Navigating the Alternative Minimum Tax: A Guide to the 2026 Updates

For a number of years, the Alternative Minimum Tax (AMT) has been a non-factor for most American taxpayers. The passage of the Tax Cuts and Jobs Act (TCJA) in 2017 raised the exemption amounts and income thresholds so high that only a small fraction of individuals were subject to this parallel tax. But, as we prepare for the 2026 tax year, the AMT is roaring back.

The recent passage of the One Big Beautiful Bill Act (OBBBA) has made permanent some of the TCJA’s most popular provisions, but it has also brought significant changes to the AMT that will affect a much wider swath of high-income earners. The new rules are a game-changer, and failing to understand them could lead to a very unpleasant surprise when you file your return.

What the AMT Is and Why It Matters Now

The AMT is a separate tax system that runs parallel to the regular federal income tax. Its purpose is to ensure that high-income taxpayers, even those with a large number of deductions and credits, pay a minimum amount of tax. You must calculate your tax liability under both the regular rules and the AMT rules, and then pay whichever amount is higher.

This dual calculation is where the complexity—and the risk—comes in. The AMT disallows many common deductions and credits, which can cause your AMT income to be much higher than your regular taxable income. The most common triggers for the AMT include:

• State and Local Taxes (SALT): The TCJA capped the SALT deduction at $10,000 for regular tax purposes, but the AMT completely disallows this deduction, which can be a major issue for those living in high-tax states.
• Incentive Stock Options (ISOs): The “bargain element” of ISOs—the difference between the exercise price and the market price—is not taxable under the regular tax system until the shares are sold. However, under the AMT, this amount is considered income in the year you exercise the options.
• Interest from Private Activity Bonds: While interest from most municipal bonds is tax-free, interest from certain private activity bonds is considered a preference item and is taxable under the AMT.

Key Changes to the AMT for 2026

The OBBBA’s main changes to the AMT for 2026 are focused on the exemption and phase-out rules, which directly impact who is subject to the tax. While the new law makes the higher standard deduction and lower tax rates permanent, it also resets the playing field for the AMT.

The most significant change is the lowering of the AMT exemption phase-out thresholds. For single filers, the threshold will drop to $500,000, and for married couples filing jointly, it will drop to $1 million. These are a considerable decrease from the higher inflation-adjusted thresholds that were in place under the TCJA.

In addition to the lower thresholds, the OBBBA also doubles the rate at which the AMT exemption is phased out. The phase-out rate, which was 25 cents for every dollar of income above the threshold, will jump to 50 cents. This means the exemption disappears twice as fast as your income rises.

These two changes combined—lower thresholds and a faster phase-out—mean that more high-income individuals and families will find themselves subject to the AMT than in recent years.

Preparing for the 2026 AMT

It’s clear that the AMT is back on the radar for many taxpayers. The time to prepare is now, not when you’re scrambling to file your tax return.

1. Get an AMT Checkup: Start by modeling your 2026 tax situation with your tax professional or using advanced tax software. This will help you understand if you’re at risk of paying the AMT and by how much.
2. Reconsider ISO Exercise Strategy: If you have incentive stock options, the new AMT rules should be a key part of your decision-making. Exercising a large number of options in a single year could create a significant AMT liability. You might want to consider staggering your exercises or exploring a “same-day” sale strategy.
3. Plan for Your Tax Credits: The AMT can limit the value of certain tax credits. If you’re close to the phase-out thresholds, consider the timing of when you claim certain credits.
4. Understand the AMT Credit: If you do end up paying the AMT, don’t despair. You may be able to generate an AMT credit that can be used in future years to reduce your regular tax liability when it’s higher than your AMT liability.

The new tax landscape for 2026 means that tax planning for high-income earners is more critical than ever. The AMT, once a niche concern, is poised to affect a much larger population. By understanding the new rules and taking proactive steps, you can avoid a costly tax surprise and ensure your financial plan remains on track.