New IRS tax deductions for 2026: Here's what you need to know

The IRS introduces new tax deductions that will impact seniors, workers with tips/overtime and car loan users.

The Internal Revenue Service (IRS) has introduced a slate of new and expanded tax deductions for the 2026 tax year. These new deductions are part of the recently enacted One Big Beautiful Bill Act (OBBBA).

The IRS introduces new tax deductions that will impact seniors, workers with tips/overtime and car loan users. (REUTERS)

These adjustments are intended to offer tax relief in a number of areas, including company investment, family support, working Americans, and seniors.

Major new deductions and who they help

One of the headline changes for the 2026 tax year is the introduction of a new senior tax deduction that could provide up to $6,000 in additional tax breaks for Americans aged 65 and older.

This benefit will be available from 2025 through 2028 and can increase refunds or reduce taxable income for older taxpayers.

Alongside this, the IRS is introducing a new Schedule 1-A that consolidates several new deductions created by the tax law. Here they are"

1. No tax on tips. Workers who earn eligible tips, such as those in service industries, can deduct eligible tips received between 2025 and 2028 up to $25,000 annually. For those making more than $150,000, the deduction gradually phases out.
2. No tax on overtime. Up to $12,500 ($25,000 for joint filers) of overtime compensation that exceeds regular salary is deductible; this amount also phases out at the same income limitations. IRS fact sheet states that both standard deduction and itemizing taxpayers are eligible.
3. No tax on car loan interest. This applies to personal use automobiles only; interest paid on new made-in-America car loans (originating after December 31, 2024, and weighing less than 14,000 pounds gross) may be deducted up to $10,000 per year.

These deductions are broadly accessible, given that they apply whether a taxpayer itemizes or takes standard deductions.

The standard deduction itself has also increased for 2026, according to the IRS inflation adjustments. Married couples filing jointly can claim up to $32,200. Singles and married filing separately can claim up to $16,100, and $24,150 for heads of households.

Permanent 100 per cent bonus depreciation

Instead of depreciating over a number of years, taxpayers who purchase qualifying depreciable property after January 19, 2025, may immediately deduct the entire cost in the first year.

Certain approved sound recording productions are now eligible under this rule.

Election possibilities, such as choosing a 40 per cent or 60 per cent deduction on a particular property in particular situations, are also described in the IRS guidelines.