Since 2018, the alternative minimum tax has been easy to ignore. The Tax Cuts and Jobs Act of 2017 raised the AMT exemption amounts and phase-out thresholds so substantially that the Tax Policy Center estimated only about 200,000 taxpayers paid AMT in 2018, a small fraction of prior years. For many high earners, it simply dropped off the planning agenda.

The One Big Beautiful Bill Act, enacted in July 2025, put it back on. The higher exemption amounts became permanent, which is good news, but beginning with the 2026 tax year the phase-out thresholds came back down and the exemption now disappears twice as fast once income crosses them. There has been plenty of talk about what the new law did for the SALT deduction. But where’s the talk about what it did to AMT exposure?

Here’s the short version: the AMT is a parallel tax calculation that runs alongside the regular income tax system. You calculate your tax under both sets of rules and pay whichever is higher, so AMT kicks in only when the AMT calculation, what the IRS calls the tentative minimum tax, exceeds your regular tax. 

How Does the AMT Actually Work?

You start with your regular taxable income, add back deductions the AMT does not allow, and add in certain income items that receive favorable treatment under the regular system. The result is your alternative minimum taxable income, or AMTI, the tax base the AMT actually uses. Subtract the AMT exemption, apply the AMT rates, and compare the result to your regular tax. The IRS outlines the sequence in Topic 556, and the calculation itself happens on Form 6251.

The AMT has two rates, 26% and 28%, with the higher rate applying to AMT income above $244,500 for 2026 (subject to change). Compare that to the regular system’s top rate of 37% and the AMT looks almost tame, which is exactly why I don’t love how much attention the rates receive. They were never the real issue.

Consider a hypothetical scenario: a married couple filing jointly has $1,000,000 of taxable ordinary income in 2026, setting deductions aside. The regular system is progressive: the 32% bracket doesn’t begin until taxable income passes $403,550, and 37% doesn’t begin until $768,700 (2026 figures, subject to change). Run the math across all seven brackets and their blended average rate lands at roughly 29% — barely above the AMT’s top rate of 28%. What separates the systems is the base: what each counts as income and what it lets you deduct.

All figures reflect the 2026 tax year and are subject to change.

When Does AMT Kick In?

AMT kicks in when your tentative minimum tax exceeds your regular tax, and the exemption is the buffer that keeps many taxpayers from ever encountering it. For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly (subject to change); income below the exemption never enters the calculation.

The exemption phases out at higher incomes, though, and this is where the new law changed the landscape. For 2026, the phase-out begins at $500,000 of AMTI for single filers and $1,000,000 for married couples filing jointly — down from roughly $625,000 and $1.25 million in 2025 — and the exemption now shrinks by 50 cents for every dollar above those thresholds, double the previous 25-cent rate. Many high earners who spent years comfortably outside AMT territory will find the boundary has moved toward them, even without a single stock option in the picture.

What Triggers AMT? A Checklist

If your income puts you anywhere near the phase-out thresholds, these are worth reviewing each year, ideally before December while there’s still time to adjust:

• Exercising incentive stock options. Under the regular system, exercising an ISO creates no taxable income at exercise, and if you meet the holding periods (two years from grant, one year from exercise), the bargain element — the spread between your strike price and the fair market value at exercise — plus later appreciation can qualify for long-term capital gains treatment at sale. Under the AMT, that same bargain element is added to your income in the year you exercise, whether or not you sell a share. The differences in how ISOs and NQSOs are taxed matter here, because this trigger catches executives off guard: real tax on paper gains you haven’t converted to cash.
• High income in a phase-out year. Once AMTI crosses the 2026 thresholds, every additional dollar erodes the exemption by 50 cents, pushing more income into the AMT base just as earnings rise.
• Large state and local tax deductions. For 2026, the regular system allows a SALT deduction of up to $40,400, shrinking by 30 cents for every dollar of modified adjusted gross income above $505,000 but never below a $10,000 floor (all subject to change). The AMT allows no SALT deduction at all, so if you live in a high-tax state and itemize heavily, the SALT deduction is one of the first things added back.
• A significant capital gain year. Long-term capital gains keep their preferential 15% or 20% rates under both systems, but a large gain still raises AMTI, and inside the phase-out range it can shrink your exemption and expose more ordinary income to AMT rates.
• Accelerated depreciation. Business owners may need to recalculate accelerated depreciation on a slower schedule for certain property under the AMT, with the difference added back, so a move designed to bring taxable income down in one year can raise the alternative calculation instead.
• Other preference items. Interest from certain private activity municipal bonds and a handful of other narrowly defined items also get added back for AMT purposes; they’re less common, but they belong on the same annual review.

