Why this article is important: Each year, tax brackets and capital gain rates adjust based on CPI levels. See how you and your clients’ tax rates fare in 2027.
The taxman cometh
The Internal Revenue Service (IRS) has announced new tax rates and standard deductions for 2027, adjusted for inflation by various Consumer Price Index (CPI) gauges.
The new tax rates for income earned in 2027 are:
- 10% for joint filers with incomes of $25,600 or less ($12,800 or less for single filers);
- 12% for joint filers with incomes over $25,600 ($12,800 for single filers);
- 22% for joint filers with incomes over $104,050 ($52,025 for single filers);
- 24% for joint filers with incomes over $218,250 ($109,125 for single filers);
- 32% for joint filers with incomes over $416,650 ($208,325 for single filers);
- 35% for married couples filing jointly with incomes over $529,100 ($264,550 for single filers); and
- 37% for joint filers with incomes over $793,650 ($661,375 for single filers).
The 2027 standard deduction is:
- $33,200 for joint filers, up from $32,200 in 2026;
- $24,925 for heads of households, up from $24,150 in 2026; and
- $16,600 for individual filers, up from $16,100 in 2026.
Tax brackets for Capital Gains tax have also increased to:
- zero percent for joint filers with incomes up to $102,100 ($51,050 for single filers);
- 15% for joint filers with incomes over $102,100 and up to $633,600 (over $51,050 and up to $563,200 for single filers); and
- 20% for joint filers with incomes over $633,600 ($563,200 for single filers).
The alternative minimum tax (AMT) is a supplemental income tax targeting high-income earners who strategically have a high ratio of standard income tax (SIT) deductions.
The AMT exemption amount has increased to $144,700 for joint filers ($93,000 for single filers). The phaseout threshold beyond which taxpayers are no longer eligible for the AMT exemption is $1,031,900 for joint filers ($515,950 for single filers).
Some relief — but the tax-bracket creep remains
Critically , the 2018 tax overhaul tied tax bracket adjustments to the chained consumer price index (CPI). This CPI index rises more slowly than the traditional CPI measure for the price of consumer goods you actually buy.
In turn, tax brackets rise more slowly than the consumer inflation everyone experiences as retail buyers — and one’s increase in earnings. This means, whether or not your household income rises, you are shifted more quickly into higher tax brackets (and rates) than under the old measure which kept brackets more in line with rises in inflation and personal incomes to keep the standard of living from declining.
By design, you as a taxpayer annually suffer from rate adjustment mathematics, more generally termed bracket creep. The rate of tax automatically moves you up into a higher tax bracket despite your receiving no real increase in the amount of your income (read: after deducting the past year’s consumer-goods price inflation rate from your current income).
Meanwhile, the government’s take increases at a faster clip than inflation. True, your income may have increased in total dollar amount from the previous year, but maybe not enough to actually match or increase your purchasing power from the prior year. But your taxes increased more than the rate of inflation.
This occurs when consumer inflation exceeds the percentage increase in your after-tax income. Here, the math is due to the CPI index IRS uses not equaling or exceeding consumer price inflation you experience as a taxpayer. So, you end up a bit poorer than in the prior year.
However, real estate licensees continue to adjust to the major income adjustments induced by reduced sales volume and stifled-to-dropping home prices, amounting to significant losses in income across the industry — before and after income taxes.
As a result, bracket creep may not actually be an issue for most agents in 2027, as most continue to adjust to flat or reduced income. Look ahead to around 2029 for bracket creep to become a real issue once again. Then, the housing market will likely enter its next sustainable expansion, as will the proportion of income paid for taxes compared to prior years.
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