Demystifying the Individual AMT in 2025 & Beyond

The Alternative Minimum Tax (AMT) was originally designed to ensure that high-income taxpayers pay at least a minimum amount of tax, even if they benefit from significant deductions, credits, or other tax breaks. Although its reach was narrowed by the Tax Cuts and Jobs Act (TCJA) in 2018, the recently enacted One Big Beautiful Bill Act (OBBBA) permanently reshaped several AMT provisions and will bring additional changes starting in 2026.

Here’s what you need to know for the 2025 and 2026 tax years.

AMT Basics

The AMT runs parallel to the regular income tax system. You calculate taxable income twice — once under the regular tax rules and once under the AMT rules. If your AMT liability is higher, you must pay the difference.

Key differences include:

• Some deductions allowed for regular tax aren’t permitted under AMT (for example, state and local taxes).
• Certain types of income, like incentive stock option (ISO) exercises, are included under AMT.
• The system uses its own exemption amounts and phase-out rules.

Exemption Amounts for 2025

For the 2025 tax year (returns filed in 2026), the AMT exemptions and phase-out thresholds are:

• Single / Head of Household: $88,100 exemption; phase-out begins at $626,350 of AMTI.
• Married Filing Jointly: $137,000 exemption; phase-out begins at $1,252,700 of AMTI.
• Married Filing Separately: $68,500 exemption.

The AMT rates are:

• 26% on the first $239,100 of AMTI, and
• 28% on AMTI above that threshold.

These figures are annually adjusted for inflation.

What Changes in 2026

Beginning in 2026, the OBBBA reshapes the AMT phase-out rules:

• The phase-out thresholds drop to $500,000 for single filers and $1,000,000 for married joint filers (indexed for inflation).
• The phase-out rate doubles from 25% to 50%, meaning the exemption will be lost more quickly as income rises.

These adjustments mean more high-income taxpayers may find themselves partially or fully subject to AMT starting in 2026, even if they weren’t in prior years.

Example: How the 2026 Phase-Out Could Affect You

Consider a married couple filing jointly with $1.1 million of Alternative Minimum Taxable Income (AMTI).

• In 2025:
  • Their exemption is $137,000.
  • The phase-out doesn’t begin until $1,252,700 of AMTI.
  • Since their income is below the phase-out range, they keep the full exemption.

• In 2026 (under OBBBA):
  • The exemption starts at $137,000 (before inflation adjustments).
  • The phase-out now begins at $1,000,000 for joint filers, and phases out at a faster 50% rate.
  • With $1.1 million of AMTI, they’re $100,000 over the threshold. At 50%, this reduces their exemption by $50,000, leaving them with an exemption of $87,000.
  • This lower exemption means more of their income becomes subject to AMT, increasing their tax liability.

Takeaway: Even though this couple wasn’t affected in 2025, the new phase-out rules in 2026 could push them into AMT territory. This illustrates why year-to-year tax planning is essential.

Planning Considerations

1. Multi-Year Projections: If you’re close to the exemption phase-out, plan ahead by looking at 2025 and 2026 together. Income bunching, deferrals, or timing deductions can make a difference.
2. Retirement Contributions: Maxing out retirement accounts may help lower adjusted gross income (AGI) and reduce exposure.
3. ISO Exercises: The timing of exercising incentive stock options can dramatically affect AMTI. Spreading exercises over multiple years may reduce AMT liability.
4. Municipal Bonds: Some private activity bonds generate income subject to AMT — review your portfolio with an advisor.

Final Thoughts

The OBBBA preserved the higher exemption levels established under the TCJA but added new 2026 rules that could bring more taxpayers back into AMT territory. As these provisions take effect, it’s essential to revisit your long-term tax plan.

Contact your Porte Brown tax advisor to model scenarios for 2025 and 2026, and to explore strategies that can help you minimize AMT exposure while staying compliant.

The Lowdown on the Minimum Tax Credit

Even if you find yourself paying the Alternative Minimum Tax, you may be able to recoup part of it in future years through the Minimum Tax Credit (MTC). The MTC is available when your AMT liability is caused by deferral (timing) preferences — items that are treated differently under the AMT and regular tax systems but eventually reverse over time.

How It Works

• If you pay AMT due to timing differences (such as depreciation adjustments or the “bargain element” from exercising incentive stock options), those amounts may generate an MTC.
• You can carry forward the credit to future tax years and use it to reduce your regular tax liability, up to the point where your regular tax equals your AMT liability.

What Doesn’t Count

Not all AMT liabilities generate a credit. Exclusion preferences — items that are permanently treated differently under AMT — don’t produce an MTC. Examples include:

• The standard deduction,
• Disallowed itemized deductions under AMT (such as state and local taxes and certain home equity interest), and
• Tax-exempt interest from certain private-activity bonds.

Why It Matters Under OBBBA

The OBBBA made the higher AMT exemption levels permanent, but starting in 2026, the new phase-out rules will lower thresholds and accelerate how quickly exemptions disappear. This could increase the number of taxpayers paying AMT — and therefore the number generating deferral-based MTCs. However, exclusion preferences will remain ineligible.

Bottom Line

If you’re subject to AMT, it’s worth identifying which parts of your liability stem from deferral vs. exclusion items. Doing so ensures you capture every available credit carryforward. A Porte Brown tax advisor can help track these amounts and determine how best to use them in future years.