Tax Deductions 2026: What’s New or Changed for the 2026 Tax Year
See how changes to tax deductions can impact your 2026 federal income tax return, which you’ll file in 2027. The “One Big Beautiful Bill” revised several tax deductions, while many other deductions are larger or more accessible than they were for the 2025 tax year. Don’t miss out on any tax-saving opportunities that are available to you.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The “One Big Beautiful Bill” added or modified several tax deductions starting with the 2026 tax year, including deductions for charitable donations, teacher expenses, and gambling losses.
- The Standard Deduction amounts for 2026 increased approximately 2.2% from 2025.
- The SALT deduction cap jumped from $40,000 to $40,400 for 2026, although the cap can be reduced to $10,000 if your income is too high.
- The maximum deduction for 2026 tax year contributions to a traditional IRA is $7,500 for most people, but it’s $8,600 for people who are at least 50 years old.
Are there any new tax deductions for 2026?
There are two new tax deductions for the 2026 tax year:
- Charitable Deduction for Non-Itemizers
- Itemized Deduction for Educator Expenses
Both of these were created by the “One Big Beautiful Bill” (OBBB), also known as the Working Families Tax Cut, which was enacted in July 2025. Also, while they're both similar to existing deductions, they're separate deductions with different rules.
Let’s take a quick look at these new tax breaks.
What is the Charitable Deduction for Non-Itemizers?
The Charitable Deduction for Non-Itemizers allows people who claim the Standard Deduction (instead of itemized deductions) to deduct up to $1,000 of cash contributions to charitable, religious, educational, scientific, literary, and certain other eligible organizations (up to $2,000 for married couples filing a joint tax return). A similar deduction was temporarily allowed for the 2020 and 2021 tax years, but it was revived, improved, and made permanent by the OBBB for 2026 and beyond.
However, the new deduction comes with some notable limitations. For instance, it applies only to cash donations, so you can't claim the deduction for gifts of property or services. You also can't deduction cash donations from a previous year that were carried forward to the current tax year. Money put in a donor-advised fund aren't deductible, either.
TurboTax Tip:
"If you're not sure whether a donation to your favorite charity will be deductible, you can check the IRS's online database of organizations eligible to receive tax-deductible charitable contributions." – Jeff Godwin, CPA, Carlsbad, California
What is the Itemized Deduction for Educator Expenses?
Starting with the 2026 tax year, teachers and certain other educators can an itemized deduction for certain unreimbursed out-of-pocket expenses, such as books, supplies, and equipment. This new deduction is similar to the existing "above-the-line" deduction for educator expenses, except:
- there are no dollar limits
- coaches and interscholastic sports administrators can claim it
- it can be claimed for non-athletic supplies for health or physical education classes
- items purchased by the teacher or other educator don’t have to be used in the classroom if they’re used as part of an instructional activity
Which existing personal income tax deductions changed for 2026?
For individual taxpayers, several existing federal income tax deductions were modified for the 2026 tax year, including changes to the:
- Standard Deduction
- State and Local Taxes (SALT) Deduction
- Charitable Gift Deduction
- Mortgage Interest Deduction
- IRA Deduction
- HSA Deduction
- Self-Employed SEP, SIMPLE, and Qualified Plans Deduction
- Qualified Business Income (QBI) Deduction
- Student Loan Interest Deduction
- Long-Term Care Insurance Deduction
- Gambling Loss Deduction
- Moving Expense Deduction
- Casualty Loss Deduction
- Deduction for Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials
Changes to these deductions were made by the OBBB and/or triggered by the IRS’s annual adjustments to account for inflation. The inflation adjustments are good for taxpayers because they increase the value of affected tax breaks and/or make them available to more people.
Let’s take a look at the changes to common tax deductions you may be able to claim on your 2026 personal income tax return (which is due on April 15, 2027). While the information below generally doesn't cover business-related deductions, it’s important to point out that business owners may also be able to deduct various business expenses on Schedule C.
How did the Standard Deduction change for 2026?
For the 2026 tax year, the basic Standard Deduction received its annual increase to account for inflation, which increased the basic deduction by about 2.2% from 2025 to 2026.
What is the Standard Deduction for 2026?
For the 2026 tax year, the basic Standard Deduction is $16,100 for single filers and married taxpayers who file separate returns (up from $15,750 for 2025), while married couples filing jointly and qualifying surviving spouses can deduct an amount twice that size at $32,200 (up from $31,500 for 2025). Head-of-household filers can claim a 2026 Standard Deduction of $24,150 (up from $23,625 for 2025).
|
Filing Status |
2025 Standard Deduction |
2026 Standard Deduction |
|
Single |
$15,750 |
$16,100 |
|
Married Filing Jointly |
$31,500 |
$32,200 |
|
Married Filing Separately |
$15,750 |
$16,100 |
|
Head of Household |
$23,625 |
$24,150 |
|
Surviving Spouse |
$31,500 |
$32,200 |
Was the additional Standard Deduction for age or blindness changed for 2026?
The additional Standard Deduction for people who are at least 65 years old or blind also increased for the 2026 tax year. It’s equal to $1,650 for joint filers, married taxpayers filing separately, and surviving spouses (up from $1,600 for 2025); and $2,050 for single taxpayers and head-of-household filers (up from $2,000 for 2025). If you’re both 65 or older and blind, the additional Standard Deduction amount is doubled.
Are there limits on the Standard Deduction for dependents?
Yes, there are also limits on the Standard Deduction if you can be claimed as a dependent on someone else’s tax return. However, the limits didn't change for the 2026 tax year. So, if you're a dependent, the Standard Deduction for the 2026 tax year can’t exceed the greater of $1,350, or $450 plus your earned income (up to the Standard Deduction limit for your filing status).
How did the SALT Deduction change for 2026?
Under the OBBB, both the cap on the itemized deduction for state and local taxes (SALT) and the limit's phase-out thresholds are increased for the 2026 tax year.
The SALT cap itself jumps from $40,000 to $40,400 for 2026 (from $20,000 to $20,200 for married people filing separate returns). In addition, if your 2026 modified adjusted gross income (MAGI) is over $505,000, or $252,500 for married couples filing separately (up from $500,000 and $250,000, respectively, for 2025), the cap is gradually reduced until it reaches $10,000, or $5,000 for married couples filing separately.
How did the Itemized Deduction for Charitable Gifts change for 2026?
Starting with the 2026 tax year, the OBBB amended the itemized deduction for charitable contributions by:
- establishing a 0.5%-of-AGI “floor”
- increasing the deduction for certain whaling captains
How does the 0.5% floor work for the Charitable Deduction?
People claiming the itemized deduction for charitable donations can only deduct eligible donations that exceed 0.5% of their AGI.
Example: For the 2026 tax year, you have an AGI of $200,000 and donated $4,000 to charity. If you claim itemized deductions on your federal income tax return, you can only deduct $3,000 of your charitable donations. That’s because the first $1,000 of donations is not deductible ($200,000 x 0.5% = $1,000). That leaves you with $3,000 in deductible donations ($4,000 - $1,000 = $3,000).
You can carry over donations that aren’t deductible because of the 0.5% floor to future tax years, but only if you’re already carrying over unused donations because of one of the existing AGI-based limitations (such as the 60%-of-AGI limit for cash contributions). If that’s the case, you can add any donations that aren’t allowed because of the floor to the overall carryover amount.
How much was the Charitable Deduction for whaling captains increased?
Starting with the 2026 tax year, the maximum itemized charitable deduction for certain whaling captains is increased from $10,000 to $50,000. The deduction is only available to captains recognized by the Alaska Eskimo Whaling Commission and for subsistence bowhead whale hunting activities conducted under the commission’s management plan.
The deduction is only allowed for the costs of:
- acquiring and maintaining whaling boats, weapons, and gear used in sanctioned whaling activities
- supplying food for the crew and other provisions for carrying out sanctioned activities
- storing and distributing the catch from sanctioned activities
How did the Mortgage Interest Deduction change for 2026?
Starting with the 2026 tax year, the OBBB permits certain mortgage insurance premiums to be deducted as mortgage interest. This revives a deduction that existed before 2022.
The deduction is only available for premiums paid under a mortgage insurance contract issued after 2006 in connection with a mortgage secured by your first or second home. It's also gradually reduced if your adjusted gross income (AGI) is more than $100,000 ($50,000 if married filing separately). The deduction is completely phased out if your AGI exceeds $109,000 ($54,500 if married filing separately).
