High earners · Section 55
You owe the alternative minimum tax when a second calculation of your tax comes out higher.
The alternative minimum tax (AMT) is a federal tax on your income with some deductions and tax breaks added back. You figure it on Form 6251, where an exemption covers part of that income. For 2026, the income above the exemption is taxed at 26% on the first $244,500 and 28% on the rest.
Updated · Sources
Federal AMT for tax year 2026
- $90,100
- is a single filer’s exemption, and a joint return gets $140,200.
- $500K
- of AMT income is where the exemption starts to shrink, or $1M for joint filers.
- 50%
- of your AMT income above that line comes off the exemption.
You use them on the return you file in 2027.
What triggers the alternative minimum tax?
Form 6251 starts from your taxable income and adds back certain adjustments and preference items. The total is your AMT income, formally alternative minimum taxable income (AMTI). The AMT exists to limit how far those tax breaks can cut your tax.
State and local taxes you deduct
The AMT allows no deduction for state and local income, sales or property taxes, so line 2a adds back what you deducted. If you take the standard deduction instead, line 2a adds that back. Taxes you deduct on a business or rental schedule stay deducted.
ISOs you exercise and keep
When you exercise incentive stock options (ISOs) and keep vested shares past year end, the spread is an AMT adjustment on line 2i. The spread is the shares’ value at exercise minus the price you paid. Among stock options, only ISOs create an AMT adjustment. An NSO’s spread is already ordinary income for the regular tax, so it needs none.
Interest on private activity bonds
Interest on specified private activity bonds is a preference item, added back on line 2g. Other municipal bond interest stays tax-free under the AMT. Form 1099-INT shows this interest in box 9, and a municipal bond fund reports it in box 13 of Form 1099-DIV.
Depreciation and other business items
Depreciation on property placed in service after 1986 can differ under the AMT, and line 2l takes the difference. Passive activities, net operating losses, investment interest and depletion can also differ under the AMT, each on its own Form 6251 line.
A large capital gain
Long-term capital gains and qualified dividends keep their 0%, 15% and 20% rates under the AMT. They still count in your AMT income, though. A large gain can push that income into the phase-out, where your exemption shrinks.
Trusts and estates can owe the AMT too. For 2026, their exemption is $31,400, and it shrinks above $104,800 of AMT income.
In this AMT calculation example, a $200,000 spread adds $51,026 of tax.
Regular tax
$53,256
Taxable income is $240,000, the wages minus the $60,000 of deductions.
Tentative minimum tax
$104,282
AMT income is $480,000, with $40,000 of state and local taxes and the $200,000 spread added back.
AMT due
$51,026
The AMT is the gap between the two. The tentative minimum tax works as a floor, so your federal income tax is the higher figure, $104,282.
Same year, no exercise
$0
AMT income would be $280,000. Its tentative minimum tax of $49,374 is below the regular tax, so no AMT is due.
The regular tax uses the 2026 single brackets. The $60,000 of deductions is $40,000 of state and local tax, within the $40,400 cap, and $20,000 of mortgage interest. The full $90,100 exemption applies because $480,000 is under the $500,000 phase-out line, leaving $389,900 of taxable excess. That is taxed at 26% on the first $244,500 and 28% on the other $145,400. To estimate your own AMT, follow the same steps with your wages, deductions and spread.
The 2026 AMT exemption and tax rates: a bigger exemption that phases out sooner than in 2025.
The One Big Beautiful Bill Act made the higher exemptions permanent. For 2026, it also moved the phase-out back to its 2018 starting points and doubled its rate.
| 2025 | 2026 | |
|---|---|---|
| Exemption, single | $88,100 | $90,100 |
| Exemption, joint | $137,000 | $140,200 |
| Phase-out starts | $626,350 $1,252,700 joint | $500,000 $1,000,000 joint |
| Phase-out rate | 25 cents a dollar | 50 cents a dollar |
| Exemption gone at | $978,750 $1,800,700 joint | $680,200 $1,280,400 joint |
| 28% rate above | $239,100 | $244,500 |
Heads of household use the single figures. Married couples filing separately get half the joint amounts. For 2026, their $70,100 exemption is gone at $640,200, and their 28% rate starts above $122,250. The 28% line is measured on taxable excess, your AMT income minus the exemption. The 2025 column applies to returns filed in 2026, and earlier years use that year’s Form 6251 instructions. For 2027, the $500,000 and $1,000,000 thresholds are indexed for inflation for the first time.
Which AMT rules are easy to miss?
The phase-out taxes some income at 42%
Inside the phase-out, each extra dollar of ordinary income also takes 50 cents off your exemption. That adds $1.50 to the income taxed at 28%. In a year you owe the AMT, that dollar costs 42 cents.
