Big changes are on the horizon for Arizona taxpayers starting January 1, 2026. Senate Bill 1749 (SB1749), passed as part of the state’s budget, introduces new tax breaks and expands several existing ones—especially for veterans, adoptive families, and businesses. Here’s a quick breakdown of what’s changing and who benefits.
Veterans See Major Tax Breaks
- Veterans’ Pensions Now Fully Excluded from Income Caps – Starting in 2026, all veterans’ pensions—not just disability pensions—will be excluded when calculating income for exemptions. This means more veterans may qualify for income-based tax relief programs. A.R.S. § 43-1022 (Amended)
- Full Property Tax Exemption for 100% Disabled Veterans – Veterans with a 100% VA service-connected disability rating will no longer pay property taxes on their primary residence.
- Surviving spouses can continue claiming the exemption as long as they don’t remarry and the home remains their main residence.
- The previous property value cap of $31,347 to qualify has been removed.
- R.S. § 42-11111 (Amended)
Adoption Tax Deduction Gets a Boost
The deduction for adoption-related expenses will increase in 2026 to:
- $5,000 for single filers or heads of household
- $10,000 for married couples filing jointly
Eligible Subtracted Expenses:
- Unreimbursed medical and hospital costs
- Legal fees
- Adoption counseling and agency fees
- Other nonrecurring adoption costs
Key Rules:
- Subtraction applies only in the year the final adoption order is granted
- Expenses incurred in prior years can be included
- Deduction is limited by filing status:
Filing Status | Max Deduction (2026+) |
Single or Head of Household | $5,000 |
Married Filing Jointly | $10,000 |
Married Filing Separately | Up to $10,000 combined |
A.R.S. § 43-1022, Paragraph 12 (Amended)
Business Owners See Significant Tax Relief: Business Personal Property Tax Exemption Doubled
The threshold for exempting business personal property from taxation will jump from:
- $269,905 (in 2025)
- To $500,000 (in 2026)
Applies to the full cash value of personal property used in business (including equipment, furniture, and fixtures.) This can reduce both taxes and paperwork for thousands of small and mid-sized businesses. Tip: review equipment and asset schedules for potential savings or reclassification in 2026.