2027 tax inflation adjustments — what changes?
Every November our Los Angeles office gets the same question from clients: did the numbers change, and should I change anything before year-end? On November 5, 2026 the IRS released the 2027 tax inflation adjustments in IRS news release IR-2026-133 and the underlying Revenue Procedure 2026-35, covering almost seventy provisions. Most clients do not need to overhaul anything. A handful do — business owners sitting on large equipment purchases, families approaching the estate exclusion, retirees watching the standard deduction, and anyone planning gifts before year-end. This post walks through what actually moves for 2027, who should act, and what stays frozen because statute never indexed it.
How much higher is the 2027 standard deduction? 📊
For tax year 2027 the standard deduction is $33,200 for married couples filing jointly, $16,600 for single filers and married filing separately, and $24,925 for heads of household.
Revenue Procedure 2026-35 pushes the standard deduction up roughly 3 percent from the 2026 figures. For most households that do not itemize, that is the full tax impact of the inflation release: a slightly higher floor before any income is taxed. In California and other states that use federal taxable income as a starting point, the effect flows through to the state return as well, but only to the extent the state conforms. See IRS Topic no. 551 on the standard deduction for how the standard deduction interacts with age-65 and blindness add-ons.
| Filing status | 2026 | 2027 | Change |
|---|---|---|---|
| Married filing jointly | $32,200 | $33,200 | +$1,000 |
| Single / married filing separately | $16,100 | $16,600 | +$500 |
| Head of household | $24,150 | $24,925 | +$775 |
For a joint-filing household in the 24 percent bracket, the extra $1,000 of standard deduction is worth about $240 in federal tax; in the 32 percent bracket, about $320. That is real money, but it is not a planning event. The bigger question for year-end is whether to accelerate or defer deductions and income across the 2026-to-2027 boundary, which the new bracket thresholds decide.
What are the 2027 tax brackets? 💼
The rates are unchanged at 10, 12, 22, 24, 32, 35, and 37 percent. Every threshold moved up — the 37 percent bracket starts at $661,375 for single filers and $793,650 for joint filers.
| Rate | Single — income over | Married filing jointly — income over |
|---|---|---|
| 37% | $661,375 | $793,650 |
| 35% | $264,550 | $529,100 |
| 32% | $208,325 | $416,650 |
| 24% | $109,125 | $218,250 |
| 22% | $52,025 | $104,050 |
| 12% | $12,800 | $25,600 |
| 10% | $12,800 or less | $25,600 or less |
For anyone close to a bracket edge in 2026, the 2027 thresholds matter for timing. Bonus income, a Roth conversion, deferred compensation, an equity-award exercise, or a capital-gain harvest that can be nudged into 2027 may land in a lower marginal bracket. On the other side of the ledger, deductible contributions and losses may be worth more in the higher 2026 bracket. The difference is not always large, but it is simple arithmetic once the limits are known.
Alternative Minimum Tax exemptions also step up for 2027. The exemption amount for unmarried individuals is $93,000 and begins to phase out at $515,950. For joint filers the exemption is $144,700 with the phase-out starting at $1,031,900. Taxpayers who shifted from itemizing to the standard deduction after 2017 may still want to run an AMT check whenever large capital gains or incentive stock options enter the picture.
How do the 2027 estate and gift tax inflation adjustments work? 🧾
The basic estate tax exclusion for decedents dying in 2027 is $15,480,000. The annual gift exclusion is $20,000 per donee, and gifts to a non-citizen spouse are excluded up to $201,000.
The estate exclusion moves off the $15,000,000 figure that applied to decedents dying in 2026. See IRS estate tax page for how the exclusion interacts with lifetime gifts and portability. For high-net-worth families in Los Angeles, the practical consequence is small: another $480,000 of lifetime capacity, doubled on a joint return where portability is elected. The annual gift exclusion is the bigger lever for most clients because it is a yearly refresh that never touches the lifetime amount.
- Annual gift exclusion. $20,000 per recipient in 2027, up from $19,000. A couple who elects gift-splitting can transfer $40,000 per recipient per year without filing a gift-tax return.
- Non-citizen spouse gifts. $201,000 in 2027, up from $194,000. Mixed-nationality households should track this limit separately — the unlimited marital deduction does not apply to a non-U.S.-citizen spouse.
- Basic exclusion. $15,480,000 for 2027 decedents. The exclusion applies at death to reduce the taxable estate, net of adjusted lifetime gifts.
Year-end gifts are a calendar-year item
The $19,000 annual exclusion for 2026 applies to gifts actually completed by December 31, 2026. A gift intended for 2026 that clears the bank in January counts toward 2027 instead. Checks have to be deposited and cleared during the calendar year to be a 2026 gift; wires should be sent with enough lead time to settle. Clients who plan annual gifting runs for both spouses should start those transfers in early December, not late December.
What changes for businesses, credits, and families in 2027? 🏢
Section 179 expensing, the Child Tax Credit, employer-provided childcare, EITC, adoption credits, and foreign earned income all move up in step with inflation under Revenue Procedure 2026-35.
Business owners have the largest dollar swing in the release. The Section 179 expensing limit rises to $2,640,000 of qualifying property for 2027, up from $2,560,000. The dollar cap on sport utility vehicles treated as Section 179 property is $33,100, up from $32,000. For an equipment-heavy business deciding whether to place assets in service in December 2026 or January 2027, the difference is usually not the Section 179 ceiling itself — that ceiling is far above what most small businesses spend in a year — but the bracket in which the deduction lands and the state conformity status.
