The Alternative Minimum Tax under IRC §§ 55-59 is a parallel income tax system designed to ensure high-income taxpayers pay a minimum amount of federal tax despite deductions and exemptions that reduce regular tax. Taxpayers compute both regular tax and tentative AMT; pay the higher of the two. OBBBA made TCJA-era higher AMT exemptions PERMANENT (TCJA had scheduled the higher exemptions to sunset 12/31/2025; OBBBA removed the sunset). However, OBBBA §70107 simultaneously TIGHTENED AMT phaseout provisions starting 2026 for ALL filing statuses: (1) the phaseout threshold was RESET to $500,000 for single/HOH filers and $1,000,000 for joint filers (down from the TCJA-indexed ~$626,350 single / ~$1,252,700 MFJ that applied through 2025) - bringing more high earners into AMT exposure; and (2) the phaseout RATE was DOUBLED from 25% to 50% for all filers. §70107 amended §55(d)(4) to make the TCJA-era exemption amounts and the lower phaseout thresholds permanent, resetting the phaseout floor back toward its pre-2018 level and eliminating the higher inflation-indexed threshold single filers had built up between 2018 and 2025. Combined with OBBBA's much higher SALT cap ($40,000 vs $10,000 under TCJA), more taxpayers with high state-local tax deductions may find themselves owing AMT - because SALT is NOT deductible for AMT purposes (§56(b)(1)(A)(ii)). AMT also remains a major issue for incentive stock option (ISO) exercises - the bargain element is an AMT preference item (§56(b)(3)) even when no regular tax is owed on the exercise. The §53 AMT credit (Minimum Tax Credit) allows recovery of AMT paid attributable to timing/preference items (not exclusion items) when later years' regular tax exceeds tentative AMT.
(1) Higher exemption made permanent: $90,100 single/HoH / $140,200 MFJ / $70,100 MFS for 2026 (inflation-indexed); preserves TCJA's doubled exemption that was scheduled to sunset 12/31/2025.
(2) 2026 phaseout threshold reset for all filers: $500,000 single/HoH/MFS, $1,000,000 MFJ - LOWER than the inflation-adjusted 2025 levels of ~$626,350 and ~$1,252,700. Subjects more high earners to AMT exposure.
(3) Phaseout rate doubled: From 25% to 50% for ALL filing statuses starting 2026.
SALT interaction: SALT NOT deductible for AMT - higher $40K SALT cap means larger AMT add-back.
ISO bargain element: Remains AMT preference item under §56(b)(3) - major tech employee issue.
§53 AMT Credit: Unchanged - recovers AMT paid on timing items in future regular-tax years.
| Step | Computation |
|---|---|
| Step 1 - Start with regular taxable income | Form 1040 taxable income |
| Step 2 - Add AMT adjustments and preferences | SALT add-back (§56(b)(1)), standard deduction add-back if used (§56(b)(1)(E)), ISO bargain element (§56(b)(3)), accelerated depreciation differences, tax-exempt interest on certain private activity bonds (§57(a)(5)), and others. Result: Alternative Minimum Taxable Income (AMTI). |
| Step 3 - Subtract AMT exemption | $90,100 single / $140,200 MFJ for 2026 (subject to phaseout). Result: AMT base. |
| Step 4 - Apply AMT rates | 26% on first $244,500 of AMT base (2026; $122,250 for MFS); 28% on excess. Result: Tentative Minimum Tax (TMT). |
| Step 5 - Compare to regular tax | If TMT > regular tax, pay the difference as AMT under §55(a) |
| Form 6251 | Alternative Minimum Tax - Individuals; attach to Form 1040 |
| Filing Status | 2025 Exemption | 2026 Exemption (IRS Rev. Proc. 2025-32, confirmed) |
|---|---|---|
| Single / Head of Household | $88,100 | $90,100 |
| Married Filing Jointly / Qualifying Surviving Spouse | $137,000 | $140,200 |
| Married Filing Separately | $68,500 | $70,100 |
| Estates and Trusts | $29,900 | $28,400 |
OBBBA §70107 amended §55(d)(4) to reset the phaseout threshold and double the phaseout rate for every individual filing status beginning in 2026 - not joint filers alone. The reset returns the threshold to its pre-2018 base level ($500,000 single / $1,000,000 joint), which then resumes indexing for inflation from that lower base rather than continuing up from the higher TCJA-era inflation-adjusted level filers had reached by 2025.
| Filing Status | 2025 Phaseout Threshold (AMTI) | 2025 Phaseout Rate | 2026 Phaseout Threshold (AMTI) | 2026 Phaseout Rate |
|---|---|---|---|---|
| Single / Head of Household | $626,350 | 25% | $500,000 (RESET) | 50% (DOUBLED) |
| Married Filing Jointly / QSS | $1,252,700 | 25% | $1,000,000 (RESET) | 50% (DOUBLED) |
| Married Filing Separately | $626,350 | 25% | $500,000 (RESET) | 50% (DOUBLED) |
| Filing Status | 2026 Exemption | 2026 Phaseout Begins | 2026 Complete Phaseout (Exemption Reaches Zero) |
|---|---|---|---|
| Single / Head of Household | $90,100 | $500,000 | $680,200 |
| Married Filing Jointly / QSS | $140,200 | $1,000,000 | $1,280,400 |
| Married Filing Separately | $70,100 | $500,000 | $640,200 |
Worked example (single filer): AMTI of $600,000 is $100,000 over the $500,000 threshold. At the 50% phaseout rate, the $90,100 exemption is reduced by $50,000, leaving $40,100. AMT base is $559,900. The first $244,500 is taxed at 26% ($63,570) and the remaining $315,400 at 28% ($88,312), for a tentative minimum tax of roughly $151,882 before comparing to regular tax.
| AMT Item | Authority | Effect |
|---|---|---|
| State and Local Tax (SALT) | §56(b)(1)(A)(ii) | SALT deduction NOT allowed for AMT - 100% add-back. With OBBBA $40K SALT cap, larger add-back potential. |
| Standard deduction (if not itemizing) | §56(b)(1)(E) | Standard deduction NOT allowed for AMT - 100% add-back |
| Personal exemptions (suspended under TCJA, preserved under OBBBA) | §56(b)(1)(E) | Currently $0 - suspended |
| ISO bargain element (exercise less strike price) | §56(b)(3) | Added to AMTI in year of exercise even though no regular tax owed (until sale) |
| Accelerated depreciation difference | §56(a)(1) | Difference between regular MACRS and AMT depreciation (longer life or straight-line) |
| Tax-exempt interest on certain private activity bonds | §57(a)(5) | Tax-exempt for regular tax but AMT preference (bonds issued before 1/1/2009 or after 12/31/2010 generally subject; some COVID-era bonds excluded) |
| Net operating loss difference | §56(a)(4) | AMT NOL based on AMT adjustments to regular NOL |
| Mining exploration / development | §57(a)(2) | Preference item |
| Percentage depletion (mining) | §57(a)(1) | Preference item - excess over basis |
| Intangible drilling costs | §57(a)(2) | Preference for excess IDC |
| Charitable contribution of appreciated property | NOT a preference | Preserved at FMV (was preference pre-1993) |
| Medical expense (post-AGI threshold) | NOT a preference under TCJA/OBBBA | Same threshold for regular and AMT |
| Mortgage interest on home equity debt | §56(e) | Add-back if not used to acquire/build residence; OBBBA preserved TCJA home equity disallowance for all purposes |
Higher SALT cap ($40,000 vs $10,000) means high-tax-state taxpayers deduct MORE SALT for regular tax - but ALL of it gets added back for AMT. The differential between regular and AMT incomes WIDENS.
Facts: California couple, MFJ, AGI $800,000. SALT (state income + property tax) total $50,000 (capped at $40,000 deductible for regular tax). Other itemized: $35,000 (mortgage, charitable, etc.). MAGI $800,000 (below $1M joint AMT phaseout threshold).
