Alternative minimum tax AMT 2026 who pays it
By Morgan Hayes | Certified Tax Specialist, EA credentials pending | Last Updated: December 2024
Picture this: You earn $350,000 annually, live in California, and claim $85,000 in state and local taxes. You carefully itemize your deductions, expecting a substantial tax benefit. Then April arrives, and your CPA delivers unexpected news—you owe Alternative Minimum Tax (AMT), potentially adding $15,000 or more to your bill. This scenario becomes increasingly common as 2026 approaches, when the Tax Cuts and Jobs Act (TCJA) provisions expire and AMT exemption amounts revert to lower levels. The Alternative Minimum Tax remains one of the most misunderstood—yet financially consequential—aspects of U.S. tax law, affecting millions of high-income earners, business owners, and professionals. As we face the TCJA sunset in 2026, understanding AMT has never been more critical.
Understanding AMT and How the 2026 TCJA Expiration Changes Everything
The Alternative Minimum Tax operates as a parallel tax system designed to ensure high-income taxpayers pay at least a minimum amount of federal income tax. Rather than using standard tax brackets and deductions, the AMT recalculates your tax liability using Alternative Minimum Taxable Income (AMTI), which adds back certain deductions and preferences that reduce regular taxable income.
Here's how it works in practice: If you're a single filer earning $300,000 with $60,000 in SALT deductions, your regular taxable income might be substantially reduced. However, under AMT rules, you must add back that $60,000 SALT deduction when calculating AMTI. The resulting AMTI is then taxed at 26% (for income below the threshold) or 28% (for income above it). If this AMT calculation produces a higher tax bill than your regular tax liability, you pay the difference as additional tax.
The TCJA temporarily increased AMT exemption amounts starting in 2018, providing significant relief. For 2024, these temporarily elevated exemptions stood at $85,900 for single filers and $133,700 for married filing jointly filers. However, these exemptions sunset on December 31, 2025. Beginning January 1, 2026, exemption amounts revert to lower levels adjusted only for inflation since 2017, potentially exposing millions of additional taxpayers to AMT liability.
According to IRS data cited in Treasury analyses, approximately 4.7 million taxpayers paid AMT in 2022. Without TCJA provisions, the Treasury projects this number could exceed 7 million by 2026. The SALT deduction cap of $10,000 (also enacted via TCJA) compounds this problem. Residents of high-tax states like California, New York, New Jersey, and Massachusetts face particularly acute exposure, as they cannot deduct excess SALT amounts on regular returns yet must add back even the $10,000 allowed amount when calculating AMT.
| Filing Status | 2024 (TCJA) | 2025 (TCJA) | 2026 (Post-TCJA) |
|---|---|---|---|
| Single | $85,900 | $87,200 | $70,400* |
| Married Filing Jointly | $133,700 | $135,900 | $109,300* |
| Head of Household | $85,900 | $87,200 | $70,400* |
| *2026 figures are projections assuming 2% inflation and TCJA sunset. Actual amounts subject to IRS inflation adjustments. | |||
The 2026 Impact: A married couple filing jointly with $400,000 income currently benefits from a $135,900 AMT exemption. In 2026, that exemption drops to approximately $109,300—a $26,600 reduction. This effectively pushes an additional $26,600 of their AMTI into the 26% and 28% tax brackets, potentially increasing their AMT liability by $6,956 to $7,448 for that year alone.
Who Pays AMT in 2026: Common Triggers and Affected Taxpayer Profiles
AMT doesn't affect all high-income earners equally. Certain deductions and income sources trigger AMT exposure more readily. Understanding whether you fall into a high-risk category allows strategic planning before 2026 arrives.
- State and Local Tax (SALT) Deductions: The $10,000 SALT cap forces residents of high-tax states to add back significant deductions when calculating AMTI. Someone with $35,000 in actual SALT obligations but limited to $10,000 regular deduction must add back $25,000 for AMT purposes.
- Private Activity Bond Interest: Interest on certain municipal bonds (used for non-essential government purposes) is tax-exempt for regular income tax but treated as a preference item for AMT.
- Depreciation Adjustments: Business owners and real estate investors recalculate depreciation using the Alternative Depreciation System (ADS) for AMT, often resulting in lower deductions and higher AMTI.
- Incentive Stock Options (ISOs): The spread between exercise price and fair market value when ISOs are exercised increases AMTI, creating substantial exposure for corporate executives.
- Passive Activity Losses: While passive losses offset passive income on regular returns, they cannot offset other income for AMT purposes.
- Charitable Contribution Deduction Limitations: Certain charitable deduction limitations differ between regular tax and AMT calculations.
- Medical Expense Deductions: The 7.5% AGI floor for medical expenses doesn't apply equally under both systems.
High-Risk Taxpayer Profiles for 2026: Business owners with $250,000+ income; executives with significant equity compensation; real estate professionals; high-income earners in California, New York, New Jersey, Connecticut, and Massachusetts; physicians and attorneys in high-tax states; and individuals with substantial investment income combined with business deductions.