2026 Tax Planning: Stability and Key Adjustments for Private Investors

The 2026 tax landscape is now defined by the One Big Beautiful Bill Act (OBBB), which secured the stability of individual income and capital gains tax rates, reversing the scheduled expiration of the 2017 tax cuts. The focus for private investors in 2026 is shifting from anticipating a tax crisis to strategically maximizing new deductions and navigating temporary phase-outs.

Here is a breakdown of the most critical changes and planning points for private-market investors.

Tax Stability (The Good News)

The OBBB permanently extended several key provisions, providing long-term certainty for high-net-worth (HNW) investors:

• Ordinary Income Rates: The current, lower individual tax rate structure (with a top rate of 37%) is now permanent. This ensures that interest income, dividends, and K-1 operating income from pass-through entities will not jump to the higher, pre-2018 statutory rates.
• Qualified Business Income (QBI) Deduction: The popular 20% QBI deduction (Section 199A) for pass-through entities has been made permanent. Furthermore, the OBBB expanded eligibility by raising the income phase-in thresholds, potentially allowing more investors to claim the full benefit.
• Capital Gains Rates: The long-term capital gains rates of 0%, 15%, and 20% are now permanent. This ensures stable tax economics for major liquidity events like company buyouts and secondary sales.
• Estate & Gift Tax Exemption: The historically high, doubled exemption amount (indexed for inflation, approximately $15 million per individual in 2026) has been made permanent. This is the single most important long-term wealth transfer certainty provided by the OBBB.

Temporary Changes Requiring Immediate Planning

Two significant provisions are temporary and introduce new complexities for the 2026 tax year:

1. The Enhanced SALT Deduction Phase-Out

The deduction limit for State and Local Taxes (SALT) is temporarily increased to $40,000 (up from $10,000) through 2029.

• The Critical Threshold: This deduction begins phasing out sharply when Modified Adjusted Gross Income (MAGI) exceeds $500,000 (for Married Filing Jointly), and the enhanced portion of the SALT deduction is fully phased out around the $600,000 mark, leaving only the original $10,000 cap in place
• Investor Action: Private investors must run multi-year tax projections. A single large distribution or K-1 allocation that pushes MAGI into this $500k–$600k window could result in a significant loss of the deduction, leading to a much higher effective marginal tax rate on that specific tranche of income.

2. Increased QSBS Exclusion Cap

For investors in early-stage growth companies, the tax-free exclusion limit on Qualified Small Business Stock (QSBS, Section 1202) has been raised from $10 million to $15 million for stock acquired after July 4, 2025.

• Investor Action: Review all new private-market fund allocations and direct investments to ensure the structure maximizes this higher $15 million exclusion cap.

Strategic Actions for Private Investors Before Year-End 2026

1. Model K-1 Income Timing: Focus planning on the $500,000 MAGI threshold to maximize the temporary SALT deduction benefit. Coordinate anticipated distributions and liquidity events across 2026 and 2027 to manage AGI and avoid the steep SALT phase-out penalty.
2. Review Roth Conversion Strategy: Since rates are stable, Roth conversions are no longer an “emergency” move. They remain a powerful tool for sheltering the future, long-term appreciation of private assets (which can be substantial) from capital gains tax forever.
3. Update Wealth Transfer Documents: Capitalize on the permanent, higher estate tax exemption. Review and update wills, trusts, and lifetime gifting strategies without the previous uncertainty of a 50% cut in the exemption amount.
4. Confirm QSBS Eligibility: Ensure new investments meet all criteria (size, active business, holding period) to utilize the newly enhanced $15 million QSBS exclusion.

The 2026 environment rewards those who focus on optimizing deductions and utilizing permanent stability for long-term planning, rather than reacting to imminent rate increases.