetime gift and estate tax exemption. At $15 million, that exemption is high enough that relatively few households ever owe gift tax.

Trump Account eligibility: Bottom line

Trump Accounts are now in the active launch phase, including an app. That means families interested in participating can begin setting up accounts, depending on which banks and brokerage platforms are offering access.

Administration officials have said millions of accounts have already been registered and that 500,000 children have received their $1,000 deposits. Treasury and IRS officials have also recently outlined how contributions of publicly traded stock may be made to the accounts.

Still, before making contributions, interested families may want to compare and understand each provider's account-opening process and work with a trusted financial planner to consider the pros and cons of contributing to these or other savings accounts.

Related

• Gift Tax Exclusion for 2026: How Much Can You Give Tax-Free?
• How to Claim a $1,000 Trump Account for Your Kid
• The Estate Tax Exemption Amount for 2026
• What's in the 2025 Trump Tax Bill?

But more and more, that assumption no longer applies to a growing share of retirees. Surveys and data show that many people living in the U.S. are charting a different course, with roughly 1 in 5 over the age of 50 living alone. (That number rises to 27% for those age 60 and older.) And about 23% never had children.

The reasons why are varied. Some are widows or divorced. Others never married or had kids. Whatever the personal situation or choice, aging alone can change how retirement taxes work in practice, particularly when it comes to income, required minimum distributions, and estate-planning tax strategies.

Curious? Here's more of what you need to know.

Avoiding solo aging tax traps in retirement

Despite how it might feel sometimes, the federal tax code is not explicitly designed to penalize single taxpayers. However, the structural rules create practical headwinds for those aging and living alone.

Because a single filer cannot pool income or coordinate the timing of financial events with a spouse, a solo ager faces a much shorter runway before reaching higher income tax rates, Medicare premium surcharges, and other phase-out thresholds for tax deductions and credits.

Consider the following examples.

Filing status changes the way income is taxed

One key difference between single and married filing status is how quickly taxable income can move into higher federal income tax brackets.

Married couples filing jointly do generally benefit from wider income thresholds before higher marginal tax rates apply. And in retirement, that difference often shows up when income is drawn from multiple sources at once.

For example, a single retiree with $80,000 in annual income, e.g., from IRA withdrawals, Social Security, and part-time work, is more likely to push part of that income into higher marginal tax brackets than a married couple filing on a joint return.

The system is the same, but there’s less room to spread income across lower tax brackets for the single filer.

One of the clearest differences is how quickly income reaches higher tax brackets.

For example, for the 2026 tax year (returns you'll file in early 2027), the 22% federal income tax bracket begins at very different income levels depending on filing status.

Ultimately, a single taxpayer transitions into the 22% marginal tax bracket with half the taxable income allowance of a married couple filing a joint federal income tax return.

Deductions and credits introduce lower phase-out cliffs

A similar structural gap appears across various tax deductions and credits.

While tax credits reduce a filer's final tax bill dollar-for-dollar and deductions reduce overall taxable income, many of these provisions feature phase-out rules that, in practice, can restrict single filers.

Consider the temporary new senior bonus deduction available through 2028. This provision allows taxpayers aged 65 and older to claim an additional $6,000 deduction on top of the standard deduction and the existing extra standard deduction for older adults, allowing an eligible single retiree to shield up to $24,150 of income from federal taxes in 2026.

However, for those aging alone, the planning challenge lies in how quickly this benefit disappears.

The full $6,000 deduction begins to phase out once a single filer’s modified adjusted gross income (MAGI) exceeds $75,000 and is eliminated at $175,000. For married couples filing jointly, the phase-out doesn't begin until MAGI reaches $150,000.

Because a solo retiree's resources are measured against the individual filer threshold, a routine financial decision — like an RMD or a capital gain — can easily push them past the $75,000 threshold.

In contrast, a married couple filing jointly has twice the income runway to absorb potentially similar lifestyle expenses before their deductions begin to phase out.

Taxes on Social Security benefits can increase despite modest income changes

Social Security becomes taxable based on what the IRS calls "provisional income," which includes adjusted gross income (AGI), nontaxable interest, and half of Social Security benefits. Once certain thresholds are exceeded, up to 85% of benefits may be subject to tax.

What often surprises retirees is how quickly changes in routine income can move them closer to those thresholds.

A retiree living alone with a mix of Social Security and IRA withdrawals may find that even modest additional income — like portfolio rebalancing or capital gains from selling appreciated assets — increases the taxable portion of benefits.

