Massachusetts 2026 Tax Changes — What Residents & Business Owners Must Know
On January 1, 2026, major federal tax changes take effect as prior TCJA provisions expire and updated rules continue.
Massachusetts residents — who face one of the highest overall tax burdens in the country — will feel these changes strongly. Federal AGI is the starting point for Massachusetts state taxable income, making federal adjustments extremely important for MA taxpayers.
- W-2 earners in Boston, Cambridge, Worcester, Springfield, Lowell, Quincy
- Healthcare, biotech, education, and government workers
- Small business owners, freelancers, contractors, and S-Corp/LLC operators
- Real estate investors and landlords
- High-income earners in Greater Boston
- Families with children
- Retirees drawing IRA or pension income
- Dual-income households (very common in MA)
Key Federal Changes Affecting Massachusetts in 2026
Standard Deduction Shrinks Significantly
- high cost of living
- high mortgage and property taxes
- high childcare and transportation costs
Many MA residents will return to itemizing deductions.
Reduced deductions increase federal and Massachusetts taxable income.
Federal Tax Brackets Increase Across All Levels
- dual-income households
- professionals in healthcare, biotech, and tech
- educators and public employees
- high-income earners in Greater Boston
- households earning $90K–$400K
MA’s income levels make these bracket increases particularly noticeable.
QBI (20% Business Deduction) Remains Federal; Massachusetts Does Not Apply It
QBI continues federally but does not apply to Massachusetts state income tax.
- Federal taxable income may decrease for qualifying business owners
- Massachusetts taxable income does not
- Proper planning is needed for both systems
- contractors and trades
- LLCs and S-Corps
- consultants and service-based businesses
- real estate agents and brokers
- freelancers and online businesses
Child Tax Credit Shrinks
- decrease from about $2,000 per child
- to roughly $1,000 per child
- with limited refundability
Families across MA, especially in Boston suburbs, Worcester, and North Shore, will feel the impact.
Marriage Penalty Returns
Massachusetts has one of the highest percentages of dual-income professional couples in the country.
- move into higher federal brackets faster
- lose credit eligibility sooner
- face higher combined taxable income
This significantly affects couples earning $120K–$300K combined, which is common in MA.
Massachusetts-Specific Tax Considerations
1.Massachusetts Uses Federal AGI as the Starting Point
Massachusetts begins tax calculations with federal AGI.
- reduced deductions
- higher taxable income
- fewer credits
…all lead to higher Kentucky state taxable income.
MA residents already pay some of the highest state-level taxes, so federal adjustments hit harder.
2.Real Estate Owners & Investors Face Major Shifts
Massachusetts real estate markets — including Boston, Cambridge, Newton, Waltham, Somerville, Quincy, Worcester, and coastal areas — are highly appreciated.
- capital gains when selling property
- depreciation benefits on rentals
- STR participation requirements
- rental loss classification
- timing of selling or exchanging property
Because MA homes tend to appreciate quickly, capital gains exposure will increase.
3.Short-Term Rental (STR) Owners Face New Federal Requirements
- Boston
- Cape Cod
- Martha’s Vineyard
- Nantucket
- Berkshires
Federal rules in 2026 include:
- lower bonus depreciation
- stricter participation documentation
- updated IRS safe harbor tests
- limitations on offsetting STR losses
STR owners must prepare well ahead of filing seasons.
4.Retirement Planning Is Highly Affected by Federal Changes
Massachusetts taxes most retirement income except Social Security.
Federal changes in 2026 influence:
- IRA withdrawals
- 401(k) distributions
- pension income
- RMD strategy
- Roth conversion timing
MA retirees could face higher combined federal and state tax liabilities.
Who Is Hit Hardest in Massachusetts (2026)
- Dual-income households
- High-income earners in Greater Boston
- Homeowners with mortgages and property taxes
- Business owners and self-employed professionals
- Real estate investors and landlords
- STR hosts
- Families with children
- Retirees drawing taxable income
- Middle-income and upper-middle-income earners
What Massachusetts Residents Should Do Before December 31, 2025
- Review federal, state, and local withholding
- Maximize retirement contributions
- Evaluate Roth conversions before bracket increases
- Review business entity structure (LLC vs S-Corp)
- Prepare STR and rental documentation
- Review capital gains exposure
- Plan timing for property or investment sales
- Build a 2025–2026 combined federal + MA tax strategy
Massachusetts 2026 Tax FAQ
Does Massachusetts conform to the QBI deduction?
No — QBI is federal-only.
Will state taxes increase in 2026?
Rates remain the same, but taxable income rises, increasing total tax owed.
Are families affected?
Yes — child credit reductions and deduction changes impact refunds.
Are STR owners impacted?
Yes — depreciation and participation rules tighten.
Are retirees affected?
Yes — federal bracket changes increase federal and potentially state tax burdens.
Get a 2026 Massachusetts Tax Strategy
Massachusetts residents face significant changes from reduced deductions, higher federal brackets, shifting credits, and rules affecting business owners, real estate investors, families, and retirees.
A personalized tax strategy ensures you’re prepared before 2026 rules take effect.