How did the IRA Deduction change for 2026?
The maximum deduction for contributions to a traditional IRA is larger for 2026 because the
annual IRA contribution limit is higher (it was adjusted for inflation). For the 2026 tax year, the deduction is worth up to $7,500 for people who don't reach their 50th birthday by December 31, 2026 ($7,000 for 2025). If you were at least 50 years old by the end of 2026, the 2026 deduction tops out at $8,600
($8,000 for 2025), since you can deduct an addition $1,100 of "catch-up" contributions ($1,000 for 2025).
|
Age at End of Year |
2025 Maximum IRA Deduction |
2026 Maximum IRA Deduction |
|
Under 50 |
$7,000 |
$7,500 |
|
50 or Older |
$8,000 |
$8,600 |
The IRA Deduction is also gradually phased out (potentially to $0) if you or your spouse are
covered by an employer-sponsored retirement plan. The phase-out ranges are based on your
filing status and adjusted for inflation each year.
What are the 2026 IRA Deduction limits if you’re covered by a retirement plan at work?
If you’re covered by a retirement plan at work, the 2026 IRA Deduction is gradually phased out as follows:
- For single and head-of-household filers, the deduction is reduced if your modified adjusted gross income (MAGI) is more than $81,000 (more than $79,000 for 2025) and is completely eliminated if your MAGI is $91,000 or more ($89,000 or more for 2025).
- For joint filers and qualifying surviving spouses, the deduction is reduced if your MAGI is more than $129,000 (more than $126,000 for 2025) and is completely eliminated if your MAGI is $149,000 or more ($146,000 or more for 2025).
- For married taxpayers filing a separate return, the deduction is reduced if your MAGI is less than $10,000 and is completely eliminated if your MAGI is $10,000 or more (the $10,000 threshold was the same for 2025).
What are the 2026 IRA Deduction limits if you’re not covered by a retirement plan at work, but your spouse is?
If you’re not covered by a workplace retirement plan but your spouse is, and you’re filing a joint return, the 2026 IRA Deduction is reduced if your MAGI is more than $242,000 (more than $236,000 for 2025) and is eliminated if your MAGI is $252,000 or more ($246,000 or more for 2025).
Can you deduct contributions to a Roth IRA?
No, you cannot deduct contributions to a Roth IRA.
How did the HSA Deduction change for 2026?
The maximum deduction for contributions to health savings accounts (HSAs) is higher for the 2026 tax year, since contribution limits for HSAs rose from 2025 to 2026. But don’t forget that you must be covered under a qualifying high-deductible health plan to contribute to an HSA.
For 2026, the HSA Deduction generally can't exceed $4,400 if you have self-only coverage or $8,750 if you have family coverage (up from $4,300 and $8,550, respectively, for 2025). But if you were at least 55 years old at the end of 2026, you can deduct an additional $1,000.
How did the Self-Employed SEP, SIMPLE, and Qualified Retirement Plans Deduction change for 2026?
The maximum tax deduction a self-employed person operating their business as a sole proprietor can claim for contributions to certain traditional retirement plans increased for the 2026 tax year, because the annual contribution limits for those plans were increased from 2025 to 2026. Contributions to Roth accounts (as opposed to traditional accounts) aren't deductible.
Note that a sole proprietor reports contributions to their own retirement account as a personal deduction on Schedule 1, while contributions to one of their employee's retirement account are reported as a business expense on Schedule C.
What is the maximum deduction for SEP IRAs in 2026?
For a self-employed person, the maximum deductible amount for 2026 contributions to a traditional Simplified Employee Pension (SEP) IRA is $72,000 ($70,000 for 2025) or 25% of your first $360,000 of net earnings from self-employment ($350,000 for 2025), whichever is lower.
However, if you contribute to your own SEP IRA, a special calculation is required to determine your maximum deduction. As a result, your deduction may be lower than the actual amount you contributed to your SEP IRA.
What is the maximum deduction for SIMPLE IRAs in 2026?
Self-employed people can deduct contributions to their own traditional Savings Incentive Match Plan for Employees (SIMPLE) IRA made as both an employee and an employer. But limits apply to each type of contribution.
