Understanding the Alternative Minimum Tax Exemption Under the One Big Beautiful Bill Act

The Alternative Minimum Tax (AMT) has long served as a parallel tax system designed to ensure that high-income individuals pay a minimum level of tax, regardless of deductions and credits available under the regular tax code.  The AMT is calculated alongside the regular tax and limits certain tax benefits that can significantly reduce a taxpayer’s regular tax amount.  Taxpayers must calculate their tax liability under both the regular tax and AMT systems, and if the AMT amount is higher than the regular tax amount, they must pay the regular tax plus the amount by which the AMT exceeds the regular tax.  With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, significant changes to the AMT exemption and phaseout rules are set to take effect in 2026—marking a pivotal shift from the framework established by the 2017 Tax Cuts and Jobs Act (TCJA). 

The TCJA brought welcome relief to many taxpayers by increasing AMT exemption amounts.  For 2025, the exemption was set at $137,000 for married couples filing jointly, $88,100 for single filers, and $68,500 for married couples filing separately.  Exemptions begin to phase out at $1,252,700 for joint filers and $626,350 for others.  By eliminating or limiting certain deductions (e.g., personal exemptions, miscellaneous itemized deductions), the TCJA reduced the number of taxpayers subject to AMT from over 5 million in 2017 to just 200,000 in 2018.  These provisions were set to expire after 2025, creating uncertainty for high-income taxpayers.  

The OBBBA both preserves and modifies the TCJA’s AMT framework.  The increased exemption amounts from the TCJA are made permanent and indexed for inflation.  Starting in 2026, the phaseout thresholds revert to $1 million for joint filers and $500,000 for others, significantly lower than the TCJA levels.  The phaseout rate doubles from 25% to 50%, meaning the AMT exemption phases out at double the rate as income rises.  Standard deductions, state and local tax (SALT) deductions, and private activity bond interest remain disallowed under the AMT rules.  

The changes will expand the pool of taxpayers subject to the AMT, particularly the following taxpayers: 

• High-income earners with substantial capital gains or incentive stock options. 

• Residents of high-tax states who claim large SALT deductions. 

• Executives and tech professionals exercising ISOs. 

• Investors in private activity municipal bonds, whose interest is taxable under the AMT. 

While the number of AMT payers won’t return to pre-TCJA levels, the rollback of phaseout thresholds and doubling of the phaseout rate will increase exposure for many. 

With the new AMT landscape, proactive planning is essential.  Here are key strategies: 

• Timing Income and Deductions – Consider deferring income or accelerating deductions in 2025 to avoid the AMT exposure in 2026. 

• Stock Option Strategy – Evaluate the timing of ISO exercises.  Spreading exercises over multiple years or using disqualifying dispositions may reduce the AMT liability. 

• Capital Gains Management – Harvesting gains strategically and using tax-loss harvesting can help manage the AMT-triggering income. 

• SALT Deduction Optimization – Use pass-through entity workarounds where available to mitigate the impact of SALT deduction disallowance. 

• Charitable Giving – Take advantage of the new above-the-line charitable deduction ($1,000 single/$2,000 joint) and plan itemized contributions to exceed the new 0.5% floor. 

The OBBBA reshapes the AMT landscape in ways that demand attention from high-income taxpayers and their advisors.  While the law retains some of the TCJA’s taxpayer-friendly provisions, the rollback of phaseout thresholds and acceleration of exemption reductions mean that the AMT planning is once again at the front and center in tax strategy discussions.