Regular Tax Computation:
Itemized deductions: $40,000 (SALT, capped) + $35,000 = $75,000
Regular taxable income: $800,000 - $75,000 = $725,000
Regular federal tax (2026 MFJ): approximately $192,000
AMT Computation:
Start with regular taxable income: $725,000
Add back SALT (§56(b)(1)(A)(ii)): +$40,000
AMTI: $765,000
AMT exemption (MFJ 2026: $140,200): -$140,200
(AMTI $765,000 below $1,000,000 reset threshold, no phaseout)
AMT base: $624,800
AMT (26% × $244,500 + 28% × $380,300): $63,570 + $106,484 = $170,054
Compare: AMT $170,054 vs Regular $192,000. Regular is higher, no AMT owed.
However - if AGI were $1,200,000: Reset phaseout kicks in. Exemption reduced by 50% × ($1,200,000 - $1,000,000) = $100,000 reduction. Exemption falls from $140,200 to $40,200. AMT base widens significantly. AMT may exceed regular tax.
The most common AMT trigger for high earners outside the SALT context. Incentive Stock Options (ISOs) under §422 receive favorable regular tax treatment - no tax on grant or exercise, capital gain on sale if holding period met. But the BARGAIN ELEMENT (FMV at exercise minus strike price) is an AMT preference item under §56(b)(3) added in year of exercise.
| ISO Aspect | Regular Tax | AMT |
|---|---|---|
| Grant | No income | No income |
| Exercise (FMV $100, strike $20) | No income at exercise | $80 bargain element added to AMTI under §56(b)(3) |
| Sale (qualifying disposition - 2 years from grant, 1 year from exercise) | Long-term capital gain on entire gain (sale price - strike) | Lower AMT gain (sale price - AMT basis which includes bargain element) |
| Disqualifying disposition (sold sooner) | Ordinary income on bargain element; capital gain on excess | Reduced AMT consequence - no AMT preference if disqualifying disposition in same year as exercise |
| AMT basis tracking | N/A | AMT basis = FMV at exercise; regular basis = strike price. Difference creates §53 credit potential at sale. |
| Strategy | Mechanism |
|---|---|
| Calendar year exercise timing | Exercise early in year to give time to monitor stock price; if stock drops, consider disqualifying disposition before year-end |
| Spread across multiple years | Exercise smaller batches each year to stay below AMT crossover |
| "AMT crossover" target | Calculate maximum ISO exercise that triggers $0 AMT (point where TMT = regular tax) |
| Disqualifying disposition same-year | If stock dropped after exercise, sell before year-end to convert to ordinary income (regular tax) and eliminate AMT preference |
| 83(b) election on RSAs / ISOs subject to vesting | Accelerate income recognition to lock in low bargain element before further appreciation |
| Charitable contribution of appreciated shares | Donate appreciated stock - charitable deduction + no recognition of gain (regular OR AMT) |
| Use §53 AMT credit in future years | AMT paid on ISO becomes §53 credit recoverable when regular tax exceeds TMT in later years (typically year of stock sale) |
| §53 AMT Credit Mechanic | Detail |
|---|---|
| Authority | IRC §53 - Credit for prior year minimum tax liability |
| Source | AMT paid attributable to TIMING items (deferral) - not exclusion items |
| Recoverable AMT | AMT paid on ISO bargain element, accelerated depreciation difference, NOL difference - timing items |
| NOT recoverable | AMT paid on SALT add-back, standard deduction add-back, personal exemption phaseout - exclusion items (permanent disallowance) |
| Recovery | In future year where regular tax exceeds TMT, claim §53 credit equal to excess |
| Tracking | Form 8801 - Credit for Prior Year Minimum Tax |
| Carryforward | Indefinite - never expires |
| Estate recovery | At death, unused §53 credit is LOST (not transferable to estate or beneficiaries) |
| Refundable portion (pre-OBBBA) | Was refundable 2018-2021 under TCJA; reverted to non-refundable after 2021; OBBBA did NOT restore refundability |
| Profile | AMT Risk Level |