No single item on this list reliably triggers AMT on its own. The trouble usually comes from combinations — an ISO exercise in the same year as a large capital gain, layered on top of a substantial state income tax deduction. Each can look reasonable alone and still produce an expensive result when combined.

The Credit for Alternative Minimum Tax

Paying AMT is not necessarily money permanently lost. When AMT results from timing differences, such as ISO exercises and depreciation adjustments that the two systems recognize in different years, you generally earn a minimum tax credit. In a later year when your regular tax exceeds your tentative minimum tax, the credit can reduce your regular tax bill, and unused amounts keep carrying forward. It’s claimed on Form 8801, Credit for Prior Year Minimum Tax.

One nuance worth knowing: the credit generally comes from those timing-related items rather than permanent differences like the SALT add-back, so AMT traced to state taxes you couldn’t deduct typically doesn’t generate a credit. Your CPA can confirm which category applies.

How to Minimize AMT Exposure

I’m a big believer that there are not many ways to get around taxes, and the AMT is no exception: when the calculation applies, it applies. The financial planning opportunity is in the timing and coordination: managing when income comes in, how deductions stack, and how each decision interacts with the rest of your tax picture.

If you hold incentive stock options, expect an unusually high-income year, or run a business with meaningful depreciation, these strategies are worth discussing with your advisor and CPA:

• Model the possible AMT exposure before you act. Run the Form 6251 calculation before exercising options or accelerating deductions, not at filing time the following spring.
• Exercise ISOs when the bargain element is small. A narrower spread between strike price and fair market value means less income added to the AMT calculation and can reduce the likelihood of paying AMT.
• Time exercises against your other income. A year with a lower bonus, or one without RSUs vesting, can give an ISO exercise more room, and understanding how RSUs are taxed makes those windows easier to spot.
• Watch the calendar on large gains. Where the investment decision supports it, spreading significant capital gains across tax years can help keep AMTI below the phase-out thresholds.
• Coordinate depreciation elections. For business owners, the choice between accelerated and straight-line schedules deserves a look under both systems before it’s made.
• Track the credit. If you paid AMT in a prior year, confirm that Form 8801 is part of your return until the credit is fully used.

Each works best inside a broader, integrated financial plan, and the same logic behind the tax strategies for high-income earners worth bookmarking applies here: AMT is one more consideration in the multi-year decisions you need to make.

Common AMT Questions

Does exercising ISOs automatically trigger AMT? No. Exercising adds the bargain element to your AMT income, but you owe AMT only if the resulting tentative minimum tax exceeds your regular tax for the year. A modest exercise in an average y income year may not tip the balance, which is why modeling beforehand is worth the effort.

What are preference items for AMT? Preference items are income or deductions that receive favorable treatment under the regular system and get added back when calculating AMTI. Common examples include interest from certain private activity municipal bonds and the excess of accelerated over straight-line depreciation on certain property. The tax code technically splits these into “adjustments” (like the ISO bargain element) and “preferences,” but the practical effect is the same: income the AMT counts that the regular system doesn’t.

How do I avoid AMT? There’s no reliable way to opt out of the calculation — if your AMTI produces the higher tax, the AMT applies. What you can influence are the inputs: the timing of option exercises, the size of gains realized in a single year, and how your deductions interact with your income. Planned across multiple years, those inputs often keep the regular system in control; handled in isolation, they can produce an AMT bill no one saw coming.

What to Do Next

If your income is approaching the 2026 phase-out thresholds, you hold incentive stock options, or this year’s plans include a large capital gain, it’s best to look at AMT before year-end while your options are open. Ask your CPA to run the AMT calculation alongside any major decision and treat the result as an input to the decision itself.

This is also where integrated planning earns its keep. Monument’s tax planning approach is built around this kind of coordination — connecting equity compensation decisions, capital gains timing, and deduction planning so the pieces work together instead of against each other. If you’d like a clear-eyed look at how AMT fits into your own picture, our complimentary Wealth Check is a no-pressure place to start. Ready to start the conversation?  Let’s talk.

All of this to say: the AMT rewards people who look at the whole picture before acting, so make sure you consult your CPA before making any of these moves, because every situation is different.

Note: Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Please consult your CPA for tax advice.

Want to suggest a correction to this article? Email us at info@monumentwm.com. Please note that Monument Wealth Management and its advisors are not tax advisors, and this article is not a replacement for professional legal, accounting or tax advice.