Pay Your TAB Act of 2026

What it does

• •Imposes a 23.8% excise tax on covered loans issued after December 31, 2026, paid by the borrower.
• •Applies the tax to pre-2027 loans outstanding on June 30, 2027, by treating one-third of the balance as issued on July 1 of each year from 2027-2029, with adjustments for early repayments.
• •Excludes from the tax: home mortgages, home equity loans (up to $3 million), vehicle loans (up to $100,000), student loans, qualified margin loans, and business indebtedness.
• •Allows taxpayers to recognize a long-term capital loss equal to the tax-imposed loan amount when they dispose of assets securing the covered loan.

Why it matters

• •The tax targets borrowing used for personal investment or consumption rather than home, vehicle, or business purposes, designed to address tax avoidance through debt financing.
• •The tax applies only to taxpayers with aggregate covered loans exceeding $1 million, focusing on higher-net-worth individuals.
• •Requires lenders to report covered loans to the IRS for borrowers exceeding the $1 million threshold, establishing tracking and compliance mechanisms.

Who is affected

• •Borrowers with personal loans, lines of credit, and margin loans exceeding $1 million in aggregate outstanding balance.
• •Lenders and financial institutions that issue covered loans must file returns and provide statements to borrowers.
• •Related persons (spouses, family members, controlled entities) are treated as a single taxpayer for purposes of the $1 million threshold.

What happens next

The bill was introduced on October 19, 2026, and referred to the House Committee on Ways and Means for consideration; the amendments are effective for taxable years ending after December 31, 2026.