Key Takeaways

Table of Contents

What is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax is a federal tax system designed to ensure that all individuals and corporations pay their fair share of taxes. AMT was introduced in 1969 in response to high-income Americans using loopholes to reduce their taxable income to zero. Over the decades, it has evolved significantly, most recently with the Tax Cuts and Jobs Act (TCJA) of 2017 and the One Big Beautiful Bill Act (OBBBA) of 2025, both of which made significant changes to who AMT affects and how it behaves.

Who Pays Alternative Minimum Tax?

AMT applies when your AMT calculation results in a higher tax liability than your regular income tax calculation. This can happen if you have certain deductions, credits, or income sources, most commonly equity compensation including incentive stock options (ISOs), large capital gains, or high state and local tax deductions. Understanding these triggers is essential to managing your tax liability, especially in 2026 when the rules have changed meaningfully.

How is AMT Calculated?

To calculate AMT, you use IRS Form 6251. Here’s how it generally works:
Start with your regular taxable income, your adjusted gross income (AGI) minus your standard or itemized deductions and qualified business income deduction, if applicable. Make AMT adjustments, certain income and deductions treated differently under AMT rules must be added back or adjusted. Calculate your Alternative Minimum Taxable Income (AMTI) after all adjustments. Subtract your AMT exemption from your AMTI, the exemption amount varies by filing status and phases out at higher income levels. Apply the AMT tax rate to the remaining amount. Compare your AMT result to your regular tax, if AMT is higher, you pay the difference.
AMT Exemptions, Tax Rates, and Phase-Outs for 2026
The table below summarizes the 2026 AMT exemptions, tax rates, and phase-out thresholds, updated to reflect the OBBBA changes now in effect.
AMT Exemptions, Tax Rates, and Phase-Outs (Tax Year 2026)

SingleMarried, Filing Jointly
Exemption amount$90,100$140,200
26% tax rate applies toAMTI up to $244,500AMTI up to $244,500
28% tax rate applies toAMTI above $244,500AMTI above $244,500
Phase-out begins at$500,000$1,000,000
Phase-out rate50%50%

Source: Tax Foundation, IRS Rev. Proc. 2025-32, OBBBA §70107
According to U.S. Bank, the AMT exemption will continue to be adjusted annually for inflation going forward.

AMT Exemptions, Tax Rates, and Phase-Outs for 2026

The AMT exemption allows you to treat income up to the exemption amount as regular taxable income. For the 2026 tax year, the exemption is $90,100 for single filers and $140,200 for married couples filing jointly. Any AMTI above the exemption is subject to AMT rates of 26% or 28%, and, according to U.S. Bank, you pay whichever of regular tax or AMT is greater.
AMT Tax Rates for 2026
Alternative Minimum Tax Rates (Tax Year 2026)

Married Filing SeparatelyAll Other Taxpayers
26% AMT rateAMTI up to $122,250AMTI up to $244,500
28% AMT rateAMTI above $122,250AMTI above $244,500

Source: Tax Foundation 2026 Tax Brackets; IRS

The OBBBA’s Critical Changes to AMT — What’s New in 2026

This section is new and essential reading for anyone who may be affected by AMT. The OBBBA, signed in July 2025, made the TCJA’s higher AMT exemptions permanent, which is good news. But it also made two changes that expand AMT exposure for high earners starting in 2026.

  1. Phase-out thresholds dropped significantly.

Under the TCJA rules that applied from 2018 through 2025, the AMT exemption began phasing out at $626,350 for single filers and $1,252,700 for joint filers. Starting in 2026, the OBBBA returns those phase-out thresholds to 2018 levels: $500,000 for single filers and $1,000,000 for married taxpayers filing jointly. These thresholds will be indexed for inflation going forward, but, according to Tax Foundation, the 2026 starting point is meaningfully lower than what applied in 2025.