Employee contributions. For "employee contributions" to a SIMPLE IRA, your deduction for the 2026 tax year is capped at $17,000 if you're under 50 at the end of the year ($16,500 for 2025). However, if you're 50 to 59 years old, or 64 and older, you can deduct an additional $4,000 of "catch-up" contributions ($3,500 for 2025) – for a total of $21,000 for 2026. If you're 60 to 63 years old at the end of the year, the "catch-up" amount jumps to $5,250 (same as 2025) – for a total maximum deduction of $22,250 for 2026.
Different employee contribution limits apply to certain SIMPLE IRAs. For 2026, the basic limit under these retirement accounts is $18,100 ($17,600 for 2025). If you're 50 to 59 years old, or 64 and older, the additional "catch-up" amount for 2026 is $3,850 (same as 2025) – for a total of $21,950. The 2026 "catch-up" amount for people who are 60 to 63 years old remains $5,250 for 2026 – for a total of $23,350.
The different limits are generally available for SIMPLE IRA plans from employers with 25 or fewer employees, but they only apply for other SIMPLE IRAs if the employer agrees to contribute more than what would otherwise be required to each employee's account (as described below).
Employer contributions. In addition, a self-employed person with a SIMPLE IRA must also make an "employer contribution" to their own account (and to each eligible employee's SIMPLE IRA). The employer contribution must be either a:
- "matching" contribution of up to 3% of your net earnings from self-employment
- fixed contribution equal to 2% of the first $360,000 of your net earnings from self-employment (first $350,000 for 2025)
An additional fixed contribution is also allowed. For 2026, it can't be more than 10% of your net earnings from self-employment or $5,300 ($5,100 for 2025), whichever is lower.
The employer contribution percentages listed above are increased to 4% and 3%, respectively, for employers with 25 or fewer employees and others employers that agree to contribute at the higher amount.
What is the maximum deduction for 401(k) plans in 2026?
As with contributions to a SIMPLE IRA, self-employed people can deduct contributions to their own traditional 401(k) plan (including a solo 401(k)) made as both an employee and an employer. But, again, limits apply to each type of contribution.
Also, as with contributions to your own SEP IRA, self-employed people must use a special calculation to determine their maximum deduction for contributions to a 401(k) plan. This may result in a lower 401(k) plan deduction.
Employee contributions. A self-employed person with a 401(k) plan can deduct up to $24,500 in contributions to their own 401(k) account for the 2026 tax year if they’re under 50 years of age ($23,500 for 2025). That amount jumps to $32,500 if you were either 50 to 59 years old, or at least 64 years old, at the end of the tax year ($31,000 for 2025). If you're 60 to 63 years old at the end of 2026, the limit climbs to $35,750 ($34,750 for 2025).
Employer contributions. A self-employed person can also deduct contributions to their own 401(k) account, but the 2026 deduction is generally limited to 20% of your first $360,000 of net earnings from self-employment ($350,000 for 2025). However, for the 2026 tax year, your deduction for all 401(k) contributions, other than catch-up contributions, can't exceed $72,000 ($70,000 for 2025).
How did the Qualified Business Income (QBI) Deduction change for 2026?
For 2026, the QBI Deduction "phase-in ranges" are increased and expanded, and a new minimum deduction takes effect.
How were the QBI Deduction "phase-in ranges" adjusted for 2026?
In addition to the annual inflation adjustments, the "phase-in ranges" – which are used to calculate the QBI Deduction – were expanded by the OBBB. Beginning with the 2026 tax year, they span $150,000 for joint filers (up from $100,000) and $75,000 for everyone else (up from $50,000). This will result in larger deductions for many business owners.
|
Filing Status |
2025 QBI Phase-In Range |
2026 QBI Phase-In Range |
|
Married Filing Jointly |
$394,601 to $494,600 |
$403,501 to $553,500 |
|
Married Filing Separately |
$197,301 to $247,300 |
$201,776 to $276,775 |
|
All Other Taxpayers |
$197,301 to $247,300 |
$201,751 to $276,750 |
How does the minimum QBI Deduction work?
Starting with the 2026 tax year, a minimum QBI Deduction of $400 is allowed for qualified taxpayers who have at least $1,000 of qualified income from one or more businesses in which they materially participate. After 2026, both the $400 and $1,000 amounts will be adjusted annually for inflation.
