2026 State Tax Changes Taking Effect January 1st

Arizona Tax Changes Effective January 1, 2026

SB1749, Arizona’s budget bill, contained several provisions pertaining to veterans. It made changes regarding the determination of veterans’ income. As of the 2026 tax year, payments from any veterans’ pensions, not just veteran disability pensions, will be excluded from the calculation of income from all sources for the purpose of the exemption income cap.

SB1749 also included property tax provisions for veterans. The property of a veteran with a service-connected disability whose Veterans Affairs (VA) disability rating is 100 percent will now be fully exempt from property taxes. The provisions also allow the surviving spouse of a veteran with a service-connected disability whose VA disability rating is 100 percent to continue to claim the full property tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. if the spouse does not remarry and the property is used as the spouse’s primary residence. Additionally, it removes the requirement that the property of a veteran with a service or nonservice-connected disability be valued below the statutory property assessment limit of $31,347 to qualify for the exemption.

Under SB1749, the total amount of adoption expenses, including unreimbursed medical and hospital costs, adoption counseling, legal fees, and agency fees, that can be subtracted to determine Arizona adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods will increase from $3,000 in 2025 to $5,000 for a single individual or head of household and $10,000 for a married couple filing a joint return in 2026.

SB1749 also reduces tax and compliance burdens for many Arizona businesses as the business personal property tax exemption increases from $269,905 to $500,000 in 2026.