Concise Takeaway
AMT is a parallel tax system that removes certain deductions and preferences. If the tentative minimum tax is higher than regular tax, the taxpayer pays AMT.
Purpose of AMT
AMT applies when certain income or deductions receive favorable treatment under the regular tax system. It ensures a minimum tax level for taxpayers who benefit from exclusions, deductions, or credits.
AMT is calculated separately using Form 6251. The process removes specific deductions and adds back preference items to determine alternative minimum taxable income (AMTI).
A taxpayer owes AMT when:
Tentative minimum tax > regular tax liability
AMT Exemption Amounts (2025)
The AMT exemption reduces AMTI before applying AMT rates.
2025 exemption amounts:
- Married Filing Joint / Qualifying Surviving Spouse: $137,000
- Single / Head of Household: $88,100
- Married Filing Separate: $68,500
AMT Exemption Phaseout (2025)
The exemption is reduced by 25% of AMTI above:
- Married Filing Joint / Qualifying Surviving Spouse: $1,252,700
- All others: $626,350
AMT Tax Rates (2025)
AMT uses two flat rates:
- 26% on AMTI up to $239,100 (or $119,550 MFS)
- 28% on AMTI above those thresholds
This calculation produces the tentative minimum tax. If it exceeds regular tax, the difference is AMT owed.
Adjustments and Preference Items
AMT adjustments fall into two categories:
Deferral items
Temporary differences that reverse over time (e.g., depreciation).
Exclusion items
Permanent differences (e.g., standard deduction).
Common AMT adjustments
- Add back the standard deduction
- Add back state, local, and foreign taxes deducted on Schedule A
- Subtract any state or local tax refund included in income
Common AMT preference items
- Tax‑exempt interest from private activity bonds
- Differences between regular‑tax and AMT rules for:
- Investment interest
- Depreciation
- Gains or losses on property
- Loss limitations
- Income from incentive stock options
- Changes in passive activity loss deductions
- Excess depletion
- Excess intangible drilling costs
These items increase AMTI and can trigger AMT.
Credit for Prior Year Minimum Tax
If a taxpayer pays AMT due to deferral items, they may claim a minimum tax credit in future years.
Key rules:
- The credit is nonrefundable
- It can reduce regular tax, but not below tentative minimum tax
- It carries forward until used
This allows recovery of AMT paid on temporary differences.
AMT Flow Summary
- Start with taxable income
- Add adjustments and preference items → AMTI
- Subtract AMT exemption
- Apply 26% / 28% rates → tentative minimum tax
- Compare with regular tax
- Pay the excess if tentative minimum tax is higher