Among several of the tax rules made permanent by the One Big Beautiful Bill Act (OBBBA), one is the alternative minimum tax (AMT). Although the Tax Cuts and Jobs Act (TCJA) made the individual AMT more taxpayer-friendly for the years 2018 through 2025, OBBBA brings mixed reviews about its potential exposure. 

Here’s what you need to know about the individual AMT, including its OBBBA impact and key tax planning considerations to minimize your liability. 

Understanding AMT

AMT is a separate federal income tax system that bears some resemblance to the regular federal income tax system. The difference is that the individual AMT system taxes certain types of income that are tax-free under the regular system. It also disallows some deductions allowed under the regular system. If the AMT exceeds your regular tax bill, you owe the larger AMT amount.

AMT Rates

The maximum AMT rate is “only” 28% versus the 37% maximum regular federal income tax rate. At first glance, it may seem counterintuitive that anyone would worry about paying AMT. However, while the top AMT rate is lower, it applies to a much larger taxable base with fewer deductions and credits. That’s why people in certain situations still need to worry about it.

For 2025, the maximum 28% AMT rate kicks in when your taxable income, calculated under the AMT rules, exceeds an inflation-adjusted threshold of $239,100 for married joint-filing couples or $119,550 for other taxpayers. Below these thresholds, the AMT rate is 26%.

AMT exemptions

Under the AMT rules, you’re allowed an inflation-adjusted AMT exemption — effectively a deduction — in calculating your alternative minimum taxable income. The TCJA significantly increased the exemption amounts for the years 2018 through 2025. The OBBBA made the TCJA increased exemption amounts permanent, with annual inflation adjustments.

For 2025, the exemption amounts are $88,100 for unmarried individuals, $137,000 married joint-filing couples, and $68,500 for married individuals who file separate returns. 

Exemption phase-out rule

At high levels of alternative minimum taxable income, your AMT exemption is phased out, which increases the odds that you’ll owe the tax. The TCJA dramatically increased the phase-out thresholds to levels where most taxpayers are unaffected by the phase-out rule. 

For 2025, the exemption begins to be phased out when alternative minimum taxable income exceeds $626,350 or $1,252,700 for a married joint-filing couple. For the years 2018 through 2025, the applicable exemption is reduced by 25% of the excess of your alternative minimum taxable income over the applicable phase-out threshold. 

OBBBA Impact

The good news is that the OBBBA makes the $500,000 and $1 million exemption phase-out threshold permanent, beginning in 2026. 

However, starting in 2026, the new law resets starting in 2026 the exemption phase-out thresholds to $500,000 and $1 million with annual inflation adjustments for 2026 and beyond. So for 2026, these phase-out thresholds will be lower than the higher thresholds that apply for 2025. Additionally, the OBBBA increases the exemption phase-out percentage from 25% to 50% starting in 2026.

Bottom line: For 2026 and beyond, AMT exemptions for higher-income taxpayers can be phased out faster. That means more taxpayers may owe the AMT for 2026 and beyond. 

AMT risk factors

Various interacting factors make it difficult to pinpoint exactly who’ll be hit by the AMT and who’ll dodge it. Here are five implications and risk factors.

1. Substantial income from capital gains or other sources. When you have high income, from whatever sources, it can cause your AMT exemption to be partially or completely phased out. That increases the odds that you’ll owe the AMT.
2. Itemized state and local tax (SALT) deductions. You can’t deduct SALT expenses under the AMT rules. This can hurt those living in high-tax states.
3. Exercise of incentive stock options (ISOs). When you exercise an ISO, the bargain element (the difference between the market value of the shares on the exercise date and your ISO exercise price) doesn’t count as income under the regular tax rules, but it counts as income under the AMT rules.
4. Standard deductions. Standard deductions are disallowed under the AMT rules.
5. Private activity bond interest income. This category of interest income is tax-free for regular tax purposes but taxable under the AMT rules. 

Determine your status

The TCJA significantly reduced the odds that you’ll owe the AMT, but the OBBBA may have the opposite impact. Don’t assume you’re exempt from AMT — especially if you have some of the risk factors outlined above. Our individual tax pros can help minimize your potential exposure with appropriate tax planning. Contact us to obtain assistance.