  1. The phase-out rate doubled.

Previously, the AMT exemption was reduced by 25 cents for every dollar of AMTI above the threshold. Starting in 2026, per Basswood Counsel, the phaseout rate doubles from 25% to 50%, meaning the AMT exemption phases out at double the rate as income rises.
What this means in practice: According to Wealthspire, for 2026, a married couple’s AMT exemption is fully phased out at approximately $1.28 million of AMT income, compared to roughly $1.8 million under 2025 rules. This compresses the exposure window and makes AMT far more sensitive to income timing events like ISO exercises or large capital gains.
For many high earners, AMT is once again a meaningful planning consideration, and Wealthspire and Basswood Counsel both note that the changes will particularly expand the pool of taxpayers subject to AMT among high-income earners with substantial capital gains or incentive stock options.
Who is most at risk in 2026:

AMT with Incentive Stock Options

If you hold Incentive Stock Options (ISOs), AMT can significantly affect your tax liability. Under AMT, the spread between the price you paid for the stock options and their fair market value at exercise is counted as income when calculating AMTI, even though you haven’t sold the shares and received no cash.
Example (2026 figures):
Assume you exercise ISOs during the year. Your regular annual income, salary plus any stock sale proceeds, is $200,000. The spread on your exercised ISOs is $50,000.
Because of AMT, you must include the $50,000 spread in your income for AMTI purposes, bringing your AMTI to $250,000. For a single taxpayer with no other AMTI adjustments, you would subtract the 2026 AMT exemption of $90,100, leaving $159,900 subject to AMT at 26%. You would then compare that AMT calculation to your regular tax and pay whichever is higher.
Given the tighter phase-out rules now in effect, ISO exercises that also push income above $500,000 (single) or $1,000,000 (joint) can cause the exemption to shrink rapidly, making the AMT cost of exercise even higher than in prior years. Careful modeling before exercising ISOs is essential in 2026.

AMT Adjustments and Preferences

Just as regular income taxes can be adjusted for deductions and credits, AMT has its own set of adjustments. These are complex and change over time, working with a Harness Tax Advisor is the best way to stay current. Key AMT adjustments and preferences include:
Tax shelter farm activities: Capital gains and losses from tax shelter farm activities can differ from regular tax treatment and may require adjustment.
Charitable contributions of certain property: If you donated appreciated property and had a different basis for AMT purposes, an adjustment may be required.
Business interest limitation: For AMT purposes, you must complete AMT Form 8990 using AMT-adjusted amounts.
Mortgage interest: For AMT, you may need to adjust for home mortgage interest on a dwelling that isn’t your principal residence or a qualified dwelling.
SALT and standard deduction: State and local tax deductions and the standard deduction remain disallowed under AMT in 2026. This continues to be a significant trigger, especially for taxpayers in high-tax states who rely on itemized SALT deductions, even with the SALT cap raised to $40,000 under the OBBBA, those deductions still provide no benefit under AMT.
AMT foreign tax credit: The AMT foreign tax credit (AMT FTC) helps taxpayers reduce their AMT liability by avoiding double taxation on income earned outside the US.
A complete list of AMT adjustments and preferences can be found on the IRS website.

AMT Carryforward Credits & Form 8801

If you’ve paid AMT in a prior year due to certain deferral items, most commonly ISO exercises, you may be eligible for the Minimum Tax Credit (MTC) in future years. This credit offsets your regular tax liability and is a meaningful way to recoup AMT paid in the past.
Use IRS Form 8801 (Credit for Prior Year Minimum Tax, Individuals, Estates, and Trusts) to calculate and claim the MTC. The credit is calculated based on the difference between your tentative minimum tax in the year you’re claiming the credit and the tentative minimum tax in the year you paid AMT. Any unused credit carries forward to future years. Given that more taxpayers are now likely to pay AMT under the 2026 rules, tracking and utilizing AMT credits becomes even more important.

State-Level AMT and Its Implications

As of 2026, four US states impose a state-level AMT, California, Colorado, Connecticut, and Minnesota. State AMT rules differ from federal AMT, and income thresholds and exemption amounts vary by state.
California imposes an AMT rate of 7%, applying to taxpayers with specific adjustments and tax preference items.
Colorado imposes an AMT rate of 3.47% and generally follows federal AMT rules and calculation methods, with some Colorado-specific adjustments. Colorado’s AMT exemption amounts and phase-out thresholds align with the federal figures.
Connecticut imposes AMT on individuals with certain preference items, such as tax-exempt interest from private activity bonds. The Connecticut AMT rate is the lesser of 19% of the adjusted federal tentative minimum tax or 5.5% of adjusted federal alternative minimum taxable income.
Minnesota imposes an AMT rate of 6.75% and generally follows federal AMT rules, with some state-specific adjustments.
State tax laws change regularly. If you live in one of these states, it’s important to monitor state-specific AMT rules each year, particularly as the federal changes introduced by the OBBBA may affect how state calculations flow through.

