Taxes

Surtax

The 3.8% surtax on net investment income of upper-income individuals. The NII tax applies to joint filers with MAGI greater than $250,000 and single filers and head-of-household taxpayers with MAGI over $200,000. The 3.8% NII tax is due on the smaller of NII or the excess of MAGI above the income thresholds. For this purpose, MAGI is AGI shown on line 11 plus certain excluded foreign income.

Estate Taxes and Gift Tax

Estate tax breaks will be higher next year, thanks to the OBBB and inflation. The lifetime estate and gift tax exemption for 2026 deaths rises to $15 million. Although a vocal bloc of Republican lawmakers wanted to repeal the estate tax, the compromise that GOPers reached in the OBBB raised the exemption amount and made it permanent. As always, the exemption will be adjusted yearly for inflation. The federal lifetime estate and gift tax exemption for 2025 deaths is $13,990,000.

The special estate tax valuation of farm and business real estate rises in 2026. Up to $1,460,000 of farm or business real estate can receive discount valuation, letting estates value the real property at its current use rather than fair market value. To qualify, the real estate must make up at least one-half of the estate, and realty making up 25% or more of the estate must be used in a business or actively farmed by the decedent or his family for five or more years in the eight years before death.

The annual gift tax exclusion stays pat at $19,000 per donee next year. That means that in 2026, you can give up to $19,000 to each of your relatives or any other person without tapping your lifetime estate and gift tax exemption, paying gift tax or filing a gift tax return. Annual gifts over the exclusion amount will trigger filing of a gift tax return, but no gift tax will be due unless your total gifts during your lifetime exceed $15 million. As always, the recipient of your gifts will not owe any federal tax on the receipt of the gift. If you gift property to a person, he or she will end up generally taking your adjusted tax basis in the gifted property. This rule is different for inherited property, in which, for federal tax purposes, the heir generally takes a tax basis equal to fair market value on the decedent’s death.