By Are you at risk of paying the alternative minimum tax (AMT)? You might be—especially starting in 2026, thanks to recent changes under the One Big Beautiful Bill Act (OBBBA). While the AMT hasn’t affected most taxpayers in recent years, the new rules could change that.
Here’s what you need to know.
What Is the AMT?
The AMT is a parallel federal tax system designed to ensure higher-income taxpayers pay at least a minimum amount of tax. It operates by disallowing certain deductions and treating some otherwise tax-free income as taxable. If your AMT is higher than your regular tax, you pay the AMT amount instead.
Recent Changes: What the OBBBA Did
For tax years 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) made the AMT more forgiving. It raised exemption amounts and significantly increased the income levels at which those exemptions start to phase out.
The OBBBA partially reverses that, starting in 2026.
Exemption Phaseout Thresholds Drop
- From $1,252,700 in 2025 for joint filers to $1,000,000 in 2026.
- From $626,350 to $500,000 for others.
Phaseout Accelerates
The phaseout rate doubles—from 25 to 50 percent, meaning your AMT exemption disappears faster as your income rises.
These changes mean more taxpayers could owe the AMT and those already subject to it could pay more.
Risk Factors for AMT Exposure
You may be more likely to owe AMT in 2026 and beyond if any of the following apply:
- High capital gains from sales of stocks, real estate, or precious metals
- Exercise of incentive stock options (ISOs), which are tax-favored under regular rules but trigger AMT when exercised
- Large itemized deductions for state and local taxes, which are not deductible under AMT rules
- Standard deduction use, which the AMT disallows
- Tax-exempt income from private activity bonds (e.g., certain municipal bonds), which is included in AMT income
Planning Considerations
Consider strategies like
- spreading out the exercise of ISOs over multiple years;
- timing capital gains and losses; and
- adjusting your regular income to reduce AMT exposure.
A Potential Safety Net: The Minimum Tax Credit
If you pay AMT because of timing-related tax preferences (like exercising ISOs), you may be eligible to claim a minimum tax credit in future years. This credit can offset regular tax liability, but it only applies to specific types of AMT adjustments.
If you want to discuss the AMT, please call me on my direct line at 408-778-9651.