NEWS
AMT relief under OBBB is expected to shift in 2026 as the law lowers key phase-out thresholds tied to the Alternative Minimum Tax, potentially exposing more upper-middle-income households to liability. The adjustment unwinds part of the Tax Cuts and Jobs Act and increases exposure for taxpayers in high-tax states who rely on itemized deductions that AMT rules do not allow.
The alternative minimum tax requires taxpayers to calculate liability twice—under the regular federal income tax system and under AMT rules. Many deductions allowed under the tax code, including the SALT deduction, mortgage interest, and charitable donations, do not reduce AMT taxable income. This difference often explains why AMT liability can exceed regular tax liability for some households.
Beginning in 2026, the One Big Beautiful Bill Act preserves higher AMT exemption amounts but lowers the income levels at which those exemptions begin their exemption phase-out. As more households cross the phase-out thresholds, the AMT exemption decreases more rapidly, increasing the likelihood of paying the AMT rather than the regular tax.
The revised thresholds fall to $500,000 for single filers and $1 million for married couples filing jointly. Once a taxpayer’s income exceeds those levels, the exemption declines at fifty cents per dollar. Because the AMT exemption amounts reduce so rapidly, households with large itemized deductions or high taxable income may lose the exemption entirely.
These changes also affect regional taxpayers differently. Households in high-tax states often report substantial state and local tax deductions and property taxes, both of which are disallowed under AMT rules. When combined with income from incentive stock options or private activity municipal bond interest, the new rules increase the likelihood of AMT.
A household with an adjusted gross income of nearly $150,000 generally avoids AMT because its deductions remain below the point that would trigger the second calculation. A household with an income of around $400,000, especially in a high-tax state, may reach an AMT tipping point, depending on state and local tax deductions and property tax levels. At incomes above $1.2 million, the exemption phase-out often eliminates all remaining protection, making AMT calculations routine each year.
The Internal Revenue Service explains that AMT applies only when the tentative minimum tax exceeds the regular tax. Since the OBBB Act lowers the thresholds and accelerates the phase-out, more taxpayers may discover that AMT rates result in a higher tax bill, especially those with complex deduction profiles.
Before the Tax Cuts and Jobs Act, the alternative minimum tax affected millions of households. The TCJA raised both the exemption and phase-out thresholds, dramatically reducing the number of AMT taxpayers. These changes significantly reduced the administrative burden on families with moderate itemized deductions.
The One Big Beautiful Bill Act reverses key elements of that protection. Although the exemption amounts remain elevated, the lower phase-out thresholds move more taxpayers back into the AMT framework, particularly those with rising income or fluctuating deductions. These tax law changes restore structural features that expand the reach of the AMT in ways not seen since before 2018.
Though OBBB temporarily increases the regular-tax SALT deduction cap, AMT rules do not permit it. As a result, homeowners with high property taxes or those relying on substantial state tax deductions may experience a higher tentative minimum tax. This makes AMT calculations increasingly crucial for financial planning as taxpayers anticipate year-to-year changes.
Tax specialists note that once the phase-out begins, the AMT exemption erodes rapidly. Because AMT taxable income includes elements such as the spread on exercised stock options or interest from private activity municipal bonds, taxpayers with more complex financial profiles may face AMT even when their regular federal income tax liability seems manageable.
Policy analysts reviewing OBBB say the lower thresholds may come as a surprise to households expecting TCJA-level relief to continue. They describe the phase-out structure as a revenue-stabilizing feature that broadens AMT reach without eliminating the more visible tax relief elsewhere in the law.
“The new phase-out thresholds will draw a significant share of upper-middle-income households back into AMT,” one analyst noted. “Families with incentive stock options or large deductible expenses should not wait until filing season to assess exposure.”
Another tax researcher highlighted the rapid decline in the speed of exemption. “Once income rises past the threshold, the exemption evaporates much faster than most taxpayers anticipate,” the researcher said. “Those with private activity municipal bond interest or substantial itemized deductions must prepare for regular AMT comparisons.”
Together, these analyses show that taxpayers with volatile income or large deductions may need to revisit AMT annually.
Taxpayers near the revised phase-out thresholds should assess their expected adjusted gross income and how their deductions interact with AMT rules. Those in high-tax states may need to run annual comparisons of regular tax and tentative minimum tax, particularly if they hold incentive stock options or report higher property taxes.
Households with incentive stock options must track the spread between the exercise price and fair market value, which directly increases AMT taxable income. Families with charitable donations or interest from private activity municipal bonds should also evaluate AMT exposure.
Running income scenarios before the 2026 rules take effect can help taxpayers understand whether the lower thresholds will create AMT liability. Adjusting the timing of deductions, stock option exercises, or bonus income may reduce exposure. Early modeling allows taxpayers to take precautionary steps before filing requirements become stricter.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
© 2025 Get Tax Relief Now™. All rights reserved.
