What Is the AMT?
The Alternative Minimum Tax (AMT) is a parallel federal tax system designed to ensure that high-income individuals pay a minimum level of tax. Unlike the regular tax system, the AMT:
- Taxes certain income that is otherwise tax-free
- Disallows some deductions permitted under the regular system
If your AMT liability exceeds your regular tax, you must pay the higher AMT amount.
How the TCJA Changed the AMT
The Tax Cuts and Jobs Act (TCJA) made the AMT more favorable for 2018–2025 by:
- Increasing exemption amounts
- Raising phase-out thresholds
This significantly reduced the number of taxpayers affected by the AMT during that period.
What the OBBBA Changes
The One Big Beautiful Bill Act (OBBBA) brings both good and bad news:
Positive Changes
- Makes TCJA’s higher exemption amounts permanent
- Continues annual inflation adjustments
Less Favorable Changes (Starting 2026)
- Phase-out thresholds reset to:
- $500,000 for individuals
- $1 million for joint filers
- Phase-out rate increases from 25% to 50%
These changes mean more high-income taxpayers may be subject to the AMT starting in 2026.
AMT Rates for 2025
- 26% on AMT income below:
- $239,100 (joint filers)
- $119,550 (others)
- 28% on income above those thresholds
2025 AMT Exemption Amounts
- $137,000 for married joint filers
- $88,100 for single filers
- $68,500 for married filing separately
Exemption Phase-Out Thresholds (2025)
- Begins at $1,252,700 (joint filers)
- Begins at $626,350 (others)
- Exemption reduced by 25% of the excess
Key Risk Factors for AMT Exposure
- High capital gains or investment income
- Large state and local tax (SALT) deductions
- Exercise of incentive stock options (ISOs)
- Use of the standard deduction
- Private activity bond interest income
What to Do Next
While the TCJA reduced AMT exposure for many, the OBBBA’s changes starting in 2026 could reverse that trend for higher-income taxpayers. If you fall into any of the risk categories above, it’s important to:
- Reassess your tax strategy
- Model your AMT exposure
- Plan ahead for 2026 and beyond
Contact us to evaluate your AMT status and optimize your tax planning under the new rules.