The Alternative Minimum Tax is a parallel tax system that exists to make sure high-income filers with large deductions still pay a meaningful amount. You compute your regular tax and your AMT under a separate set of rules, then pay whichever number is higher. The 2025 law (OBBBA) changed the AMT parameters, so 2026 looks different from the years just before it — the exemption is larger, but the phase-out is also faster, which pulls more upper-income households into the calculation. (Internal Revenue Service)
2026 AMT exemption amounts
- Single: $90,100
- Married filing jointly / surviving spouse: $140,200
- Married filing separately: $70,100
The exemption begins to phase out once AMTI crosses:
- $500,000 for single filers
- $1,000,000 for married filing jointly
- $500,000 for married filing separately
The phase-out takes back 25 cents of exemption for every dollar of AMTI above the threshold. OBBBA also restored the faster 50% phase-out structure, so more upper-income filers see AMT exposure in 2026 than the temporary rules had produced. The practical effect: the exemption is generous in the upper-middle range but erodes quickly once you cross the line, so the "safe" zone is wider but the cliff is steeper. (Internal Revenue Service)
The AMT rates themselves
AMT is taxed at just two rates: 26% on the first portion of alternative minimum taxable income, and 28% above a breakpoint (about $244,500 for 2026; half that for married filing separately). The exact breakpoint is set in Rev. Proc. 2025-32. Compared with the regular seven-bracket system, the AMT is flat and simple — which is part of why it can feel like a surprise when it shows up. (Internal Revenue Service)
How the AMT is actually computed
The mechanics start with your regular taxable income, then add back or disallow certain deductions and preferences: (Internal Revenue Service)
- Add back the standard deduction if you claimed it
- Add back SALT deductions (the higher 2026 cap preserves more of them on the regular return, but they remain an AMT preference)
- Add back most miscellaneous itemized deductions
- Add in ISO exercise gain — the spread between fair market value and exercise price on incentive stock options
- Disallow certain accelerated depreciation in favor of the AMT method
Once you have alternative minimum taxable income (AMTI), you subtract the AMT exemption and apply the 26%/28% rates. If that result beats your regular tax, you pay the AMT amount and may carry an AMT credit forward. That credit — tracked on Form 8801 — can offset future regular tax in years when you fall back out of AMT, which is the main relief valve for people who get caught by an ISO exercise. (Internal Revenue Service)
What actually triggers AMT
- Large state and local tax deductions. More relevant now that the SALT cap is higher, because bigger SALT deductions mean a bigger add-back.
- Incentive stock option exercises. The ISO spread is the classic AMT trap, especially at high-growth companies.
- Large capital gains that push total income up and eat into the exemption.
- Tax-exempt interest from private activity bonds, depletion on oil and gas, and certain passive-activity losses that exceed basis.
Numbers: watch the phase-out
A single filer with $600,000 of AMTI in 2026:
- Start with the $90,100 exemption
- Phase-out: 25% x ($600,000 - $500,000) = $25,000 gone
- Usable exemption: $65,100
- AMT then applies to AMTI minus that exemption
Because the exemption is large and the phase-out gradual through the mid-range, most middle-income households never reach AMT. It concentrates among high earners with big deductions or ISO gains. If you expect any of the triggers, run an AMT simulation before year-end — a small move, like timing an ISO exercise or bunching a charitable gift, can keep you under the line. Track prior-year minimum tax credits, because they may offset future regular tax. The federal income tax estimator applies the 2026 brackets and can flag whether your inputs are flirting with AMT. (Internal Revenue Service)
When AMT actually bites
AMT is a floor, not a ceiling, and it only matters when the alternative minimum tax computed on AMTI exceeds the regular income tax. For most households the two numbers are close enough that the regular tax wins, so AMT never triggers. It bites when deductions and preferential items are large enough that the regular tax is pushed down below what AMT would charge. That is exactly the situation for a high-income household in a high-SALT state that takes the standard deduction: the SALT cap limits the itemized deduction, so the regular tax is lower, and the AMT floor can be higher. (Internal Revenue Service)
The telltale sign that AMT may apply is a tax return where the itemized deductions are large but the effective federal rate is lower than expected for your income. If your income is in the top brackets and you live in a high-property-tax state, run the AMT numbers before you assume the regular tax is the whole story. The AMT return is a separate computation, and it is not something to fold into a casual estimate. (TaxPreparerTools)
How to read the AMT preference items
The biggest preference item is the SALT deduction. Under the regular return, SALT is capped at $10,000, but under AMT the cap does not apply, so a household with large state and local taxes sees a bigger deduction on the AMT side, which raises AMTI and can push the AMT calculation above the regular tax. Other preference items include accelerated depreciation, certain business expense timing, and the state tax itself. The more preference items you have, the further apart the two computations sit, and the more likely AMT is to be the controlling number. (Internal Revenue Service)
Planning around AMT
Because AMT is a floor, you cannot eliminate it by lowering your regular tax. The lever is to raise your regular tax enough that it stays above the AMT floor. That means keeping itemized deductions high enough that the regular tax is not pushed below AMT, or deferring income so that the regular tax and the AMT number move together. For a household already at the SALT cap, a year-end donation or a medical expense that is otherwise deductible can raise the regular tax above the AMT floor without raising AMTI, which is the cleanest way to avoid the AMT hit. The decision is a timing one: make the deductible event land in the year where AMT is about to trigger. (Internal Revenue Service)
Disclaimer: This article is general educational information, not tax, legal, or investment advice. Dollar amounts come from the 2026 sources listed at the end of this article and may change. Before you act, talk to a licensed CPA, EA, or tax attorney about your own situation.