What makes this a particularly tight rope for single retirees is that the thresholds for taxing Social Security benefits, unlike standard tax brackets, are not indexed for inflation.

• For a single filer, provisional income above just $25,000 triggers taxation on up to 50% of benefits, and it jumps to 85% at just $34,000.
• Because these thresholds have remained the same since they were enacted decades ago, even modest retirement incomes quickly expose a retiree's benefits to tax.

So with Social Security impacts, it’s not a single trigger, but the stacking of income in a single year that often drives the tax outcome.

Required minimum distributions can create concentrated tax years

Required minimum distributions (RMDs) force withdrawals from tax-deferred accounts regardless of retiree spending needs. Under current SECURE 2.0 rules, the required age to begin taking RMDs is 73 (and will rise to 75 for individuals who turn 74 after 2032).

Take a retiree with a $900,000 traditional IRA. The first RMD may fall in the $35,000–$40,000 range. When combined with Social Security and other income sources, total taxable income can rise into a range where multiple effects begin stacking:

• More of your Social Security benefits become subject to tax.
• Marginal income moves into higher federal income tax brackets.
• Future Medicare premiums may increase due to IRMAA.

What matters a lot here is timing. A single RMD can push income just high enough to trigger multiple tax thresholds at the same time.

Medicare premiums can reflect one-time income decisions

Medicare IRMAA surcharges are based on prior-year MAGI, which means today’s decisions affect premiums two years later.

A single retiree can cross into a higher IRMAA tier through what looks like a normal planning decision — like a Roth conversion, a large capital gain, or a high-RMD year — even if income is lower the following year.

Because the thresholds are fixed, timing becomes critical. A single spike can have a longer financial tail than expected.

Income and estate planning start to overlap earlier

For single retirees, estate planning tends to become less of a separate step and more closely tied to income decisions throughout retirement.

Without a spouse as a built-in transfer point for retirement assets, the timing of withdrawals and the structure of accounts often influence both current tax outcomes and future inheritance outcomes at the same time.

Partial Roth conversions are an example.

• They are often discussed as an estate strategy, but they also function as an income management tool — filling lower tax brackets before RMDs begin and potentially reducing future taxable withdrawals.
• Similarly, deciding whether to draw from taxable or tax-deferred accounts first can affect not only current-year taxes but also the size and timing of taxable income passed to heirs.

Beneficiary designations also take on added importance earlier in retirement.

For a solo ager, non-spouse heirs usually must withdraw inherited retirement accounts within 10 years. That can create higher taxable income in shorter bursts for heirs. It also places greater weight on account-type and withdrawal-timing decisions during life, since there is no spouse to help smooth those tax impacts over time.

The overall shift is toward integration: fewer separate “phases” of planning, and more overlap between income management and legacy decisions.

Solo aging bottom line: What single retirees can do

Aging alone doesn’t change the tax code, but it does make timing decisions important. Because every financial situation is different, it’s worth working with a trusted tax professional or certified financial planner to tailor strategies to your circumstances.

Still, when dealing with a single-filer tax return, there’s a tradeoff. Fewer built-in buffers can make income feel more exposed in certain years. But it can also give you a complete, unified view of your financial picture. That can make it easier for some to see how each decision affects taxes and adjust accordingly.

In practice, that often comes down to some core considerations:

• Spreading withdrawals and gains across years rather than clustering them
• Using lower-income years for targeted Roth conversions
• Coordinating account draws to manage tax brackets
• Staying mindful of Medicare thresholds that respond to prior-year income

State taxes also matter. Where you live — and how your state taxes retirement income — can change the outcome of these decisions.

Related

• 6 Things to Know About Taxes on Social Security Benefits
• How the New $6,000 Senior Bonus Deduction Works
• Retirement Taxes: How All 50 States Tax Retirees
• Avoiding the Widow's Penalty Tax Trap When a Spouse Passes

Current Social Security Administration (SSA) projections predict the program will face a funding shortfall by late 2032, triggered by a wave of retiring baby boomers outnumbering the younger workers paying into the system.

While the program survived a similar insolvency scare via a bipartisan overhaul in 1983, critics argue the current administration's approach makes the upcoming crisis feel different. The SSA has faced shrinking staff, shuttered regional offices and budgetary constraints — downsizing that advocates label as "efficiency," but critics view as an attempt to "gut" the program.