- Child Tax Credit. Maximum $2,300 per qualifying child for 2027 (up $100), with $1,800 of that potentially refundable (also up $100).
- Earned Income Tax Credit. Maximum $8,496 for a taxpayer with three or more qualifying children, up from $8,231. The full income thresholds and phase-outs are in IRS EITC guidance.
- Adoption credit. Maximum $18,250 of qualified adoption expenses per child, with $5,280 potentially refundable for 2027.
- Employer-provided childcare credit. Maximum $515,943.67 for 2027 ($619,132.40 for an eligible small business).
- Qualified transportation fringe and parking. $350 per month, up $10 from 2026.
- Health Flexible Spending Account. $3,500 salary-reduction limit; up to $700 of unused funds may carry over on plans that permit carryover.
- Foreign Earned Income Exclusion. $137,300 for 2027, up from $132,900.
From our practice: the inflation release is a checklist, not a strategy
Most clients want to know what the new numbers mean for the return they file in April. In our practice, the inflation release is most useful as a year-end checklist for the handful of items where the calendar matters — annual gifts, Section 179 placed-in-service dates, FSA elections, Roth conversion sizing against a bracket edge, and HSA/MSA deductibles for 2027 plan design. Everything else is just a slightly higher floor or ceiling that shows up automatically when the 2027 return is prepared in 2028.
What do the 2027 adjustments not touch? ⚠️
Several items are not indexed and stay the same in 2027 — including personal exemptions, the Lifetime Learning Credit phase-out, and most itemized-deduction thresholds.
Revenue Procedure 2026-35 adjusts only the provisions that Congress wrote to be indexed. A few numbers that taxpayers routinely assume are indexed are not:
- Personal exemptions remain at zero for 2027, as they have since 2018.
- Lifetime Learning Credit. The MAGI phase-out has not been adjusted since tax year 2020. For 2027, it still phases out between $80,000 and $90,000 of MAGI ($160,000 to $180,000 for joint returns).
- Investment interest limits, the $3,000 capital-loss offset against ordinary income, and the net-investment-income-tax thresholds are statutory and do not move with inflation.
For planning purposes, that means the Lifetime Learning Credit is slowly becoming a narrower benefit every year as wages rise but the phase-out does not. Taxpayers approaching the top of the phase-out in 2027 may be better served by the American Opportunity Credit (where eligible) or by other education incentives that do index.
Summary: the 2027 tax inflation adjustments at a glance
- Standard deduction: $33,200 MFJ / $16,600 single / $24,925 head of household (Rev. Proc. 2026-35).
- Top 37% bracket starts at $661,375 (single) and $793,650 (MFJ); all seven rates unchanged.
- Estate exclusion $15,480,000; annual gift exclusion $20,000 per donee; non-citizen spouse $201,000.
- Section 179 expensing $2,640,000; SUV cap $33,100; Child Tax Credit $2,300; EITC max $8,496.
- Personal exemption stays at $0; Lifetime Learning Credit phase-out stays frozen at the 2020 figures.
Frequently asked questions about the 2027 tax inflation adjustments ❓
Q. When do the 2027 tax inflation adjustments take effect?
They apply to tax year 2027, which is the year reflected on returns filed in early 2028. The 2026 figures still govern returns you file next spring. Payroll withholding, estimated-tax calculations, and benefit elections for calendar year 2027 are the first places the new numbers show up.
Q. What is the 2027 standard deduction for married couples filing jointly?
$33,200 for married couples filing jointly, up $1,000 from 2026. Single filers and married filing separately get $16,600, and heads of household get $24,925. Those figures are set in Revenue Procedure 2026-35 and apply to the 2027 return filed in 2028.
Q. How much is the 2027 estate tax exclusion and annual gift exclusion?
The basic estate tax exclusion for decedents dying in 2027 is $15,480,000, up from $15,000,000 for 2026. The annual gift exclusion rises to $20,000 per donee, from $19,000. Gifts to a non-U.S.-citizen spouse are excluded up to $201,000, up from $194,000.
Q. Did the 2027 tax brackets change?
The seven-bracket structure is unchanged — 10, 12, 22, 24, 32, 35, and 37 percent — but the dollar thresholds moved up. For single filers, the 37 percent bracket now starts at $661,375, and for joint filers it starts at $793,650. Every other bracket shifted by a smaller but similar inflation step.
Q. What changed for Section 179 expensing and the SUV cap in 2027?
Section 179 expensing rises to $2,640,000 of qualifying property for tax year 2027, up from $2,560,000. The dollar limit on sport utility vehicles treated as Section 179 property is $33,100, up from $32,000. The phase-out threshold moves in step with the base limit.
Q. Does the 2027 Child Tax Credit go up?
Yes, modestly. The maximum Child Tax Credit for 2027 is $2,300, up $100 from 2026, and the refundable portion is $1,800, also up $100. Phase-out ranges and other mechanics from the underlying statute remain in place; Revenue Procedure 2026-35 sets only the indexed dollar amounts.
This article is general information, not tax advice for your situation. Year-end planning decisions depend on facts specific to each return. If you want a review of how the 2027 inflation adjustments intersect with your 2026 year-end moves, contact SW Accounting & Consulting Corp for a consultation.