How did the Student Loan Interest Deduction change for 2026?
For 2026, the phase-out ranges for the Student Loan Interest Deduction were adjusted to account for inflation.
The deduction is worth up to $2,500 per year. But your deduction will be gradually reduced – potentially to $0 – if your modified adjusted gross income (MAGI) exceeds a certain amount that’s based on your filing status.
For the 2026 tax year, the deduction is phased out as follows:
- For single filers, head-of-household filers, and qualifying surviving spouses, the deduction is reduced if your MAGI is more than $85,000 (same for 2025) and is completely eliminated if your MAGI is $100,000 or more (same for 2025).
- For married couples filing jointly, the deduction is reduced if your MAGI is more than $175,000 (more than $170,000 for 2025) and is completely eliminated if your MAGI is $205,000 or more ($200,000 or more for 2025).
Married taxpayers filing separate returns can’t claim the Student Loan Interest Deduction.
How did the Deduction for Long-Term Care Insurance Premiums change for 2026?
For the 2026 tax year, the limits on deductions for long-term care insurance premiums – whether as a medical expense deduction or a self-employed person’s deduction for health insurance – were increased to:
- $500 if you’re 40 or younger ($480 for 2025)
- $930 if you’re 41 to 50 ($900 for 2025)
- $1,860 if you’re 51 to 60 ($1,800 for 2025)
- $4,960 if you’re 61 to 70 ($4,810 for 2025)
- $6,200 if your 71 or older ($6,020 for 2025)
Your age for this purpose is determined on the last day of the tax year. Also, premiums deducted as a medical expense are only deductible to the extent they exceed 7.5% of your adjusted gross income.
How did the Gambling Loss Deduction change for 2026?
Starting with the 2026 tax year, the OBBB limits the Gambling Loss Deduction to the lesser of:
- 90% of your wagering losses for the tax year
- your wagering gains for the tax year
The 90% limitation didn’t apply before the OBBB (that is, the deduction was only limited by your gambling winnings).
How did the Moving Expense Deduction change for 2026?
Starting with the 2026 tax year, employees and new appointees of the intelligence community can claim the Moving Expense Deduction if they move because of a change in assignment that requires relocation. Before this change, the deduction was only available to active-duty military personnel who move under military orders.
How did the Casualty Loss Deduction change for 2026?
Starting with the 2026 tax year, the OBBB extended the deduction for personal casualty losses to include losses from a state-declared disaster. Before this change, the deduction could only be claimed for losses stemming from a federally-declared disaster.
A state-declared disaster is generally a natural disaster, fire, flood, or explosion in a state that the governor (or the mayor, in the case of the District of Columbia) and the U.S. Treasury Secretary determines has caused severe damage.
How did the Deduction for Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials change for 2026?
The standard mileage rate used by armed forces reservists, performing artists, and fee-based government officials to calculate their deduction for the unreimbursed business use of a personal vehicle is increased from 70 cents per mile for the 2025 tax year to:
- 72.5 cents per mile for the first half of 2026 (January 1 to June 30)
- 76 cents per mile for the second half of 2026 (July 1 to December 31)
These taxpayers can use either the standard mileage rate or their actual expenses (including parking fees, tolls, and the like) to calculate the deduction for the business use of their vehicle. They may also deduct certain other unreimbursed employee expenses.
Which tax deductions didn’t change for 2026?
Tax deductions for the following expenses and payments didn’t change from 2024 to 2025:
- alimony
- amortizable bond premiums
- Archer Medical Savings Account (MSA) contributions
- attorney fees and court costs for lawsuits involving certain discrimination claims or IRS whistleblower awards
- chaplain contributions to a 403(b) retirement plan
- estate “excess deductions” reported to a beneficiary on Schedule K-1 (Form 1041)
- estate tax (federal) on income connected to a person who died
- foreign housing deduction
- impairment-related work expenses of a disabled person
- interest on borrowed money that’s allocable to property held for investment
- jury duty pay given to your employer
- losses from a contingent payment or inflation-indexed debt instrument
- Olympic and Paralympic medals or prize money
- penalties on the early withdrawal of certain savings
- pension contributions under Section 501(c)(18) of the tax code (that is, to a pension created before June 25, 1959, funded only by employee contributions)
- reforestation amortization and expenses
- renting personal property if you’re not in the business of renting the property
- repayment of amounts under a claim of right over $3,000
- self-employment taxes
- teacher and other educator expenses for classroom materials (above-the-line deduction)
- unemployment benefit repayments
- unrecovered investments in a pension
Frequently Asked Questions About Tax Deductions
Q1: What are tax deductions and how do they work?
