...
By Giulia Carbonaro
Senior Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
The upcoming inflation adjustment to the Internal Revenue Service’s (IRS) tax brackets for 2026 could make it easier for first-time homebuyers to step onto the property ladder—boosting their money at a time when home prices remain sky-high and mortgage rates are still around 6.5 percent.
The new changes will be officially released between October and November, but experts at Bloomberg Tax said they expect them to include generous increases for the two lowest income tax brackets.
What Do Higher Tax Brackets Mean For Homebuyers?
Every year the IRS makes inflation-related adjustments to make sure its income tax brackets and other inputs—including deductions—are keeping up with the cost of living. Adjustments for the tax year 2025, including federal income tax brackets, increased by an average of about 2.8 percent.
Read More on News
Income tax brackets determine the portion of a taxpayer’s income that is taxable after the standard deduction or itemized deductions are subtracted. According to Bloomberg Tax, the brackets could shift again for tax year 2026—with higher brackets meaning potential bigger savings for taxpayers, especially low- and middle-tier earners. The federal agency is expected to raise bracket thresholds by about 2.7 percent for tax year 2026.
For many first-time homebuyers benefiting from these likely changes, which take into account the measures contained within the Trump administration’s One Big Beautiful Bill (OBBA), lower effective taxes would in turn boost their chances of being able to afford the purchase of a home.
"For first-time buyers, this higher income can create a small improvement when saving for a down payment or towards meeting debt-to-income ratios," Elliot Schwartz, a finance expert and CEO at Becca’s, told Realtor.com. "The difference might also be negligible when it comes to affordability, but every bit of extra cash flow as they qualify for a mortgage is valuable."
These are Bloomberg Tax's projections for the incoming IRS tax brackets increases:
These are not necessarily the brackets increases that will be implemented by the IRS, which will only be announced later this year.
What Is 2026 Shaping Up To Be Like For Housing?
On top of the incoming IRS tax brackets changes, homebuyers will also need to take into consideration the way their tax break changed under the OBBBA, which has triggered an annual increase to the SALT cap between 2025 and 2028. These increases are expected to benefit homeowners in high-income, high-tax coastal states like New York and California the most.
But next year is shaping up to be a little better for homebuyers everywhere, as mortgage rates are trending down and many markets—especially in the Sun Belt—are shifting in favor of buyers. According to a recent report by Realtor.com, seven major U.S. metropolitan areas are already buyer's markets, which means that buyers have the upper hand over sellers and are able to negotiate better prices. Four of the metros are in Florida, including Miami, Orlando, Jacksonville, and Tampa.
An additional 23 metros are currently perfectly market, according to the real estate brokerage—which still represents a positive shift for buyers after years of rising home prices and eroding purchasing power.
Mortgage rates, which have lingered between 7 percent and 6.5 percent since 2022, fell to the lowest level in months earlier this month in anticipation of the Federal Reserve's decision to cut interest rates—the first time it has done so since December 2024. The average 30-year fixed-rate mortgage is now 6.26 percent, according to Freddie Mac. Experts at Fannie Mae expect mortgage rates to end 2025 at 6.4 percent and 2026 at 5.9 percent, falling below 6 percent for the first time in years.
...
Lower borrowing costs will likely unlock more listings, freeing those homeowners who have been locked into their properties by lower monthly payments, while also allowing more buyers to get back on the market.
"Based on recent analysis, we predict that 5.5 million more households could afford to purchase a home if rates drop to that level [6 percent], which could translate into a 3 percent increase in sales in 2025 and a 14 percent jump in 2026," Nadia Evangelou, the National Association of Realtors' senior economist and director of real estate research, previously told Newsweek.
"All this to say, should rates reach 6 percent, we expect 10 percent of these newly qualified households to actually purchase within the next 12 to 18 months," she added.
Other experts think that even this kind of improvement, alone, won't be able to solve the affordability crisis the country is engulfed in.
"Even with rates at 5.5 percent, housing costs may not return to ‘normal’ levels until 2027 or later, depending on home price growth and income levels. Additionally, the typical U.S. household still earns about $25,000 less than needed to afford the median-priced home, highlighting the ongoing affordability gap," Daryl Fairweather, the chief economist at Redfin, previously told Newsweek.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines