Any way to fix this? Thx!
As others have pointed out, Xcode 8 beta must be installed.
I installed it prior to installing iOS 10, however, I still got Error 14. Turns out you have to launch* it at least once and install the supplemental items before you install iOS 10, or iTunes will still object.
Here's the steps I followed, including the error. They may not all be necessary, but it worked and I included them for completeness.
1. Download the iOS 10 IPSW file for your iPhone/iOS device.
2. Connect your device to MacBook.
3. Launch iTunes.
4. Select your device in the iTunes toolbar. The device details page should display.
5. Backup your device! (I backed up "to iCloud," but "to MacBook" is also fine.)
6. Option-click Restore.
7. Find and select the iOS 10 IPSW file.
8. Wait for Error 14
9. Cancel/dismiss the Error 14 dialog. NOTE: You do not need to reinstall your previous iOS.
10. Quit iTunes. The progress bar on the device will disappear in a minute and be replaced by the "Connect to iTunes" startup graphic.
11. Install Xcode 8 (if not already installed).
12. Launch Xcode 8 and install the supplemental items.
13. Quit Xcode 8.
14. Launch iTunes.
15. Select your device in the toolbar.
16. Option-click Restore.
17. Find and select the iOS 10 IPSW file.
18. Wait for the "Hello" screen, and proceed with installation.
19. When prompted, select "Restore from iCloud" (or from another backup).
Note: Set aside an hour to do this. This process eventually requires a restore from a backup (either iCloud or local). Restore from iCloud took 30+ minutes on fast WiFi. You want to avoid disconnecting your device from the Internet during the restore, so that you don't have to restart the restore, or possibly even have to reinstall iOS 10.
HTH