How to Minimize AMT

Navigating AMT, especially under the tightened 2026 rules, requires proactive planning. Here are the primary strategies:
Spread out ISO exercises. If you hold ISOs, consider spreading exercises over multiple years rather than exercising a large batch in a single year. This can help manage your AMTI level and reduce the risk of triggering the phaseout or crossing into the 28% AMT bracket. Given the faster 2026 phase-out rate, this strategy is more important than ever.
Model your exposure before exercising. Because the phase-out now eliminates the exemption twice as quickly, a relatively modest increase in income from an ISO exercise can have a much larger AMT impact than it would have in prior years. Running a detailed projection before exercising is essential. Harness’s Equity Tax Insights tool can help calculate the AMT break-even point for ISO exercises.
Leverage AMT credits. If you’ve paid AMT in prior years due to ISO exercises or other preference items, you have generated AMT credits that can offset regular tax in future years. Track these carefully using Form 8801.
Time state tax payments strategically. If you’re subject to AMT in a given year, your state and local tax payments provide no federal tax benefit. Consider whether you can shift state tax payments into a year when you’re not subject to AMT.
Be thoughtful about home equity borrowing. AMT only allows a mortgage interest deduction for loans used to buy, build, or substantially improve your home. Home equity loans used for other purposes do not provide an AMT deduction.
Income timing. Given the compressed phase-out window in 2026, the timing of large income events, capital gains realizations, ISO exercises, bonus income, can meaningfully affect whether and how much AMT you owe. Coordinating these with a tax advisor before year-end is worth the effort.

Common Misconceptions About AMT

“The OBBBA eliminated AMT exposure for high earners.” Not true. The OBBBA made higher exemptions permanent, but also lowered phase-out thresholds and doubled the phase-out rate. More high-income taxpayers are likely to owe AMT in 2026 than in recent years.
“If I paid AMT last year, I’ll pay it this year too.” Not necessarily. AMT liability depends on your specific income, deductions, and preference items in a given year. It can change significantly from year to year based on how you time income and exercises.
“The TCJA eliminated AMT.” The TCJA reduced the number of taxpayers subject to AMT but did not eliminate it. The OBBBA has now made those TCJA rules permanent, but with modifications that actually increase exposure at certain income levels.

AMT Frequently Asked Questions

How do I know if I need to pay AMT?
Calculate your taxes under both the regular system and the AMT system using Form 6251. If your AMT liability is higher than your regular tax liability, you pay the difference as AMT. The most reliable way to know is to run a tax projection before year-end, especially if you have ISOs, significant capital gains, or income in the $500,000 to $1.5 million range.
Can I get a credit for paying AMT in the past?
Yes. If you’ve paid AMT in prior years due to deferral items like ISO exercises, you may be eligible for the Minimum Tax Credit (MTC). The MTC can offset your regular tax in future years, up to the point where your regular tax equals your AMT liability. Calculate and claim it using Form 8801.
Does AMT affect my capital gains tax?
Long-term capital gains and qualified dividends are taxed at preferential rates under both regular tax and AMT. However, realizing large capital gains can indirectly increase your AMT liability by pushing your total income above the phase-out threshold, or deeper into the phase-out range, causing your AMT exemption to shrink or disappear. Under 2026’s faster phase-out rate, this effect is more pronounced than in prior years.
Do I need to file a separate form for AMT?
Yes. Calculate and report AMT using Form 6251, filed with your Form 1040. Form 6251 walks through the process of calculating your AMTI, applying the exemption and phase-out, and determining your AMT liability.
Is AMT adjusted for inflation?
Yes. Both the AMT exemption amounts and the phase-out thresholds are adjusted annually for inflation. The 2026 figures, $90,100 single / $140,200 joint for exemptions; $500,000 / $1,000,000 for phase-out thresholds, will continue to adjust in future years.

Harness Can Help You Navigate AMT

Navigating the complexities of the Alternative Minimum Tax (AMT) system can be challenging, but with the support of an experienced tax advisor, you can make informed decisions to optimize your tax planning strategies. You can connect with a tax advisor using Harness’s Advisor Marketplace where you’ll find experienced accountants and financial advisors who can help you understand the nuances of AMT along with building personalized tax and financial strategies to meet your unique goals.
Do you have questions about the Alternative Minimum Tax or want to explore other tax planning opportunities? Sign up for Harness today.
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