As we near the end of this year, it’s time to turn our attention toward the tax legislation changes for 2026. The tax experts on our team at Legacy Knight have homed in on 2026 tax updates and have identified notable changes that fall into three key areas:
- Bonus depreciation
- Qualified Opportunity Fund investments
- Charitable contributions and itemized deductions
We cover each of these three topics below, highlighting key details to have top of mind as we enter the new year. Please be aware that this content is purely informational and is not intended to constitute tax or financial advice.
Bonus Depreciation
Bonus depreciation is permanently reinstated, allowing 100% first-year depreciation for qualified business property acquired and placed in service after January 19, 2025. Understanding this, here is what we recommend taxpayers keep in mind:
- Given that newly acquired business property can be fully depreciated, real estate investments may generate larger losses in early years.
- Private aircraft may be fully depreciable in the year of purchase if used in connection with an active trade or business. However, selling an existing private aircraft could trigger depreciation recapture, which is taxed at ordinary rates rather than lower capital gain rates.
Qualified Opportunity Fund Investments
- Reinvested gains can be deferred until the earlier of five years after the reinvestment or the date the investment is sold.
- When the deferred gain is recognized at five years, the investor receives a 10% increase in basis. If the QOF is invested in a rural qualified opportunity zone, the basis increase is 30%.
- If the qualified opportunity zone investment is held for at least 10 years before being sold, the taxpayer can treat their basis as fair market value on the date of sale, recognizing no gain.
- If held for more than 30 years, the basis is automatically updated to the fair market value as of the 30-year date.
With these new rules, this becomes a very useful strategy for deferring gains generated from mid-2026, and onward, and is something to keep in mind for those anticipating transactions next year. Charitable Contributions and Itemized Deductions
There are two new limitations in place that will affect tax deductions for charitable contributions, starting in 2026:
- Itemized deductions for taxpayers in the 37% marginal tax bracket will be applied at 35% — reducing the deduction of property taxes, investment interest expense, and charitable contributions, to name a few, by around 5%.
- There is now a floor on charitable contributions; donations are only deductible to the extent they exceed 0.5% of taxpayers’ adjusted gross income.
These limitations are not so stringent that families must consider making a large donation this year if they were not already planning to do so in the next couple years. Instead, the above strategies are just suggestions to consider in cases in which families do intend to continue giving in future years and wish to maximize their deductions for doing so.
Disclaimer: This content is for informational purposes only and does not constitute tax advice. Tax laws and regulations are complex and subject to change. Readers should consult with a qualified tax professional or advisor before making any tax-related decisions.
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