|---|---|
| High-W-2 earner in high-tax state with $40K SALT | MEDIUM - higher SALT cap increases AMT exposure; depends on income level |
| Tech employee exercising ISOs | HIGH - bargain element is AMT preference; common trigger |
| Real estate professional with accelerated depreciation | MEDIUM - depreciation difference can create AMT |
| High-income joint filer above $1M (2026) | HIGH after OBBBA reset - exemption phases out faster at $1M with 50% rate |
| Holders of private activity bonds | VARIES - bond issue date matters; some excluded |
| Standard deduction users | LOW - standard deduction add-back limited; AMT exemption typically shelters |
| Sole proprietors with §179 | LOW after TCJA changes (§179 same for regular and AMT) |
| Wealthy retirees with capital gains only | LOW - LTCG and qualified dividends taxed at same favorable rates for AMT |
| Multiple-state income earners | HIGH - high SALT amounts trigger larger add-back |
Long-term capital gains and qualified dividends are taxed at the SAME preferential rates (0%, 15%, 20%) for AMT as for regular tax under §55(b)(3) and §1(h)(11). LTCG does NOT trigger AMT directly. However, LTCG does INCREASE AMTI (and reduce AMT exemption via phaseout) - so large capital gains in a year can phase out the AMT exemption and indirectly increase AMT on other income.
| State | AMT Position |
|---|---|
| California | Has its own AMT - 7% rate; SALT not added back (different structure); preserved post-federal-OBBBA |
| Iowa | State AMT exists |
| Minnesota | State AMT exists |
| Most other states | No state AMT or conform to federal |
| Form 6251 Line | Key Issue |
|---|---|
| Line 2a - Taxes from Schedule A | SALT add-back - largest item for many high-income taxpayers; OBBBA's $40K cap means up to $40K add-back |
| Line 2i - Exercise of incentive stock options | Bargain element from ISO exercise; report from Form 3921 |
| Line 2j - Estates and trusts (income from K-1) | AMT items flowing from trusts/estates |
| Line 2k - Partnership and S-corp K-1 items | AMT items from passthrough entities |
| Line 2l - Depreciation difference | Difference between regular MACRS and AMT |
| Line 2m - Passive activities | AMT-adjusted passive activity income/loss |
| Line 4 - Alternative Minimum Taxable Income | Sum of regular taxable income plus all adjustments and preferences |
| Line 5 - Exemption | Phased exemption per filing status and AMTI; 2026 joint $1M reset |
| Line 7 - Tentative Minimum Tax before AMT FTC | 26%/28% rates applied |
| Line 11 - Regular tax | From Form 1040 (less certain credits) |
| Line 12 - Net AMT | Line 9 minus Line 11; entered on Form 1040 Schedule 2 |
OBBBA quadrupled the SALT cap. Tax software updated for the $40K cap may not have properly updated AMT calculations for the larger add-back. Verify Form 6251 line 2a reflects FULL SALT actually deducted, not just $10K.
2026 returns must use $1,000,000 phaseout threshold and 50% phaseout rate for joint filers - not the inflation-indexed $1.252M+ that applied through 2025. Software must update for OBBBA §70107.
ISO bargain element is NOT capital gain - it's an AMT preference under §56(b)(3). Capital gain treatment comes only on subsequent qualifying disposition. Form 3921 from employer reports the bargain element.
Taxpayer who paid AMT on ISO exercise has §53 credit for future use. Many taxpayers (and preparers) fail to track this credit on Form 8801. The credit is indefinite carryforward but useless if not claimed.
§53 credit recovers AMT paid on TIMING items only. AMT paid on SALT, standard deduction, personal exemption - all exclusion items - is permanently lost. Practitioners must distinguish timing from exclusion when computing recoverable credit.
LTCG and qualified dividends taxed at same preferential rates for AMT as for regular tax (§55(b)(3)). But LTCG INCREASES AMTI and can trigger exemption phaseout - indirect AMT impact.
