How Is AMT Calculated?
AMT begins with regular taxable income, adds back 'preference items' like the SALT deduction and accelerated depreciation, and subtracts the AMT exemption — roughly $85,000 for singles and $133,000 for joint filers in recent years. The resulting Alternative Minimum Taxable Income is taxed at 26% on the first $206,100 and 28% above that. You pay the higher of regular tax or AMT.
Who Is Most Likely to Owe AMT?
AMT most commonly affects taxpayers who exercised incentive stock options, have large SALT deductions, claim substantial miscellaneous deductions, or have very high income. After the 2017 Tax Cuts and Jobs Act significantly raised exemption amounts and income phase-out thresholds, far fewer households owe AMT than before.
Can You Minimize or Avoid AMT?
Strategies include timing the exercise of incentive stock options carefully, avoiding investments that generate AMT preference items, and keeping income below AMT exemption phase-out thresholds. If you paid AMT in prior years, you may have accumulated AMT credits that can offset regular tax in future years when your regular tax liability exceeds AMT.
Frequently asked questions
Does the AMT affect most taxpayers?
No. The 2017 tax reform dramatically raised AMT exemption amounts and their phase-out thresholds, relieving most middle-income households from AMT exposure. Those most at risk today are high earners in high-tax states who exercise stock options or have unusual income patterns.
What is the AMT credit and how does it work?
When you pay AMT due to timing differences — like ISO exercise — you may earn an AMT credit that carries forward. In future years when your regular tax exceeds your AMT liability, this credit offsets the difference. It does not apply to AMT caused by permanent preference items.