Changes taking effect in 2026 could increase alternative minimum tax (AMT) risk for some higher-income taxpayers. If you may be affected, it’s important to consider the AMT before making year-end decisions about when to recognize income or claim deductions.
A strategy that reduces your regular federal income tax may provide little or no benefit under the AMT. In some cases, it could even cause you to become subject to the AMT.
That makes projecting both your regular tax and AMT liability an important part of 2026 year-end tax planning.
How the AMT works
The AMT is a separate federal income tax system that uses different rules to calculate taxable income. Certain deductions and income items are treated differently under the AMT than under the regular tax system.
You generally owe the AMT when your calculated AMT liability exceeds your regular federal income tax liability.
For 2026, the AMT tax rates are 26% and 28%, compared with regular federal income tax rates ranging from 10% to 37%. However, the AMT applies to a broader income base because certain deductions allowed under the regular tax system aren’t available when calculating AMT income.
An AMT exemption can reduce the amount of income subject to the AMT. For 2026, the exemption is:
- $90,100 for single filers and married taxpayers filing separately, subject to the applicable rules
- $140,200 for married couples filing jointly
The exemption, however, isn’t available in full to everyone. At higher income levels, it begins to phase out.
2026 AMT exemption phaseout changes
One of the important changes for 2026 is the lower income threshold at which the AMT exemption begins to phase out.
For 2026, the phaseout begins when AMT income exceeds:
- $500,000 for many individual taxpayers
- $1 million for married couples filing jointly
For comparison, the phaseout began at $626,350 for individual taxpayers and $1,252,700 for married couples filing jointly in 2025.
The exemption also phases out twice as quickly in 2026 as it did in 2025.
These changes mean that some taxpayers who weren’t subject to the AMT in previous years could face AMT liability in 2026. Others may find that their AMT liability is higher than it would have been under the previous rules.
Common AMT triggers to watch
Several factors can increase the likelihood that your AMT liability will exceed your regular tax liability.
Common AMT triggers include:
- Higher income. A higher level of AMT income can cause some or all of your AMT exemption to phase out.
- Large state and local tax (SALT) deductions. Certain SALT deductions allowed under the regular tax system aren’t deductible when calculating AMT income.
- Incentive stock option (ISO) exercises. Exercising an ISO and holding the shares beyond year end can create an AMT adjustment. The bargain element — generally the difference between the stock’s fair market value on the exercise date and the exercise price — may be included in AMT income even though it generally isn’t treated as regular taxable income at that point.
- Certain private activity municipal bonds. Interest that may be tax-free for regular federal income tax purposes can be taxable when calculating the AMT.
Other situations can also create differences between your regular tax and AMT calculations.
If you’re self-employed, own a pass-through business or have passive investments in a business or rental real estate activity, depreciation and passive activity adjustments may produce different results under the two tax systems.
How the AMT can affect year-end tax strategies
Traditional year-end tax planning often focuses on deferring income and accelerating deductions.
For example, depending on your circumstances, you might defer income until the following year while accelerating deductible expenses into the current year. This can postpone your tax liability and potentially provide other tax benefits.
However, these strategies don’t always work the same way when the AMT is involved.
A deduction that reduces your regular taxable income may not reduce your AMT income. Similarly, recognizing income in one year rather than another could produce a different result depending on which tax system applies.
That’s why taxpayers who may be subject to the AMT should project both their regular tax and AMT liability for 2026 and 2027 before implementing significant timing strategies.
If you may owe the AMT in 2026
If your projections indicate that you could be subject to the AMT in 2026, you may want to consider whether accelerating certain income into 2026 makes sense.
For example, accelerating income or short-term capital gains into 2026 could allow you to take advantage of the AMT’s lower maximum tax rate, depending on your overall tax situation.
You may also want to consider whether expenses that aren’t deductible for AMT purposes should be deferred until 2027. In some circumstances, this could allow you to preserve deductions for a year when they’re more valuable under the regular tax system. However, the applicable annual limitation on the SALT deduction should also be considered.
There can also be situations where deferring expenses that are deductible for AMT purposes makes sense. Those deductions could potentially be more valuable in a year when you’re subject to the higher maximum regular income tax rate.
ISO exercises deserve special attention
If you hold incentive stock options, exercise timing can be particularly important when AMT exposure is a concern.
An ISO exercise can create an AMT adjustment even though the transaction generally doesn’t produce regular taxable income at the time of exercise.
If the stock’s value has increased substantially above the exercise price, exercising and holding the shares could therefore increase your AMT income.
Before exercising ISOs, consider modeling the transaction under both the regular tax and AMT systems. The timing of the exercise and a subsequent sale of the shares can significantly affect the tax consequences.
If you may owe the AMT in 2027
If your projections instead indicate that you’re more likely to be subject to the AMT in 2027, the timing strategy could be different.
For example, you may want to consider deferring certain income until 2027. Depending on your circumstances, this could result in that income being taxed at a relatively lower AMT rate.
You may also want to review your municipal bond holdings before year end. If you own private activity municipal bonds whose interest could be subject to the AMT, selling them before year end may be worth considering.
As with any tax strategy, the result depends on your specific circumstances and on how the transaction affects both your regular tax and AMT calculations.
Don’t overlook depreciation and passive activities
Business owners, self-employed individuals and investors should also consider the potential AMT impact of depreciation and passive activity rules.
Depreciation deductions may be calculated differently for regular tax and AMT purposes. Passive activity rules can also produce adjustments that affect the two tax calculations differently.
If you have a pass-through business, rental real estate or another passive investment, these differences should be included in your year-end projections before you decide whether to accelerate or defer income or expenses.
Run the numbers before making year-end moves
The changes affecting the AMT in 2026 make it particularly important for higher-income taxpayers to consider both tax systems when making year-end planning decisions.
Even if you haven’t owed the AMT in recent years, your circumstances may be different in 2026. A strategy that lowers your regular tax liability may provide little benefit under the AMT — or could increase your AMT liability enough to offset some or all of the expected savings.
Before making significant year-end tax moves, project your regular tax and AMT liability for both 2026 and 2027. This can help determine whether you should accelerate or defer income, change the timing of deductions, review ISO exercises or reconsider certain investments.
We can help you evaluate your projected regular tax and AMT liability and model the potential tax consequences of different year-end strategies.
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