Here’s what HIVE AI had to say about “What is the tax impact of inflation on deductions and credits?”:

How inflation changes deductions and credits

Why inflation matters for taxes

Inflation changes the value of thresholds, caps, and phaseouts that determine whether you qualify for a deduction or credit, and how much you get. Many dollar amounts in the tax code are indexed annually so taxpayers don’t get pushed into higher tax or lose benefits solely because prices and nominal incomes rose. Each fall, the IRS publishes the inflation adjustments for the upcoming year. 1

What generally gets indexed

Rate brackets and many dollar thresholds

• Most individual income tax bracket thresholds and many related dollar amounts rise annually with inflation, which mitigates “bracket creep.” The IRS issues an annual package of these inflation updates that flow through to numerous deductions and credits. 1

Child Tax Credit refundable cap

• The $1,400 refundable portion of the Child Tax Credit (often called the “additional CTC”) increases with inflation in $100 increments for tax years after 2018. This inflation indexing can expand refundability as prices rise. 2

Trust and estate standard deduction substitute

• For years in which the personal exemption is zero, trusts and estates use a $4,150 substitute amount that is indexed for inflation for years beginning after 2018. 3

179D energy‑efficient commercial buildings deduction

• The per‑square‑foot deduction amounts for 179D are indexed annually; for 2025, the range is $0.58–$1.16 per square foot for the base deduction and $2.90–$5.81 if prevailing wage/apprenticeship rules are met. 4

QBI (section 199A) enhancements under OBBB

• The One Big Beautiful Bill added a minimum QBI deduction for “active” business income and increased phase‑in ranges. The new $400 minimum and $1,000 active‑income floor are indexed for inflation for tax years beginning after 2026, so their real value is maintained over time. 5

Employer student loan benefits (section 127)

• OBBB permanently keeps employer student loan payments excludable under section 127 and adds inflation indexing to the $5,250 annual cap for tax years beginning after 2026 (rounded to the nearest $50). 6

Vehicle “luxury auto” depreciation caps

• The annual dollar caps for passenger auto depreciation are adjusted using a CPI‑based formula, so the maximum write‑offs increase as vehicle prices rise. 7

Items that are not (or no longer) inflation‑indexed

Personal exemptions and Pease limitation

• Personal exemptions remain at zero after OBBB (they were already zero for 2018–2025). The prior overall limitation on itemized deductions (Pease) remains eliminated, though OBBB added a separate benefit cap for those in the top bracket. These do not index with inflation. 8

Certain education credit phaseouts

• The Lifetime Learning Credit phaseout ranges are not adjusted for inflation after 2020; as incomes rise with inflation, more filers can phase out over time. 8

How indexation affects your eligibility and amounts

Preventing bracket creep and preserving benefits

• When brackets and thresholds rise each year, more of your real income stays in the same bracket, and you’re less likely to lose credits or deductions purely due to inflation. This applies broadly across the code via the IRS’s yearly inflation tables. 1

Credit and deduction examples that move with inflation

• Child Tax Credit refundability ceiling rises, which can increase refundable amounts for lower‑ and moderate‑income households as nominal earnings rise. 2
• 179D’s per‑square‑foot amounts increase, preserving project economics for energy retrofits as construction costs rise. 4
• QBI’s new minimum and related thresholds will be indexed after 2026, keeping small‑business relief relevant in real terms. 5
• Trust/estate deduction substitute indexes to avoid eroding after‑tax income due to inflation. 3

Items that don’t move cause stealth tax hikes

• Non‑indexed phaseouts (like the Lifetime Learning Credit) can phase out more taxpayers over time as nominal incomes rise, reducing the real value of the benefit. 8

Planning implications

Check the IRS’s annual inflation package before year‑end

• Use the IRS’s annual inflation release to update withholding, estimated taxes, and to optimize timing of deductions and income (e.g., bunching charitable gifts) relative to indexed thresholds and phaseouts. 1

Time energy‑efficiency projects and auto purchases

• Align 179D projects with the current year’s indexed amounts and ensure prevailing wage/apprenticeship compliance to maximize the higher tier; consider that vehicle depreciation caps will adjust with inflation if you place property in service later in a higher‑cap year. 4

Evaluate education and family credits annually

• Model Child Tax Credit outcomes under current year inflation adjustments and watch for non‑indexed phaseouts (e.g., Lifetime Learning Credit) that can quietly reduce benefits as your nominal income grows. 2

Small‑business and employer benefits

• For 2027 and later, incorporate the indexed QBI minimum and student loan exclusion cap into compensation and entity‑level planning so benefit levels keep pace with inflation. 5 6

Quick reference: inflation mechanisms in the Code

• Many sections explicitly reference the general cost‑of‑living adjustment under section 1(f)(3) to index caps, thresholds or per‑unit amounts, such as the CTC refundability cap, 179D deduction amounts, and numerous other provisions the IRS rolls up in its annual inflation package. 2 4 1

Sources

1 – IRS.gov – Inflation-adjusted tax items by tax year 📄 Summarize
2 – IRC § 24(h) 📄 Summarize
3 – IRC § 642(b) 📄 Summarize
4 – IRS Credits and Deductions – Energy efficient commercial buildings deduction 📄 Summarize
5 – One Big Beautiful Bill Act Sec. 70105. Extension and enhancement of deduction for qualified business income 📄 Summarize
6 – One Big Beautiful Bill Act Sec. 70412. Exclusion for employer payments of student loans 📄 Summarize
7 – Rev. Proc. 2024-13 📄 Summarize
8 – IRS Newsroom – IR-2025-103 📄 Summarize

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