Anaya Nolan
The Alternative Minimum Tax (AMT) is a tax calculation method that ensures high-income households pay their fair share of taxes. The AMT was introduced after it was discovered that some millionaires avoided paying income tax through various deductions. The Tax Cuts and Jobs Act (TCJA) of 2017 significantly reduced the number of taxpayers impacted by the AMT, but these changes are temporary and set to expire at the end of 2025. The One Big Beautiful Bill (OBBB) of 2025 includes legislation to prevent most tax laws from reverting to pre-TCJA versions, but it is unclear how it will affect the AMT. The AMT is complex and burdensome, and critics argue that it fails to target its intended audience. Understanding the potential long-term effects of the OBBB on the AMT is crucial for shaping future tax policies that balance revenue needs, economic growth, and fairness for taxpayers.
| Characteristics | Values |
|---|---|
| Taxpayers affected by AMT | High-income households, Upper-middle-income households, Families with large numbers of dependents, People with large deductions, particularly those resident in states or cities with high income tax rates, or those with nonqualifying mortgage interest deductions |
| AMT calculation | Compare tax liability under the regular tax system to the AMT liability and pay the higher amount |
| AMT exemption amounts | Set by law |
| AMT tax rates | Set by law |
| AMT exemption phase-out threshold | $1,252,700 for married filing jointly, $626,350 for everyone else |
| AMT exemption phase-out rate | 25 cents for every dollar over the threshold |
| AMT exemptions (2018) | Single taxpayers could exempt up to $70,300 in income, Joint filers could exempt up to $109,400 in income |
| AMT exemption phase-out income (2018) | Single taxpayers making more than $500,000, Joint filers making more than $1,000,000 |
| AMT calculation forms | IRS Form 1040, IRS Form 6251, Form 8801: Credit for Prior Year Minimum Tax |
| AMT and tax credits | Some tax credits that reduce regular tax liability don't reduce AMT tax liability, AMT limits tax credits such as the Low-Income Housing or Work Opportunity Credits |
| AMT and capital gains | Capital gains could trigger AMT, AMT depreciation methods may be slower than those for the regular tax |
| AMT and tax deductions | AMT removes certain adjustments and deductions, Some tax deductions are not allowed for AMT purposes, e.g. intangible drilling costs preference |
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What You'll Learn
Taxpayers impacted by AMT
The Alternative Minimum Tax (AMT) applies only to some taxpayers. Before the 2017 Tax Cuts and Jobs Act (TCJA), the AMT primarily affected well-off households, particularly those with large families, those who were married, and those who lived in high-tax states. However, the TCJA shielded many taxpayers from the AMT, including almost all upper-middle and high-income taxpayers. As a result, the AMT is now most likely to affect those at the very top of the income scale who are engaged in certain tax sheltering activities.
To determine if the AMT will impact you, first calculate your regular tax liability using IRS Form 1040. Then, using IRS Form 6251, do your AMT calculation. The amount of income you have under the AMT might increase since you need to add back some types of income that would normally be tax-free under the regular income tax system. For example, tax-exempt interest from private activity bonds, which fund projects that benefit the public, such as airports. Next, remove certain tax breaks, such as your deductions for property, state, and local taxes, or even the standard deduction. This will give you the alternative minimum taxable income (AMTI). Then, subtract from the AMTI your AMT exemption amount (if eligible). For tax year 2025, the Max AMT exemption is $88,100 for individuals, $68,500 for married couples filing separately, and $137,000 for married couples filing jointly or a qualifying widow(er).
Under the TCJA, single taxpayers in 2018 could exempt up to $70,300 in income from the AMT, and the exemption phased out for taxpayers making more than $500,000. In the same year, joint filers could exempt up to $109,400 in income from the AMT, with the exemption phasing out for joint filers making more than $1,000,000 in income. These amounts were adjusted for inflation through 2025. The TCJA also reduced AMT marriage penalties by increasing and adjusting the income at which the exemption begins to phase out, so it is twice as large for married couples as for singles.
The AMT is a second, more stringent way to calculate your tax bill. Each year, when you complete your federal tax return, you compare your tax liability under the regular tax system to the AMT liability and pay the higher of the two. This process ensures that high-income households pay their fair share of taxes through the removal of certain adjustments and deductions. The AMT tax rates are 26% and 28%, depending on AMTI.
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AMT calculation methods
The Alternative Minimum Tax (AMT) is a parallel tax system that ensures high-income taxpayers pay the correct amount of federal income tax. AMT calculations limit certain breaks for some taxpayers so that their tax bill is higher.
To calculate whether you owe AMT, you will need to use Form 6251, also known as the Alternative Minimum Tax form. You can also use tax software or consult a tax professional.
To manually calculate your AMT, start by figuring out your alternative minimum taxable income (AMTI). This includes some amounts that you can usually subtract for regular income tax purposes, such as personal exemptions and some deductions, like the deduction for state and local taxes.
Calculating your AMTI can be complicated. For 2025, AMT exemptions phase out at 25 cents per dollar earned once AMTI reaches $626,350 for single filers and $1,252,700 for married taxpayers filing jointly. For every $1 above the threshold, your exemption is reduced by $0.25.
Once you have your AMTI, you can calculate your AMT liability. If this amount is higher than what you would have to pay under the regular tax system, you must pay the AMT amount.
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AMT exemptions
The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice—first, under ordinary income tax rules, then under the AMT—and pay whichever amount is highest. The AMT has fewer preferences and different exemptions and rates than the ordinary system. The AMT eliminates or reduces the value of tax preferences taken under the ordinary system.
The AMT was enacted in 1969 to keep wealthy taxpayers from using what was viewed as too many tax preferences. The AMT limits this by reducing the number of preferences taxpayers can claim, thus increasing the amount of income subject to tax under the AMT rate structure.
In 2017, before the Tax Cuts and Jobs Act (TCJA) took effect, approximately five million taxpayers had to pay under the AMT. The TCJA increased the AMT’s exemption and exemption phase-out through 2025, greatly reducing the number of taxpayers subject to the AMT, to an estimated 200,000. The Congressional Budget Office projects that if TCJA expires after 2025, 7.3 million taxpayers will be subject to the AMT starting in 2026, or about 4% of all returns.
For the tax year 2024, the AMT exemption is $85,700 for single filers and $133,300 for joint filers. Exemptions phase out once AMTI hits $609,350 for single filers and $1,218,700 for joint filers. For tax year 2025, the Max AMT exemption is $88,100 for individuals, $68,500 for married couples filing separately, and $137,000 for married couples filing jointly or a qualifying widow(er).
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AMT and tax credits
The Alternative Minimum Tax (AMT) is a federal tax system within the United States that was introduced in 1969 to prevent wealthy taxpayers from using loopholes to pay little to no taxes. The AMT was intended to target a small number of very high-income households with many deductions and credits. However, due to inflation, the income of many households rose, causing them to be impacted by the AMT.
The AMT exemption allows taxpayers to treat income up to a certain amount as regular taxable income. For the 2025 tax year, the AMT exemption is $88,100 for single taxpayers and $137,000 for married couples filing jointly. If a taxpayer's income exceeds the exemption threshold, their AMT exemption begins to phase out gradually.
To determine if the AMT applies, taxpayers must calculate their taxes using both the regular tax system and the AMT system. If their AMT liability is higher than their regular tax liability, they will need to pay the difference as AMT. Taxpayers can use Form 6251 to determine if they need to pay the AMT and Form 8801 to calculate their AMT credit.
The AMT may affect the availability and utilization of certain tax credits. Some tax credits that reduce regular tax liability may not reduce AMT tax liability. For example, the Low-Income Housing and Work Opportunity Credits may be limited by the Tentative Minimum Tax, reducing the credits' effectiveness in lowering tax liability.
In addition, taxpayers who have paid AMT in previous years due to certain deferral items, such as exercising incentive stock options (ISOs), may be eligible for the Minimum Tax Credit (MTC). The MTC can offset regular tax liability in future years, up to the point where regular tax equals AMT liability. Taxpayers can leverage AMT credits to reduce their regular tax in future years when their regular tax is higher than their AMT.
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AMT and income tax
The Alternative Minimum Tax (AMT) is a second, more stringent way to calculate your tax bill. It applies only to some taxpayers, typically those with incomes of $200,000-$500,000. The AMT is calculated by comparing your tax liability under the regular tax system to the AMT liability and paying the higher amount. This process ensures that high-income households pay their fair share of taxes by removing certain adjustments and deductions.
The AMT rules significantly changed with the passing of the Tax Cuts and Jobs Act (TCJA) in 2017, which reduced the number of taxpayers impacted by the AMT. These changes are temporary and apply only to tax years 2018 to 2025 unless extended by Congress. Under the TCJA, single taxpayers in 2018 could exempt up to $70,300 in income from the AMT, with the exemption phasing out for those earning over $500,000. Joint filers could exempt up to $109,400, with the exemption phasing out for joint filers earning over $1,000,000.
To determine if the AMT applies to you, first calculate your regular tax liability using IRS Form 1040. Then, use IRS Form 6251 to calculate your AMT liability. The amount of income under the AMT may increase as certain types of tax-free income, such as tax-exempt interest from private activity bonds, need to be added back. Additionally, certain tax breaks, such as deductions for property and state and local taxes, may need to be removed.
If your Tentative Minimum Tax, calculated on Form 6251, is less than your regular tax, you don't owe any AMT. However, the AMT may still impact you in other ways, such as limiting certain tax credits. The AMT also affects certain items differently than regular taxes, including installment sales of inventory items, intangible drilling costs, and taxable IRA distributions.
Looking ahead, if the TCJA expires after 2025 as scheduled, it is projected that 7.3 million taxpayers will be subject to the AMT starting in 2026. This expiration will impact the number of taxpayers affected by the AMT and the amount of revenue generated.
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Frequently asked questions
The Alternative Minimum Tax (AMT) is a second, more stringent way to calculate your tax bill. Each year, when you complete your federal tax return, you compare your tax liability under the regular tax system to the AMT liability and pay the higher of the two.
The AMT applies only to some taxpayers. People with large deductions, particularly those resident in states or cities with high income tax rates, or those with non-qualifying mortgage interest deductions, are most affected. The AMT also has the potential to tax families with large numbers of dependents.
To determine if the AMT will impact you, first calculate your regular tax liability using IRS Form 1040. Then, using IRS Form 6251, do your AMT calculation. The amount of income you have under the AMT might increase, since you need to add back some types of income that would normally be tax-free under the regular income tax system.
The TCJA significantly changed the AMT rules, reducing the number of taxpayers impacted by the AMT. However, these changes are temporary and set to expire at the end of 2025 unless extended by Congress. The Congressional Budget Office projects that if the TCJA expires after 2025, 7.3 million taxpayers will be subject to the AMT starting in 2026.
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