Your estimated payments must cover it
The AMT counts toward the tax your withholding and estimated payments must cover. A safe harbor based on last year’s tax still protects you, however large this year’s AMT.
Only some AMT comes back as a credit
The credit for prior year minimum tax, on Form 8801, returns only AMT caused by deferral items. Deferral items only shift when income is taxed, as an ISO spread and depreciation do. AMT from state and local taxes, the standard deduction or private activity bond interest never comes back.
The credit can take years to use up
In a later year, the credit can bring your regular tax down only to that year’s tentative minimum tax. Whatever is left carries forward with no expiry date. Selling shares from an earlier ISO exercise can speed it up. Their AMT basis includes the spread, so the AMT gain is smaller, and more of the credit can be used that year.
A separate AMT foreign tax credit applies
If you paid income tax abroad, Form 6251 gives a separate AMT foreign tax credit, on line 8. It comes off your tentative minimum tax before that is compared with your regular tax.
California has an AMT of its own
The figures on this page are federal. California charges its own alternative minimum tax, and its credit for tax paid to other states cannot reduce it.
AMT planning has to happen before December 31, when the tax year closes.
Valim’s CPAs run your regular tax and the AMT side by side during the year, then file Form 6251 with your return.
- We compare your regular tax and tentative minimum tax during the year, while you can still act.
- We model your ISO exercises to show where the AMT begins, and split larger ones across years when that costs less.
- We build the AMT into your quarterly payments.
- We prepare Form 6251 with your return, and track any credit on Form 8801 until it is used up.
- When the IRS writes about the AMT on a return we prepared, our reply is covered by your fee.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
Alternative minimum tax questions.
What is the AMT exemption for 2026?
The AMT exemption for 2026 covers the first $90,100 of AMT income for single filers and heads of household. Married couples get $140,200 on a joint return, or $70,100 each if they file separately. You lose $1 of exemption for every $2 of AMT income above $500,000, or above $1,000,000 on a joint return. It is gone at $680,200 for single filers and heads of household, $1,280,400 joint and $640,200 for each spouse filing separately. These are the IRS’s figures in Rev. Proc. 2025-32, for returns filed in 2027.
Who needs to pay alternative minimum taxes?
You pay the alternative minimum tax in any year your tentative minimum tax, figured under the AMT rules, comes out above your regular tax. The common triggers are ISO exercises, large state and local tax deductions, private activity bond interest and depreciation differences. From 2026, the exemption starts to phase out at $500,000 of AMT income, or $1,000,000 joint, lower than in 2025. It also phases out twice as fast, so it disappears at lower incomes than before.
Who is eligible for the alternative minimum tax?
Every individual taxpayer is subject to the alternative minimum tax. So are estates and trusts that pay their own income tax. You owe it only in a year when your tax under the AMT rules is higher than your regular tax. In that year you attach Form 6251 to your return, and the AMT goes on Schedule 2, line 2. You also attach Form 6251 to claim some credits, including the credit for prior year minimum tax on Form 8801.
How do I calculate my AMT for 2026?
To calculate your AMT for 2026, take your taxable income and add back items such as state and local taxes. Subtract your exemption, which is $90,100 single or $140,200 joint, reduced by any phase-out. The first $244,500 of what remains is taxed at 26% and the rest at 28%, while capital gains and qualified dividends keep their own rates. If the result is higher than your regular tax, the difference is your AMT.
How do I avoid the alternative minimum tax?
You avoid the alternative minimum tax by limiting what raises your AMT income, most often the ISO spread you take in one year. Split large ISO exercises across tax years to reduce the AMT in any one year. A disqualifying sale in the year you exercise trades the AMT for ordinary income tax on the spread. Choose municipal bonds other than specified private activity bonds, whose interest counts for the AMT. AMT you do pay on ISOs can come back in later years as a credit.
Sources
- 26 U.S.C. § 55, Alternative minimum tax imposed
- 26 U.S.C. § 56, Adjustments in computing alternative minimum taxable income
- 26 U.S.C. § 57, Items of tax preference
- 26 U.S.C. § 53, Credit for prior year minimum tax liability
- Public Law 119-21 (One Big Beautiful Bill Act), § 70107
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- IRS, Instructions for Form 6251 (2025)
- IRS, Instructions for Form 8801 (2025)
- 26 U.S.C. § 164, Taxes (the SALT cap)
- 26 U.S.C. § 6654, Failure by individual to pay estimated income tax
- Cal. Rev. & Tax. Code § 18001, Credit for taxes paid
Reviewed and updated September 2026. General information, not advice for your situation.