8.2 Alternative Minimum Tax (AMT)

The Alternative Minimum Tax is a core individual-tax topic on the EA SEE. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the higher TCJA AMT exemption amounts and phase-out thresholds permanent, ending the previously scheduled post-2025 reversion to pre-TCJA levels.

What Is the AMT?

The Alternative Minimum Tax is a parallel tax system that runs alongside the regular income tax. It ensures taxpayers benefiting from large itemized deductions, ISO exercises, or other preference items still pay a minimum federal tax.

How it works: Compute tax twice:

1. Regular income tax
2. AMT (with preferences added back and a single AMT exemption applied)

If tentative minimum tax exceeds regular tax, the excess is owed as AMT (in addition to regular tax) and reported on Form 6251 → Schedule 2, Line 1 → Form 1040, Line 17.

Why Does AMT Exist?

Congress enacted the AMT in 1969 after learning 155 high-income individuals had paid zero federal income tax through legal deductions. Over decades, AMT expanded to capture millions of middle-class taxpayers — particularly in high-SALT states — until TCJA (2018) raised exemptions sharply. OBBBA has now locked those higher exemptions in permanently.

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2025 AMT Exemption Amounts

EA Exam Tip: MFS exemption is exactly half of MFJ ($68,500 vs. $137,000). Single and HoH share the same exemption.

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2025 AMT Exemption Phase-Out

The exemption is reduced by 25¢ per $1 of AMTI above the threshold.

Example: A single taxpayer with AMTI of $700,000 exceeds the threshold by $73,650 ($700,000 − $626,350). Their exemption is reduced by $18,412.50 ($73,650 × 25%), leaving an exemption of $69,687.50 ($88,100 − $18,412.50).

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2025 AMT Tax Rates

Calculation shortcut: If AMTI (after exemption) exceeds $239,100, multiply by 28% and subtract $4,782 ($2,391 MFS).

Preferential capital gains rates of 0%/15%/20% still apply for AMT purposes at the same 2025 thresholds as regular tax — net LTCG and qualified dividends are NOT taxed at 26%/28% AMT rates.

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Common AMT Preference Items and Adjustments

When calculating AMTI, taxpayers must add back certain items that reduced regular taxable income.

ISO bargain element example: An employee exercises ISOs for 1,000 shares at $10/share when FMV is $50/share. The $40,000 bargain element (1,000 × $40) is added to AMTI even though there is no regular-tax consequence until sale.

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Calculating Alternative Minimum Taxable Income (AMTI)

Regular Taxable Income
+ Standard Deduction (if claimed)
+ SALT Deduction (Schedule A — including the OBBBA-raised cap)
+ Private Activity Bond Interest
+ ISO Bargain Element
+ Depreciation Adjustment
+ Other AMT preference items
− AMT-specific deductions
= Alternative Minimum Taxable Income (AMTI)

AMTI − AMT Exemption (after phase-out) = Taxable Excess
Taxable Excess × 26%/28% = Tentative Minimum Tax
Tentative Minimum Tax − Regular Tax = AMT (if positive)

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Form 6251 Overview

Form 6251, Alternative Minimum Tax — Individuals has three parts:

Part I — AMTI

• Line 1: Taxable income from Form 1040
• Lines 2a–2t: AMT adjustments and preferences
• Line 4: AMTI

Part II — Alternative Minimum Tax

• Line 5: AMT exemption (after phase-out)
• Line 6: Taxable excess
• Line 7: Tentative minimum tax (26% / 28%)
• Line 9: Regular tax liability
• Line 11: AMT (excess of TMT over regular tax)

Part III — Tax Computation Using Maximum Capital Gains Rates

• Preserves 0%/15%/20% rates on LTCG and qualified dividends under AMT

AMT flows to Schedule 2, Line 1 and then to Form 1040, Line 17.

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Interaction with OBBBA SALT Cap Increase

OBBBA raised the regular-tax SALT cap to $40,000 ($20,000 MFS) for 2025 (was $10,000 / $5,000 under TCJA), phasing down by 30¢ per $1 of MAGI above $500,000 MFJ / $250,000 MFS to a $10,000 floor. Because SALT is still fully added back for AMT, taxpayers in high-tax states with large SALT deductions may see an AMT recalculation become relevant again — even though TCJA initially reduced AMT exposure.

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EA Exam Tips for AMT

1. Know the 2025 exemption amounts — especially MFS = half of MFJ.
2. Phase-out rate is 25¢ per $1 of AMTI above the threshold.
3. Two rates: 26% / 28%, with the break at $239,100 ($119,550 MFS).
4. ISO bargain element is a perennial favorite — add to AMTI in year of exercise.
5. SALT is fully added back for AMT regardless of the OBBBA cap increase.
6. LTCG / QDI preferential rates also apply under AMT at the same thresholds.
7. AMT is permanent post-OBBBA — no scheduled reversion to pre-TCJA exemption levels.
8. AMT is reported on Schedule 2, Line 1.