Enter: Trump Accounts. Launching July 4, 2026, the federally seeded vehicles were originally designed, supporters say, to help children build generational wealth.

However, the narrative about the accounts shifted when Sen. Ted Cruz (R-Texas), a key advocate, admitted the program's "dirty little secret" is that these child savings vehicles are actually personal accounts intended to eventually privatize Social Security.

Here's what you need to know.

Trump Accounts: The new face of Social Security?

Trump Accounts, which officially debut this month and are a key component of the 2025 Trump tax bill, were initially pitched as standard child savings accounts meant to help families save for a child's future housing, higher education, or other qualifying expenses.

That definition was broadened last month during a panel on economic mobility at the Milken Institute Global Conference.

Cruz, who originally proposed the Trump Account initiative, elaborated on how these child savings vehicles could be utilized.

Cruz told the audience, according to a transcript of the event.

For decades, various free-market think tanks and lawmakers have tried to overhaul Social Security by shifting it to private investment accounts. These efforts — most famously backed by then-president George W. Bush in 2005 — have historically failed due to prohibitive transitional costs and the risks of exposing retirees to market volatility (more on that later).

But Cruz outlined a strategy to bypass some potential roadblocks: Start at the cradle.

"Babies grow up." Cruz reasoned. "And that little girl who is born this year, she is going to be 70. And the math is, if you contribute regularly to [a Trump Account], by the time she is 18, she will have $170,000 in that account. By the time she is 35, she'll have $700,000 in that account. And … very quickly after that, you get into the millions."

• This strategy aligns with comments made nearly a year ago by U.S. Treasury Secretary Scott Bessent.
• Speaking at a Breitbart News event, Bessent similarly remarked, "In a way, it is a backdoor for privatizing Social Security."

Facing subsequent criticism from Democratic lawmakers, Bessent later clarified on X that the proposed accounts were intended to supplement, rather than replace, existing Social Security benefits.

The push toward privatizing Social Security

Historically, the biggest roadblock to privatizing Social Security has been the "pay-as-you-go" transition problem.

Current workers' payroll taxes fund current retirees' benefits. If younger workers suddenly diverted their payroll taxes into private accounts, the government would be left with a $1 trillion to $3 trillion deficit, according to data from the Center on Budget and Policy Priorities (CBPP) and the Center for American Progress (CAP).

Trump Accounts, supporters claim, could circumvent this problem by building a parallel, privately funded program before Social Security benefits are ever disrupted.

"We're going to be able to go to parents and say, 'Hey, you know that Trump account your kid has….and you're seeing this compound growth? Wouldn't you like to be able to keep a portion of your tax payments…wouldn't you like to have a Trump account just like your kid does?' " Cruz suggested.

Yet, critics argue that the seeming magic of compound interest on a Trump account would look a lot less magical during a market crash.

• Unlike private investment accounts, Social Security benefits have very low administrative overhead and provide a guaranteed, lifelong inflation-adjusted benefit.
• Meanwhile, Wall Street management fees can silently erode a retirement nest egg, disproportionately threatening low-income beneficiaries who lack financial literacy or access to alternative wealth management tools.

According to data from the U.S. Congress Joint Economic Committee (PDF), Social Security accounts for roughly 79% of income for the poorest 20% of "elderly" Americans. Half of women age 65 and older would drop below the poverty line without guaranteed monthly checks. Under a privatized model, these citizens could be more susceptible to market risk and run out of funds early.

Social Security vs Trump account taxes

The Social Security privatization debate isn't just about how you accumulate wealth, but how that wealth is eventually taxed. Traditional Social Security benefits and private retirement accounts (like Trump Accounts) are taxed very differently.

Although the definitive tax rules for Trump Accounts are still being finalized, their structural similarity with traditional IRAs reveals stark contrasts to the tax treatment of Social Security benefits:

For example, a single retiree with provisional income above $34,000 can have up to 85% of their Social Security benefits included in their taxable income.

Meanwhile, proposed IRS rules dictate that the tax bill for a $34,000 distribution from a Trump Account depends entirely on who funded the account.

• If the beneficiary made $5,000 in after-tax contributions, that portion might be withdrawn tax-free.
• However, if the remaining $29,000 consisted of government-contributed amounts, market earnings, and compound interest, it would be 100% taxable at ordinary federal income tax rates.
• Each withdrawal would be roughly 14.7% income tax-free ($5,000/$34,000), and 85.3% taxable income ($29,000/$34,000).

