New Mexico 2026 Tax Changes — What Residents & Business Owners Must Know
Beginning January 1, 2026, New Mexico residents will be affected by significant federal tax changes due to the expiration of many TCJA provisions and the modifications and permanent rules under the One Big Beautiful Bill Act (OBBBA).
Because New Mexico uses federal AGI as the foundation for state income tax calculations, these federal changes directly impact New Mexico state tax liabilities as well.
- W-2 earners in Albuquerque, Santa Fe, Las Cruces, Rio Rancho, Roswell, and Farmington
- Government, education, healthcare, and energy-sector workers
- Small business owners, LLCs, S-Corps, and freelancers
- Real estate investors and STR owners
- Military families stationed at Holloman, Kirtland, or Cannon
- Families with children
- Retirees drawing taxable income
- Dual-income households
Below is the complete, New Mexico–specific guide to the 2026 tax changes.
Key 2026 Federal Changes Affecting New Mexico
Standard Deduction Shrinks
TCJA temporarily doubled the standard deduction, but OBBBA left that provision to expire.
Projected 2026 standard deduction:
This significantly increases federal taxable income for New Mexico residents.
Because New Mexico begins with federal AGI, state taxable income also increases.
Federal Income Tax Brackets Increase
- 12% → 15%
- 22% → 28%
- 24% → 31%
New Mexico households — especially earning $50K–$200K — will see noticeable increases in federal tax, which flow directly into higher state tax burdens.
- healthcare
- technology
- education
- government
- the defense and energy sectors
QBI Deduction Made Permanent Under OBBBA
One major favorable update: OBBBA made the 20% Qualified Business Income (QBI) deduction permanent.
- LLC owners
- S-Corp owners
- self-employed professionals
- contractors and freelancers
- certain rental activities
However, QBI rules tighten in 2026 with new income thresholds and documentation requirements.
New Mexico does not apply a matching 20% state deduction, so QBI impacts federal taxes only.
Child Tax Credit Shrinks
- from about $2,000
- to roughly $1,000 per child
Refundability also decreases, impacting New Mexico households with dependents.
This is especially impactful in regions with larger families and lower-to-middle income ranges.
Marriage Penalty Returns
In 2026, married couples will be pushed into higher federal brackets more quickly due to the expiration of TCJA’s marriage penalty relief.
This impacts many New Mexico households, especially dual-income families.
It also increases New Mexico state taxes because of higher federal AGI.
New Mexico–Specific Tax Considerations
1.New Mexico Uses Federal AGI for State Tax Calculations
- reduced federal deductions
- higher federal taxable income
- nationwide credit reductions
…all increase New Mexico taxable income.
New Mexico has a progressive state income tax structure, so these federal changes cause many households to move into higher state tax brackets.
2. Real Estate Owners and Rental Investors Will Be Affected
New Mexico real estate markets — including Albuquerque, Santa Fe, Las Cruces, Rio Rancho, and Taos — will be affected by federal changes in:
- capital gains
- depreciation
- rental loss rules
- STR participation standards
- timing considerations for property sales
Property owners with appreciated assets may see larger tax obligations.
3. STR (Short-Term Rental) Owners Face New Requirements
- Santa Fe
- Taos
- Albuquerque
- Las Cruces
- Ruidoso
- Red River
- bonus depreciation
- material participation rules
- recordkeeping requirements
- loss eligibility
- rental activity classification
STR hosts must document participation more carefully.
4. Government, Military, and Energy Sector Workers Are Impacted
New Mexico has a large population working in:
- defense
- aerospace
- federal labs and facilities
- energy production
- government agencies
Many of these workers fall within income ranges most heavily affected by 2026 bracket changes.
4. Retirement Income Planning Is More Important in 2026
New Mexico taxes many forms of retirement income.
- IRA withdrawals
- pension payouts
- 401(k) distributions
- taxable investment income
Retirees may see higher combined federal and state tax liability.
Who Is Most Affected in New Mexico (2026)
- Dual-income households
- Government and military workers
- Energy and healthcare professionals
- Business owners and contractors
- Real estate investors and landlords
- STR hosts
- Families with children
- Retirees with taxable income
- Agricultural and rural households
What New Mexico Residents Should Do Before December 31, 2025
- Review federal and state withholding
- Maximize retirement contributions
- Evaluate Roth conversions
- Review LLC/S-Corp structure for QBI eligibility
- Document STR and rental participation
- Assess capital gains exposure
- Assess capital gains exposure
- Plan equipment or property purchases strategically
- Build a comprehensive federal + New Mexico tax strategy
New Mexico 2026 Tax FAQ
Does New Mexico conform to the QBI deduction?
No. QBI is federal-only.
Will New Mexico taxes increase?
Rates stay the same, but taxable income increases due to federal changes.
Are families affected?
Yes. Reduced credits and deduction changes impact refunds.
Are STR owners affected?
Yes. Higher federal brackets increase tax cost on retirement withdrawals.
Are retirees affected?
Yes — federal bracket changes increase the tax cost of retirement withdrawals.
Get a 2026 New Mexico Tax Strategy
New Mexico residents face substantial federal tax changes in 2026. Reduced deductions, higher brackets, and shifting business and rental rules make proactive planning essential.