New 2026 Tax Deductions for Individuals and Families
The 2025 tax law added new tax deductions for tips, overtime, car loan interest and seniors, raised the SALT cap and changed the rules for charitable giving. Here is what the new tax deductions mean for 2026 and what to do before December 31.
- By Pei Pierce, EA
- Georgetown, TX
- Updated November 2026
Are tips tax-free in 2026?
Not exactly. It's a deduction, not tax-free income. You can deduct up to $25,000 of qualified tips if you work in an occupation on the IRS list of jobs that customarily receive tips.
- Phases out when modified AGI is over $150,000 ($300,000 joint).
- Tips are still subject to Social Security and Medicare tax.
- Keep your tip records and check that tips are reported on your W-2.
How does the overtime deduction work?
You can deduct only the premium portion of overtime pay, such as the "half" in time-and-a-half, up to $12,500 ($25,000 for married couples filing jointly).
- Applies to overtime required under the Fair Labor Standards Act (generally hourly, non-exempt workers).
- Same phase-out as tips: modified AGI over $150,000 ($300,000 joint).
- Keep your pay stubs, and check your W-2 for the overtime amount.
Can I deduct interest on my car loan?
Yes, up to $10,000 a year of interest, if the loan meets all the rules:
- Loan taken out after December 31, 2024.
- New vehicle (used vehicles and leases don't qualify), final assembly in the U.S., for personal use.
- Phases out when modified AGI is over $100,000 ($200,000 joint).
- Save your loan statement and VIN. The VIN goes on your return.
Is there really "no tax on Social Security"?
Not quite. Instead there is a new senior deduction of $6,000 per person age 65 or older ($12,000 if both spouses qualify), on top of the standard deduction.
- Phases out when modified AGI is over $75,000 ($150,000 joint).
- Married couples must file jointly to claim it.
- Social Security benefits can still be taxable.
Do I have to itemize to claim the new tax deductions?
No. You can claim the tips, overtime, car loan interest and senior deductions whether you take the standard deduction or itemize. They are temporary and apply for 2025 through 2028.
What is the SALT cap for 2026?
The cap on deducting state and local taxes rose from $10,000 to $40,000 for 2025 and $40,400 for 2026.
- It shrinks once modified AGI goes above $505,000, but never falls below $10,000.
- In Texas, this is mostly property tax. The timing of your payment can decide which year it counts.
What changed for charitable donations?
If you take the standard deduction, you can now deduct up to $1,000 of cash gifts to charity ($2,000 joint). Gifts to donor-advised funds don't count.
- If you itemize, only giving above 0.5% of your AGI counts.
- For the highest earners, the benefit is capped at the 35% bracket.
- Grouping gifts into one year, or giving appreciated stock, can help.
Which energy credits have ended?
The clean vehicle (EV) credit ended for vehicles acquired after September 30, 2025. The home energy improvement credit and the residential clean energy credit (solar, batteries) ended after December 31, 2025. Purchases made in 2026 don't qualify.
What should I do before December 31?
- Max out your 401(k). The 2026 limit is $24,500, plus $8,000 if you're 50 or older, or $11,250 instead if you're 60 to 63.
- Make charitable gifts by December 31 so they count for 2026.
- Offset gains with losses in taxable investment accounts.
- Check your withholding and your January 15 estimated payment so April holds no surprises.
- Plan your Texas property tax payment. Bills arrive in October and are due by the end of January. Paying in December counts for 2026.
How do I protect my tax identity?
- Set up your IRS Online Account with two-step login.
- Get a free 6-digit Identity Protection PIN. It blocks anyone else from filing a return with your Social Security number.
- The IRS doesn't start contact by text, email or social media asking for personal or financial information.
- We follow a written information security plan and use a secure document portal. Please don't email Social Security numbers.
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Sources: IRS: Tax deductions for working Americans and seniors, IRS Rev. Proc. 2025-32 (2026 inflation adjustments), and IRS Notice 2025-67 (2026 retirement plan limits). This article is general information, not tax advice for your specific situation.