Alternative Minimum Tax - Introduction - AMT Exemption Amounts - Planning and Triggering Issues

Sep 19, 2026

Alternative Minimum Tax (AMT) prevents taxpayers with significant income from using combinations of exclusions, deductions, and credits to pay little or no federal income tax. The AMT is an add-on to regular income tax liability, but it effectively functions as the higher of the regular tax or a tentative minimum tax based on AMTI. The guidance outlines AMT terminology, key exemption amounts and phaseouts, and planning triggers such as large capital gains and corporate AMT.

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Introduction

AMT Exemption Amounts

Figure 1. AMT Exemption Amounts

AMT Planning and Triggering Issues

Taxpayers with Large Capital Gains

AMT for Corporations

IRS Publications

Alternative Minimum Tax entities (the entities do not pay tax on the income), the individual AMT is the focus of this fact sheet. The AMT imposed on C corporations (CAMT) is discussed briefly atthe end of the article. 08/18/2025 Introduction Congress imposes the alternative minimum tax (AMT) on taxpayers to prevent them from combining tax exclusions, deductions, and credits to pay very little or no federal income tax when they have significant income. When it was first enacted in 1969, the AMT affected only a few, very high-income taxpayers. Since it was first imposed, changes to the regular tax rules caused many more taxpayers to pay the AMT. Following the passage of the Tax Cuts and Jobs Act (TCJA), increased AMT phaseoutsand exemption amounts have significantly reduced the number of taxpayers required to calculate and pay AMT. The One Big Beautiful Bill Act (OBBBA) of 2025 extends the TCJA exemptions permanently, with some modifications to the inflation adjustment and the phaseout of the AMT exemption. This article gives a basic explanation of the AMT and discussion of situations that cause taxpayers to pay the AMT. The terminology of the AMT rules can be confusing because the tax that Congress calls the AMT is technically an add-on tax, rather than an alternative to the regular income tax—the AMT is added to the regular tax liability. The IRS follows the Congressional labeling and calls the amount of tax added to the regular tax the “alternative minimum tax.” Therefore, taxpayers report their regular income tax on their tax return, and then add on the AMT to find their total income tax liability for a respective tax year. While the AMT is technically an add-on tax, it has the effect of an alternative tax because taxpayers calculate their AMT by subtracting the regular tax liability from the“tentative minimum tax.” If the tentative minimum tax is less than the regular tax, there is no AMT. If the tentative minimum tax is greater than the regular tax, the AMT is the difference between the tentative minimum tax and the regular tax. Because the AMT is added to the regular tax, the effect of these rules is that taxpayers pay the higher of the regular tax or the tentative minimum tax. Therefore, the tentative minimum tax is, in effect, an alternative tax that taxpayers must pay if it exceeds their regular tax obligation. Because the owners of partnerships, S corporations, and limited liability companies (LLCs) that are taxed as disregarded entities, are taxed on the income of those AMT Exemption Amounts Taxpayers reduce the AMTI by an exemption amount and multiply the result by the 26%(for the first $206,100) and 28%(for any amount over $206,100) AMT rates. Figure 1 shows the AMT exemption amounts provided in Internal Revenue Code Section 55(d)(1) . However, Congress has increased these exemption amounts for taxpayers filing an individual return each year beginning in 2001. To illustrate the increases, Figure 1 also shows the exemption amounts that are in effect for 2024 and 2025 Figure 1. AMT Exemption Amounts | Filing Status | 2024 | 2025 | | --- | --- | --- | | Married individuals filing jointly | $133,300 | $137,000 | | Surviving
spouses | 133,300 | 137,000 | | Single Individuals | 85,700 | 88,100 | | Married individuals fling separately | 66,650 | 68,500 | | Estates and trusts | 22,900 | 30,700 | AMT Planning and Triggering Issues This section discusses how the AMT affects taxpayers with large capital gains. Taxpayers with Large Capital Gains The AMT calculation allows taxpayers to use the same tax rate on capital gains as they use for regular tax liability. Although this provision appears to not trigger the AMT, taxpayers with large capital gains may be subject to AMT because of the loss of the AMT exemption. The tax on the capital gain does not change, but the tax on the ordinary income increases because the capital gains reduce the AMT exemption, which increases the ordinary income that i

FAQs

Why does the IRS impose the Alternative Minimum Tax (AMT)?

Congress imposes AMT to prevent taxpayers from reducing federal income tax to very little or none by combining exclusions, deductions, and credits while still having significant income.

How does AMT work relative to regular income tax?

Taxpayers compute regular income tax first, then calculate AMT by comparing tentative minimum tax to regular tax. If tentative minimum tax is greater, the AMT equals the difference; the overall effect is paying the higher amount.

What planning strategy can reduce AMT triggered by large capital gains?

Spreading capital gains over more than one year—such as using an installment sale or selling portions across multiple years—can help keep AMTI below the exemption reduction threshold, potentially reducing or eliminating AMT.

Sep 19, 2026

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