Tax deductions cut your tax bill by reducing the amount of income that’s subject to tax.
After adding up your total income on your tax return (with certain exceptions for tax-exempt income), you subtract any deductions from that amount to calculate your taxable income. For most people, the tax owed on your taxable income is then determined by using either the tax tables or tax rate schedules (you can subtract tax credits and tax payments already made from your tax liability later on your return).
So, the more deductions you can claim, the lower your taxable income will typically be. And by lowering your taxable income, you’ll end up with a smaller tax payment or a larger tax refund.
Q2: What are "above-the-line" deductions?
"Above-the-line" deductions are reported on Form 1040 above the line for adjusted gross income (AGI). As a result, they’re subtracted from your gross income to arrive at AGI, which means they actually reduce your AGI. Since the eligibility for or amount of several other tax breaks are based on your AGI, above-the-line deductions can have a ripple effect and trigger more tax savings elsewhere on your tax return.
Some of the more popular above-the-line deductions are for:
- individual retirement account (IRA) contributions
- health savings account (HSA) contributions
- student loan interest payment
- educator expenses
- self-employed health insurance premiums
Q3: What are "below-the-line" deductions?
As you may have guessed, "below-the-line" deductions are reported on your tax return below the line for AGI. That means they don’t reduce your AGI. But they do reduce your taxable income, so they’re still valuable tax breaks.
The Standard Deduction is the most common below-the-line deduction. Itemized deductions that you claim on Schedule A are also below-the-line deductions, including deductions for:
- medical and dental expenses
- state and local taxes
- home mortgage interest payments
- charitable donations
- losses from natural disasters or theft
- educator expenses
Unfortunately, you have to pick between the Standard Deduction and itemized deductions – you can’t claim both. But you can generally pick whichever one is higher and saves you the most money. (You can claim above-the-line deductions whether you take the Standard Deduction or itemize.)
Other below-the-line deductions include write-offs for:
- tip income
- overtime pay
- car loan interest payments
- taxpayers who are at least 65 years old
- charitable donations by non-itemizers
- qualified business income (only for certain business owners)
Q4: What’s the difference between a tax deduction and a tax credit?
Both tax deductions and tax credits help lower your income tax bill, but they do so in different ways. And while tax deductions are nice, tax credits are generally better.
Tax deductions lower your taxable income, which ultimately reduces the tax you owe for the year. But, at best, your actual savings are only a percentage of the deduction amount and depend on your tax bracket. For instance, if you’re in the 22% tax bracket and claim a $1,000 IRA deduction, your tax liability is only reduced by $220 ($1,000 x .22 = $220).
On the other hand, tax credits reduce your tax bill dollar for dollar. So, if you have a $1,000 tax credit, you can reduce your tax bill by up to $1,000.
Q5: What are the two types of tax credits?
There are two general types of credits: refundable and nonrefundable tax credits. If the credit is “refundable,” you will get a tax refund if the credit amount is greater than the tax you owe before applying the credit. For example, if your pre-credit tax liability is $2,000 and you qualify for a $2,500 refundable tax credit, you’ll get a $500 refund.
If the credit is “nonrefundable,” the credit will only reduce the tax you owe to $0. For instance, if your pre-credit tax liability is $2,000 and you qualify for a $2,500 nonrefundable tax credit, you won’t owe any tax, but you won’t get the rest of the credit as a refund, either ($500 of the credit is essentially lost).
Q6: What’s the difference between a tax deduction and a tax exclusion?
An exclusion is like a tax deduction, since they both reduce the amount of income that’s taxed. But while you subtract a tax deduction from income that’s reported on your tax return, you don’t even need to report income that’s granted an exclusion.
Since income that’s excluded generally isn’t reported on your return, it reduces both your AGI and taxable income.
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