What Is the Alternative Minimum Tax, or Amt?

For years, the Alternative Minimum Tax was something many taxpayers could safely ignore – but that’s changing. AMT is set to make a comeback in 2026, especially for higher earners, people with complex income or those who rely heavily on certain deductions.

Understanding how AMT works now could help you avoid an unpleasant surprise when you file your 2026 tax return.

ALTERNATIVE MINIMUM TAX EXPLAINED

In the 1960s, Congress created what eventually became Alternative Minimum Tax because some high-income taxpayers were able to totally avoid paying any federal income tax using deductions. AMT is a way to close that “loophole.” Taxpayers subject to AMT have to calculate their income tax under a different set of rules and then pay the higher of regular income tax or AMT.

At first, AMT applied to very few people – less than 1 million through the 1990s. But because the AMT exemption amount wasn’t indexed for inflation, and because regular income tax brackets dropped several times while AMT brackets didn’t, more and more people became subject to it. (Legislation in 2012 started indexing AMT for inflation, which modestly reduced its impact for a couple of years.)

Then came the 2017 Tax Cuts and Jobs Act, which significantly cut the number of people paying AMT. However, some of the OBBBA provisions (including the SALT cap increase to $40,000), will increase the number of taxpayers subject to AMT.

WHAT INCOME OR DEDUCTIONS TRIGGER AMT?

There isn’t a specific amount of income or deductions that cause you to be subject to AMT. That’s why anyone who thinks they might fall under AMT should check – you have to calculate your AMT to know whether it’s higher than under the regular calculation.

Typically, AMT could be triggered if you have these kinds of income and deductions, which are not subject to tax under regular rules but are added back or limited under AMT rules.

• ISOs you exercised, if you still hold the shares at the end of the year
• Private activity bond interest
• Net operating losses
• Passive activity losses
• Qualified small business stock gains
• State and local taxes

Just because you have these kinds of income and deductions doesn’t necessarily mean your AMT will be higher than regular income tax. There’s also an AMT exemption amount you can remove from your taxable income as part of the calculation. Let’s walk through how it works.

HOW THE ALTERNATIVE MINIMUM TAX WORKS

Consider the following details that can help determine whether AMT applies. These are the steps a tax professional would take to help you:

STEP 1: CALCULATE YOUR REGULAR TAX

First, calculate your tax using traditional rules and deductions.

STEP 2: RECALCULATE INCOME UNDER AMT RULES

Next, calculate it again using AMT rules on Form 6251. Income and deductions will need to be added back in, as instructed on the form.

Then, subtract your AMT exemption amount from your total income – $140,200 if you’re married filing jointly or $90,100 for single filers in 2026. But note that if your 2026 income is more than $1M (married) or $500k (single), the exemption begins to phase out.

Finally, apply AMT tax rates to your remaining income. A rate of 26% applies to income up to $244,500; the rate is $28% for any income above that.

STEP 3: COMPARE THE TWO TAX CALCULATIONS

The final step is simple: Whichever calculation results in a higher amount of tax is the one you’re subject to.

AMT VS REGULAR TAX: KEY DIFFERENCES

Source: irs.gov

WHO TYPICALLY PAYS THE ALTERNATIVE MINIMUM TAX?

AMT is meant to apply to people with a high income and lots of deductions. “High income” can mean both people who have a high income from work as well as those who earn a lot of money from AMT “add back” items like SALT (state/local taxes), private activity bond interest, executed ISOs or qualified small business capital gains. And “lots of deductions” includes some that everyone can take advantage of – like the SALT deduction – as well as less common deductions like net operating losses.

2026 AMT UPDATES AND WHAT TO WATCH

Following the passage of OBBBA in 2025, the threshold for the AMT exemption phaseout now starts lower and it phases out much faster. Since the AMT exemption is what keeps AMT lower than regular tax for many people, losing part or all of it makes it much more likely you’ll fall under AMT.

Unless additional legislation is passed, AMT will affect many taxpayers for the first time when they file taxes in early 2027.

WHAT’S CHANGING IN 2026

Source: irs.gov

PLANNING CONSIDERATIONS FOR THE ALTERNATIVE MINIMUM TAX

AMT may trap a lot more people if the 2026 AMT exemption phaseout changes as scheduled (i.e., newer legislation doesn’t retroactively modify it), so it’s important to be aware of the kinds of income and deductions that could make it more likely you’ll be impacted. You may be able to time things like exercising options, recognizing capital gains and paying deductible expenses in order to minimize the damage. Tax planning for high-income earners is more important than ever; talk with a tax professional to see what strategies might be available for you.