Why “Adjusted for Inflation” Is So Important

Some items come with the instructions, “Easy to assemble.”

Others come with, “Some assembly required.”

The difference between the two phrases can be several hours of work!

With tax policy, we look for the phrase “adjusted for inflation” when we review new policies, such as the One Big Beautiful Bill Act (OBBB). The difference between adjusted for inflation and not adjusted can be expensive over time.

When something is adjusted for inflation, it means that its value will be modified to reflect its real power by removing the effect of rising prices. If something is not adjusted for inflation, then the value will remain fixed until lawmakers revisit the idea again.

Here are a few items that should affect most taxpayers and will be adjusted for inflation thanks to the OBBB.¹

Standard Deduction
Increased to $15,750 for single filers and $31,500 for those filing jointly for 2025.

Starts: 2025

Note: The standard deduction will now be adjusted for inflation.

Child Tax Credit

Child tax credit increases to $2,200 (from $2,000).

Starts: 2025, with cost-of-living adjustments.

Phases out? $200,000 for single filers, $400,000 married filing jointly.

Alternative Minimum Tax (AMT):

The AMT exemption amounts and phaseout thresholds were made permanent.

Starts: 2025

Note: Indexed for inflation beginning in 2026.

Estate Changes

The OBBB Act increased estate and gift tax exemptions to $15 million for single filers and $30 million for those filing jointly.

Starts: January 1, 2026

Note: The exemption amount will now be adjusted for inflation.

When Something Is NOT “Indexed for Inflation”

When a tax-related item is not indexed for inflation, it can add up over time.

For example, what about the $3,000 investment loss that can be used to offset ordinary income? That rule was set in 1978. It was not “adjusted for inflation.” If it had been, about $15,000 in investment losses could be used to offset ordinary income today.²

What about the home capital gains exclusion of $500,000 for married taxpayers and $250,000 for single taxpayers? That rule was set in 1997 and was not “adjusted for inflation.” If that phrase had been added, today’s numbers would be roughly $1,000,000 and $500,000, respectively.³

And the Alternative Minimum Tax? When passed in 1969, it was targeted at 155 high-income taxpayers who didn’t pay any federal income taxes. In 2017, more than 5.2 million taxpayers were paying the “Alt-Min,” all because it wasn’t adjusted.⁴

“Work with someone (a CFP® or CPA®) who knows how to maneuver you through the tax code to legally reduce your tax liability to the absolute minimum,” writes Mick Owens, author of the book Diamond of Life: The Five P’s of Success and Significance.

What About Social Security?

Social Security benefits have been adjusted for inflation since 1975, when the average monthly payout for retirees was $207. In 2025, the average benefit was $1,976. Imagine the ongoing challenges if Social Security benefits had been “frozen in time” because the phrase “adjusted for inflation” was not made part of the legislation.⁵

Remember: We’re not tax experts; however, the good news is that we are associated with companies that are, including cfd Tax Preparation & Bookkeeping Services, Inc.

We want you to be in a great position to file your taxes this year, so we encourage you to speak with your tax professional or ask our tax planning department. They might be able to offer you more insights.