Distributions from Trump Accounts must follow traditional IRA rules, including required minimum distributions (RMDs) once the beneficiary reaches the RMD age threshold.

The bottom line on Social Security benefits

If the U.S. Congress fails to act by the early 2030s, Social Security won't vanish into bankruptcy. Instead, the system will trigger automatic benefit cuts, reducing payouts to roughly 78 cents on the dollar, according to the latest Social Security Board of Trustees Report.

For the average recipient, that translates to losing several hundred dollars a month, which can be a significant blow to the roughly one in five Americans who rely on the program.

The outlook is even more uncertain for late-career Gen Xers (currently ages 46 to 61), who are closing in on retirement. According to AARP polling, 41% of Gen Xers plan to rely on Social Security as their primary source of retiree income — meaning a sudden 22% benefit cut could derail their retirement.

History suggests that panic might be an effective motivator. The last major legislative rescue in 1983 passed just months before the trust funds ran dry. Proposals for the current crisis are rolling in.

• For instance, Sens. Elizabeth Warren (D-Mass.) and Bernie Moreno (R-Ohio) published a joint plan in the New York Times to eliminate the $184,500 payroll tax cap on high earners to fund the shortfall.
• Supporters say this could inject $3 trillion into the program over a decade.
• But some fiscal models, such as those from the Tax Foundation, warn that raising the tax cap alone won't be sufficient to guarantee long-term solvency, returning the system to annual deficits in only a few years.

At the same time, alongside child savings account vehicles, the Trump administration recently signed an executive order establishing TrumpIRA.gov to help adult workers without workplace plans to invest privately for retirement.

The IRS also recently issued guidance establishing a "safe harbor" for Trump Account gift tax reporting, meaning grandparents and relatives can contribute up to $5,000 without needing to file federal gift tax returns.

While the total elimination of Social Security might be unlikely, the launch of parallel private programs could mark a distinctive shift. The next iteration of American retirement security could rely less on traditional federal guarantees and more on private, market-driven accounts. Stay tuned for updates.

Read More

• Taxes on Social Security Benefits: 6 Things to Know for 2026
• Social Security Tax Limit: What the Higher Cap Means for Your Paycheck
• How to Calculate Taxes on Social Security Benefits

However, the Court also issued decisions that can ultimately affect the financial bottom lines of everyday people across the country. These rulings, which involve property rights, the independence of monetary policy, and tariff authority, alter key rules for investors, consumers, and homeowners.

Additionally, a separate tax case that the High Court declined to review leaves heightened IRS audit risk in place for some taxpayers…

Curious? Here’s more of what you need to know about what some of the latest SCOTUS cases mean for your finances.

U.S. Supreme Court opinions 2026

Not every Supreme Court ruling necessarily affects your wallet. But the following decisions could have significant consequences for taxes and personal finances at a time when many people are facing financial uncertainty due to inflation and rising costs of housing, food, and gas.

Note: These are not the only decisions from the Court this term that could affect your finances.

#1. Supreme Court property tax ruling

Local governments don’t have to pay fair market value for foreclosed homes

In Pung v. Isabella County, the U.S. Supreme Court held that when a municipality forecloses on a property for unpaid taxes, “just compensation” under the Fifth Amendment to the U.S. Constitution is measured by the actual auction price — not fair market value.

What happened in the case?

A homeowner, Michael Pung, fell behind on roughly $2,200 in property taxes on his home in Isabella County, Michigan. The county foreclosed and sold the home at public auction for $76,008, despite an assessed market value of approximately $194,400.

Pung argued that keeping the difference between the tax debt and the home's fair market value amounted to an unconstitutional taking of equity. So the dispute centered on how to measure any surplus equity owed to a property owner after a tax foreclosure.

Pung said that compensation should be based on the home's market value, while the county maintained that any surplus should be measured using the amount actually realized at auction.

In a 9-0 ruling issued on June 23, 2026, the Supreme Court agreed with the county, holding that surplus equity from a tax foreclosure is measured by the amount realized at a lawful public auction, not by an estimate of the property's market value.

How this may affect your home

Tax foreclosure risk isn't just about losing a home. It can also mean losing equity.

What this means in practice:

• Property tax debt can put your home and your home equity at risk, even if the amount owed is relatively small.
• If a home is sold at tax foreclosure, you might not get back the difference between what it’s worth and what it sells for.
• Setting up a payment plan or resolving delinquent taxes before foreclosure may help.

Note: This case follows a 2023 ruling in Tyler v. Hennepin County, where a unanimous Supreme Court ruled that it’s unconstitutional for a state to take your home to cover your property tax bill while pocketing the profit from your surplus home equity.

Now more than a dozen states allow what some call “home equity theft.”

#2. Supreme Court tariff decision

Presidential authority is limited when it comes to imposing broad tariffs

In Learning Resources, Inc. v. Trump, the U.S. Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the executive branch to impose broad tariffs.

What happened in the case?

As Kiplinger has reported, in 2025, President Donald Trump imposed sweeping tariffs on imports from a wide range of countries, with some duties reaching 25%–60% on certain goods. The administration invoked emergency declarations under the International Emergency Economic Powers Act (IEEPA) to justify the measures, arguing that the statute authorized broad action to address national economic and security concerns.

Importers challenged the tariffs, arguing that the executive branch exceeded its statutory authority. Lower courts, including the U.S. Court of International Trade and the Federal Circuit, ruled that IEEPA does not grant tariff-setting power.

The Supreme Court affirmed those courts in a 6-3 decision on February 20, 2026, holding that tariff authority remains a core congressional power tied to taxation and revenue.

How this could impact your finances

Tariffs function as embedded costs within everyday goods and supply chains.

What this could mean in terms of potential benefits:

• Fewer surprise tariffs or sudden consumer cost spikes due to emergency executive tariff declarations
• More predictable pricing for import-heavy goods
• Tariff refunds for some importers

#3. Supreme Court Federal Reserve ruling

There may be limits on removal power when it comes to the Federal Reserve

In Trump v. Cook, the U.S. Supreme Court held that statutory “for-cause” protections limit the executive branch’s ability to remove Federal Reserve governors.

What happened in the case?

The Trump administration attempted to remove Federal Reserve Governor Lisa Cook over alleged discrepancies in financial disclosures, a move seen as part of an effort to assert greater control over the Fed.

Lower courts blocked the removal, and the Supreme Court affirmed in a 5-4 ruling on June 29, 2026, holding that Congress may limit removal authority to protect the Federal Reserve’s independence.

How this could affect your finances

Federal Reserve independence is central to how interest rates and credit conditions are set.

• An independent Fed can fight inflation even when it’s politically unpopular to do so.
• That helps keep inflation expectations more stable over time, which supports steadier borrowing costs and economic planning.

Note: This case was part of a broader decision (consolidated with a case involving the FTC) in which the 6-3 conservative majority expanded presidential power. The Court overturned decades of precedent (known as Humphrey’s Executor) to rule that a President can fire the heads of most other independent regulatory agencies at will. The Fed was essentially treated as the exception in the Cook case.

IRS audit Supreme Court case: Honorable mention

IRS audit risk can be indefinite for fraudulent returns

In Murrin v. Commissioner, the U.S. Supreme Court declined to review an interesting Third Circuit federal court ruling. That leaves in place a decision allowing the IRS to assess taxes beyond the standard statute of limitations when a tax return contains fraud, even if the taxpayer was unaware of the fraud.

What happened in the case?

A taxpayer, Stephanie Murrin, received a notice of deficiency nearly 20 years after filing her federal income tax returns. (The IRS determined that her tax preparer had inserted fraudulent items that significantly understated her tax liability.)

The court found that she acted in good faith and had no knowledge of the preparer’s misconduct. Still, a $65,318 tax deficiency ultimately grew to more than $328,000 once the IRS applied interest and penalties.

The central dispute was whether the normal three-year statute of limitations barred the IRS from assessing additional tax when fraud was present, even if the taxpayer wasn't personally aware of it.

The Third Circuit Court of Appeals held that Internal Revenue Code Section 6501(c)(1) applies to the return itself — meaning fraud on the return removes the standard three-year limitation period regardless of the taxpayer’s intent or knowledge.

Note: This ruling applies in jurisdictions under the Third Circuit, including Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands.

How this might impact your taxes

In Third Circuit states and territories, fraud on a tax return can potentially eliminate the normal IRS audit deadline.

What this means for some taxpayers:

• In Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands, fraud-related returns may remain open indefinitely.
• Taxpayers remain responsible for accuracy even when using paid preparers.
• Long-delayed IRS assessments could accumulate significant interest and penalties.
• Strong tax recordkeeping and preparer oversight become more important.

SCOTUS decisions: Bottom line for taxpayers