The Alternative Minimum Tax (AMT) is a separate federal income-tax system designed to ensure that higher-income individuals pay at least a minimum amount of tax. Unlike the regular tax system, the AMT disallows certain deductions and treats some tax-exempt income as taxable. If your AMT liability exceeds your regular income tax, you must pay the higher AMT amount.
Recent Changes in Tax Law
The Tax Cuts and Jobs Act (TCJA) made the AMT more favorable for most taxpayers from 2018 through 2025 by raising exemption amounts and phase-out thresholds. However, the recently enacted One Big Beautiful Bill Act (OBBBA) brings mixed changes starting in 2026.
AMT Rates
The AMT has two tax rates: 26% and 28%, which are lower than the current maximum regular income-tax rate of 37%. But don’t be fooled — AMT applies to a broader income base with fewer deductions and credits, which can still lead to a higher tax bill for some taxpayers.
For 2025, the 28% AMT rate applies once your AMT income exceeds:
- $239,100 for married couples filing jointly
- $119,550 for all other taxpayers
Below those thresholds, the rate is 26%.
AMT Exemptions
Under AMT rules, you’re allowed a flat exemption amount, adjusted annually for inflation. The TCJA significantly raised these exemptions through 2025, and the OBBBA has now made those increases permanent.
For 2025, AMT exemption amounts are:
- $137,000 for married couples filing jointly
- $88,100 for single filers
- $68,500 for married individuals filing separately
Exemption Phase-Outs
The AMT exemption begins to phase out once your AMT income exceeds a certain level. The TCJA sharply raised these thresholds for 2018–2025, shielding most taxpayers.
For 2025, phase-out thresholds begin at:
- $1,252,700 for joint filers
- $626,350 for all others
The exemption amount is reduced by 25% of the excess income above these levels.
What the OBBBA Changes in 2026
Beginning in 2026, the OBBBA makes the $500,000 (single) and $1 million (married filing jointly) exemption phase-out thresholds permanent — with annual inflation adjustments. Unfortunately, these thresholds will be lower than in 2025, meaning more people may be impacted.
Worse yet, the phase-out rate doubles from 25% to 50%, meaning exemptions will disappear more quickly for higher earners.
Bottom line: Starting in 2026, more high-income taxpayers may fall into AMT territory.
Who’s Still at Risk?
It’s hard to predict exactly who will be affected, but here are five key risk factors:
- High capital gains or other large income sources – Greater income increases the chance your exemption will phase out.
- State and local tax deductions (SALT) – These deductions aren’t allowed under AMT, which can hurt taxpayers in high-tax states.
- Incentive Stock Options (ISOs) – Exercising ISOs can trigger AMT because the bargain element is taxable under AMT but not regular tax.
- Standard deduction users – AMT rules disallow the standard deduction altogether.
- Interest from private activity bonds – This interest is tax-exempt under regular rules but taxable under AMT.
Know Where You Stand
While the TCJA reduced AMT exposure for many, the OBBBA may reverse that trend beginning in 2026. If you’re in a higher-income bracket or fall into one of the risk categories, don’t assume you’re in the clear.
Let us help you evaluate your exposure and plan ahead — especially before the new rules take effect.
© 2025