California, Iowa, Minnesota have own state AMTs with different structures. Federal AMT calculation alone misses state-level minimum tax.
ISO holders should model AMT BEFORE exercise. April surprises with no cash to pay AMT can force disqualifying dispositions or installment payment plans.
§168(k) bonus depreciation IS allowed for AMT (§168(k)(2)(F)). Not a preference item - regular and AMT depreciation match. OBBBA restored 100% bonus depreciation; same for both regimes.
Separate AMT FTC calculation under §59(a). Cannot use full regular FTC against AMT - must compute separate AMT FTC limit. Software should handle automatically but verify.
The TCJA-era refundable corporate AMT credit (different from individual) was eliminated. Individual §53 credit is non-refundable. OBBBA did NOT restore refundability.
§199A QBI deduction is allowed for AMT - no add-back. OBBBA made QBI permanent. Verify Form 6251 doesn't erroneously add back QBI.
At death, unused §53 credit is LOST. For elderly taxpayers with large §53 credits (often from past ISO exercises), strategic Roth conversions or other income acceleration in final years may recover the credit before death.
Primary authority: IRC §55 (imposition of alternative minimum tax). §55(a) (general rule - AMT is excess of TMT over regular tax). §55(b)(1)(A) (AMT rates - 26% on first $244,500 of AMT base for 2026, $122,250 for MFS; 28% on excess - inflation indexed). §55(b)(3) (capital gains rate preservation - LTCG and qualified dividends at same preferential rates for AMT as regular tax). §55(d) (exemption amounts). §55(d)(1) (exemption amounts by filing status). §55(d)(2) (phaseout of exemption). §55(d)(4) (special rule for 2018-2025 under TCJA - OBBBA preserves higher exemptions permanently). §56 (adjustments in computing AMT income). §56(a) (depreciation adjustment). §56(b) (adjustments for individuals). §56(b)(1)(A)(i) (miscellaneous itemized deductions - suspended under TCJA; OBBBA preserved suspension). §56(b)(1)(A)(ii) (state and local taxes - NOT allowed for AMT; full add-back). §56(b)(1)(E) (standard deduction not allowed). §56(b)(3) (incentive stock option bargain element treated as AMT preference). §57 (preference items). §57(a)(1) (depletion). §57(a)(2) (intangible drilling costs). §57(a)(5) (tax-exempt interest on certain private activity bonds). §53 (Credit for prior year minimum tax liability - "Minimum Tax Credit"). §53(a) (general rule). §53(b) (amount of credit - based on adjusted net minimum tax from timing items). §53(d) (carryover indefinite). §59 (other definitions and special rules). §59(a) (AMT FTC - separate computation). §168(k)(2)(F) (bonus depreciation allowed for AMT). §199A (QBI deduction allowed for AMT). §422 (Incentive Stock Options). §421 (general rules for ISOs). §83(b) (election to include compensation in income at grant). §170 (charitable contribution - appreciated property preserved for AMT). §164(b)(6) (SALT cap - $40,000 under OBBBA; not deductible for AMT). One Big Beautiful Bill Act, P.L. 119-21, signed July 4, 2025. OBBBA §70107 (amends §55(d)(4); makes TCJA-era higher AMT exemption amounts permanent; resets 2026 phaseout threshold to $500,000 single/HoH/MFS and $1,000,000 MFJ for ALL filing statuses; doubles phaseout rate from 25% to 50% for all filing statuses); IRS Rev. Proc. 2025-32 §4.10 (2026 AMT exemption amounts and phaseout thresholds, confirming universal application across filing statuses). OBBBA §70106 (estate tax exemption permanent $15M). OBBBA §70120 (SALT cap $40K with phaseout). Form 6251 (Alternative Minimum Tax - Individuals). Form 8801 (Credit for Prior Year Minimum Tax). Form 3921 (ISO Exercise reporting). Form 3922 (ESPP transfer reporting). Form 1040 Schedule 2 (Additional Taxes including AMT).