Alternative Minimum Tax (AMT)

AMT is a separate way of calculating tax that applies to some higher‑income taxpayers who receive certain deductions or income. It recalculates income using fewer deductions and adds back certain items to determine AMT taxable income.

Why AMT Might Not Change the Tax on a Return:

• The AMT only affects taxpayers if the AMT liability exceeds their regular tax liability.
• If the regular tax is greater than or equal to the AMT, then no additional tax is owed, and the AMT calculation has no impact on the final tax due.

Example:

• Regular tax liability: $8,000
• AMT liability: $7,500

• Since regular tax > AMT, the taxpayer pays the regular tax, and AMT does not apply.

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Common AMT Triggers:

• High state/local tax deductions (especially pre-TCJA)
• Large miscellaneous itemized deductions
• Incentive stock options

How AMT Is Calculated

• Start with regular taxable income
• Add back certain deductions and preferences:
  • State and local tax deductions (SALT)
  • Miscellaneous itemized deductions
  • Depreciation differences
  • Incentive stock options
• Subtract the AMT exemption
• Apply AMT rates:
  • 26% on the first portion of AMT taxable income
  • 28% on income above a certain threshold (e.g., $220,700 for most filers in 2024)

Example Scenario

• Regular taxable income: $200,000
• SALT deduction: $10,000 (added back for AMT)
• AMT taxable income: $210,000
• 2025 AMT exemption: $85,700
• 2026 AMT exemption: $90,100 (Single or Head of Household)
• Taxable under AMT: $124,300
• AMT liability: $32,318
• Regular tax liability: $35,000
• Result: No AMT owed because regular tax > AMT