A deduction that lowers your regular federal income tax liability may not help as much — or at all — if you're subject to the alternative minimum tax (AMT). Other financial moves could even increase your AMT risk. And with changes taking effect in 2026, some higher-income taxpayers may face greater exposure than in recent years. Before making year-end tax planning decisions, it's worth checking how they could affect both your regular tax and AMT liability.
The AMT is a separate tax system that disallows some deductions and treats certain income items differently. You must pay the AMT if your AMT liability exceeds your regular tax liability.
The maximum AMT rate is 28% versus the 37% maximum regular federal income tax rate. In light of this, it may seem counterintuitive that anyone would worry about paying the AMT. However, though the top AMT rate is lower, it applies to a much larger taxable base and allows fewer tax breaks. That's why taxpayers in certain situations still need to worry about it.
For 2026, the maximum 28% AMT rate kicks in when taxable income, calculated under the AMT rules, exceeds $244,500 for all taxpayers except married individuals filing separately, whose threshold is $122,250. Below these thresholds, the AMT rate is 26%.
Under the rules, you're allowed an inflation-adjusted AMT exemption — effectively a deduction — in calculating your AMT income. The Tax Cuts and Jobs Act (TCJA) significantly increased the exemption amounts for 2018 through 2025. Last year's One Big Beautiful Bill Act (OBBBA) made the TCJA's increased exemption amounts permanent, with annual inflation adjustments.
For 2026, the exemption amounts are:
At high income levels, the exemption phases out — raising the odds that you'll owe the AMT. The TCJA dramatically increased the phaseout thresholds to levels where most taxpayers were unaffected by the phaseout rule. For 2025, the exemption began phasing out when AMT income exceeded $626,350, or $1,252,700 for joint filers (half that for separate filers). For 2025, the applicable exemption was reduced by 25% of the excess of your AMT income over the applicable phaseout threshold. So the exemption completely phased out once AMT income reached $978,750, or $1,800,700 for joint filers (half that for separate filers).
The OBBBA made the TCJA's increased AMT exemptions and phaseout thresholds permanent. But for 2026, it resets the exemption phaseout thresholds to $500,000 and $1 million, the levels that applied when the higher TCJA thresholds went into effect in 2018. (In other words, the OBBBA removed the inflation adjustments that had been made for 2019 through 2025.) Inflation adjustments will resume in 2027.
The OBBBA also increases the exemption phaseout percentage from 25% to 50% beginning in 2026. Effectively, the exemption phases out twice as fast. This year, it's completely phased out once AMT income reaches $680,200 or $1,280,400 for joint filers (half that for separate filers).
Bottom line: Because the exemptions are lower and can be phased out faster, more higher-income taxpayers may owe the AMT — or owe more of it — for 2026 and beyond.
Various interacting factors make it difficult to pinpoint exactly who'll be hit by the AMT. Here are six potential risk factors:
1. High income, including long-term capital gains and qualified dividends. No matter the source, high income can partially or completely phase out your AMT exemption. That increases the odds that you'll owe the AMT. Long-term capital gains and qualified dividends are generally subject to the same lower rates under the regular and AMT systems. However, they increase AMT income, so they can phase out your exemption.
2. State and local tax (SALT) deductions. The AMT rules don't allow a deduction for SALT expenses. Under the TCJA, your entire itemized deduction for SALT — including property tax and the greater of income or sales tax — was limited to $10,000 ($5,000 for separate filers). While the maximum SALT deduction was relatively small, it was less likely to trigger the AMT. But the OBBBA quadrupled the SALT deduction limit beginning in 2025 and indexes it for inflation beginning in 2026. Because the deduction remains disallowed under the AMT, a large SALT deduction can increase AMT exposure.
The 2026 SALT deduction limit is $40,400 ($20,200 for separate filers), though an income-based reduction applies. When modified adjusted gross income (MAGI) exceeds $505,000 ($252,500 for separate filers), the cap is reduced by 30% of the amount by which MAGI exceeds the threshold — but not below $10,000 ($5,000 for separate filers).
3. Incentive stock option (ISO) exercises. When you exercise an ISO and hold the shares beyond year end, the bargain element — the difference between the shares' market value on the exercise date and your exercise price — generally isn't income under the regular tax rules. But the AMT rules include the bargain element in income. Carefully evaluate the AMT consequences before exercising ISOs late in the year.
4. The standard deduction. The standard deduction is disallowed under the AMT rules. So taxpayers who normally take the standard deduction rather than itemize can be at AMT risk if their income is high or they have other risk factors.
5. Bond interest. The interest from certain private activity municipal bonds may be tax-free for regular tax purposes but taxable under the AMT rules. However, any income from tax-exempt bonds issued in 2009 and 2010 (along with 2009 and 2010 re-fundings of bonds issued after December 31, 2003, and before January 1, 2009) is excluded from the AMT.
6. Depreciation differences. You may be at higher AMT risk if you're self-employed, own a pass-through business, or invest in a passive business or rental real estate activity. Accelerated depreciation and passive activity adjustments can produce different results under the regular and AMT systems. Differences in an asset's regular and AMT basis can also affect the gain or loss recognized when the asset is sold.
Smart timing of income and expenses can reduce your tax liability — and poor timing can unnecessarily increase it. When you don't expect to be subject to the AMT in the current year or the next year, deferring income to the next year and, if you itemize, accelerating deductible expenses into the current year is typically a good idea. Why? Because it will defer tax, which is usually beneficial. But in some cases, such actions could trigger the AMT or increase AMT liability.
So, it's important to first project your regular tax and AMT liability for both 2026 and 2027. That can help you determine whether you can time income or expenses to avoid the AMT, reduce its impact, or benefit from its lower maximum rate. The appropriate strategy depends on which tax system is expected to apply in each year.
If you expect to owe AMT for 2026 but not 2027, possible strategies may include:
If you expect to owe AMT for 2027 but not 2026, the opposite timing may be beneficial. You might defer income to 2027 and accelerate into 2026 expenses that would provide no benefit in an AMT year. You may also want to review your holdings of private activity municipal bonds. Selling certain bonds could prevent future interest from increasing AMT liability, but the sale itself may generate a taxable gain or loss.
Finally, keep in mind that some AMT liability may generate a tax credit that you can use in a later year. The credit generally applies to temporary deferral items that reverse in later years, such as depreciation, passive activity and ISO adjustments. AMT attributable to permanent exclusion items, such as the standard deduction, SALT deductions or certain private activity bond interest, generally doesn't qualify.
A year-end tax planning decision can affect your regular tax and AMT liabilities differently — and it may affect your 2027 taxes as well. So it's important to check the impact before acting. Your tax advisor can project both years and compare the potential effects of various timing strategies for income and expenses.
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