Indiana 2026 Tax Changes — What the One Big Beautiful Bill Act (OBBBA ) Means for Hoosiers
On January 1,2026 , the federal tax landscape underwent a historic and positive transformation. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made permanent many of the major tax cuts from the Tax 2017 Cuts and Jobs Act (TCJA) and introduced new benefits for taxpayers. The long-feared 2026 “tax cliff” has been avoided.
For Indiana residents, this is exceptionally good news. As a state with a flat income tax that uses federal Adjusted Gross Income (AGI) as its starting point, these permanent federal changes significantly enhance your financial outlook. This guide provides a clear, localized breakdown of how the permanent tax laws under OBBBA will impact your income,
business, and financial strategy in 2026 and beyond.
Federal Changes Bring Relief to Indiana Taxpayers
Lower Federal Tax Brackets are PERMANENT
👉 Indiana Impact: This is a crucial win for Indiana’s working families. In a state with a strong manufacturing and logistics backbone, having lower, predictable federal tax rates provides much-needed breathing room. Dual-income households in the Indianapolis metro, skilled workers, and professionals in the healthcare and education sectors will all benefit from keeping more of their hard-earned money.
The Federal Standard Deduction is PERMANENT
The higher federal standard deduction, which simplifies tax filing for millions, is also here to stay.
👉 Indiana Impact: A permanent, higher federal standard deduction is a direct benefit for the majority of Hoosiers. It provides a substantial, straightforward deduction on your federal return, lowering your taxable income without the need for complex itemization.
The QBI Deduction is PERMANENT and ENHANCED (Federal Level)
The 20% Qualified Business Income (QBI) Deduction is not expiring. OBBBA made it a permanent part of the federal tax code and even improved it.
Important Note for Indiana: Indiana is a non-conforming state, meaning it does not offer a state-level QBI deduction. However, this powerful 20% deduction remains fully available on your federal tax return.
- LLCs, S-Corps, and Sole Proprietors
- Farmers and agricultural businesses
- Real estate investors and landlords
- Independent contractors and gig economy workers
- Small manufacturers and service providers
Key OBBBA Enhancements to QBI:
1. Permanence: The 20% federal deduction is locked in for 2026 and beyond.
2. Minimum Deduction: A new $400 minimum federal deduction is available for any business with at least $1,000 of qualified income.
👉 Indiana Impact: For the thousands of small businesses that drive Indiana’s economy, the permanent federal QBI deduction provides certainty and significant federal tax savings. Strategic planning to maximize this federal benefit is more important than ever
New Federal Tax Breaks for Indiana Residents
- Senior Deduction: An additional $6,000, deduction for individuals 65 and older, providing federal tax relief for Indiana’s retirees (subject to phase-out).
- Overtime Deduction: Deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay, a significant benefit for Indiana's large manufacturing and logistics workforce
- Auto Loan Interest Deduction: Deduct up to $10,000 in interest on new personal vehicle loans from 2025-2028.
Indiana-Specific Tax Considerations for 2026
Indiana’s Flat Tax and Federal Conformity
Indiana has a competitive flat state income tax of 3.15%, plus local county taxes. Because Indiana uses federal Adjusted Gross Income (AGI) as the starting point for state taxes, the permanent federal deductions under OBBBA help keep your AGI lower, which in turn can reduce your state and county tax liability. While the state tax rate remains the same, a lower starting income figure is a clear benefit.
Retirement Income in Indiana
Indiana does not tax Social Security benefits. However, most other forms of retirement income, such as from 401 (k)s, IRAs, and pensions, are generally taxable at the state level (with some specific deductions available). The good news is that the permanent lower federal tax rates under OBBBA reduce the overall tax burden on these withdrawals, leaving more money in your pocket.
Real Estate in a Growing Market
For property owners in hot markets like Indianapolis, Carmel, Fishers, and Fort Wayne, OBBBA brings welcome news. The 100% bonus depreciation for qualified property is now permanent. This allows real estate investors to immediately write off the cost of certain assets on their federal return, making strategies like cost segregation incredibly powerful. With Indiana’s real estate market poised for continued growth, timing property sales and managing capital gains exposure remains a critical planning point.
What Indiana Taxpayers Should Do Now
- Update Your Tax Plan: Your old strategy, based on the fear of expiring tax cuts, is obsolete. It’s time to build a new plan based on permanence and new federal opportunities.
- Integrate Federal and State Planning: Work with a professional who understands how to maximize permanent federal benefits while navigating Indiana’s state and county tax laws.
- Maximize the Federal QBI Deduction: If you own a business, ensure your structure and bookkeeping are optimized to claim the full 20% federal QBI deduction.
- Leverage Real Estate Benefits: Plan your real estate investments to take full advantage of permanent 100% bonus depreciation on your federal return.
Indiana 2026 Tax FAQ
Does Indiana conform to QBI?
No — QBI is federal-only.
Will my Indiana taxes increase in 2026?
Rates stay the same, but taxable income may rise due to federal changes.
Are families affected?
Yes — child credits shrink and federal taxable income increases.
Are STR owners affected?
Yes — depreciation and rental activity rules change.
Are retirees affected?
Yes — IRA and pension withdrawals may be taxed more heavily.
Get Your Personalized 2026 Indiana Tax Plan
Living in the Hoosier State comes with a unique financial landscape. The new, permanent federal tax laws under OBBBA provide a powerful tailwind for Indiana residents. To make the most of it, you need a strategy that aligns these federal benefits with your specific situation in Indiana. A personalized strategy session will ensure you are structured to capture every new and permanent advantage.
Because tax situations vary by individual and business, many Indiana residents choose to work with a qualified tax professional. You can explore available Indiana tax services here: