OBBBA Deep Dive – Part 3: The Alternative Minimum Tax (AMT)

The One Big Beautiful Bill Act (OBBBA) has reshaped major parts of the tax code, lowering taxes for many households while expanding deductions in meaningful ways. But as with any sweeping reform, some provisions create unexpected ripple effects. One of the most important — and least understood — is the renewed impact of the Alternative Minimum Tax (AMT).

The AMT isn’t new, but OBBBA changes the landscape in ways that may pull more households into its reach, particularly those in higher-tax states or those with incentive stock options (ISOs). This is why we’re dedicating Part 3 of the OBBBA Deep Dive series to understanding the AMT: what it is, how OBBBA affects it, and what planning opportunities still exist.

Change can feel overwhelming, but you don’t have to navigate it alone. I am monitoring these rules closely and will help you evaluate how and when to adjust your strategy. If you have questions or want to understand how OBBBA applies to your own situation, I’m here to help — every step of the way.

A Quick Refresher: What the AMT Is and Why It Exists

At its core, the AMT is a parallel tax system. Taxpayers calculate their taxes twice — once under the regular rules and once under the AMT — and pay whichever amount is higher. The system adds back certain deductions and credits, known as “preference items,” to ensure that taxpayers who claim significant tax benefits still pay a minimum level of federal tax. As one tax expert put it, “The AMT was built to catch people whose deductions outpaced their income — and it still does exactly that.”

Before the 2017 Tax Cuts and Jobs Act (TCJA), AMT exposure was common for households in high-tax states because they routinely deducted large amounts of state and local taxes (SALT). When TCJA capped SALT at $10,000, many families were unexpectedly protected from AMT — fewer deductions meant fewer add-backs.

OBBBA reverses that dynamic in subtle but important ways.

How OBBBA Increases AMT Exposure

Although OBBBA lowers taxes for many households under the regular system, it doesn’t change how the AMT is calculated. This means that the same expanded deductions many taxpayers celebrate under OBBBA — especially the restored SALT deduction up to $40,000 — must be added back when running AMT calculations.

Under AMT rules, you must also add back:

The standard deduction
Interest on private activity bonds
Income from ISO exercises
Various other preference items

The result is that some of the very changes that lower your tax bill under OBBBA may make you more vulnerable to the AMT.

"More deductions under the regular system don’t always mean a lower total tax bill — sometimes they simply shift which tax system applies."

Who Is Most Likely to Be Affected?

Many factors interact to determine whether you’ll be affected by the AMT, making it hard to predict whether you’re at risk. However, there are some types of income and deductions that tend to increase exposure. First, higher-income taxpayers face a greater risk of owing the AMT — especially if much of your income comes from capital gains, investments or other non-wage sources. As such income rises, the AMT exemption may shrink or disappear entirely. Second, living in a high-tax state can increase exposure. Under regular tax rules, state and local taxes may be deductible, but the AMT disallows them, potentially raising your bill. Even using the standard deduction, which most taxpayers claim, can trigger AMT. That’s because the AMT system doesn’t permit the standard deduction, leaving more of your income taxable.

While we are not heading back to the pre-2017 world — when millions of households paid AMT — certain groups should pay closer attention.

Understanding AMT Income, Exemptions, and Phaseouts

AMT liability depends on two components:

AMT income, which is your regular taxable income plus preference items.
An AMT exemption, which reduces that income before applying AMT rates.

2025 Exemptions and Phaseouts

$88,100 for single filers
$137,000 for married couples filing jointly
Phaseout begins at ~$626,000 (single) and ~$1.25M (married)

Under the OBBBA, these phaseout thresholds drop steeply to $500,000 and $1 million starting in 2026. (They’ll be annually adjusted for inflation thereafter.) The new law also increases the phaseout exemption threshold from 25% of the excess to 50% of the excess. This could push more high-income taxpayers into AMT territory.

What Your Tax Liability Looks Like Under the AMT

Once AMT income is calculated and exemptions are applied, AMT uses a simplified rate structure:

26% tax on the first portion of AMT income (up to $239,100 for all but Married filing separate taxpayers)
28% on income above that threshold

“The AMT isn’t something you want to discover in April — it’s something you want to anticipate in October.”

Planning Opportunities Under OBBBA

AMT exposure can be managed — but timing is everything.

For some individuals, there may be value in exercising ISOs in 2025 rather than waiting until OBBBA’s broader AMT effects apply in 2026. High-SALT households may want to stagger or delay certain tax payments. Investors with private activity bonds may need to revisit after-tax yield assumptions. And many taxpayers will benefit from multi-year projections as phaseout thresholds shift.

Why AMT Matters Beyond High-Income Households

Although the AMT was originally designed for high-income taxpayers and taxpayers with significant capital gain or non wage income, today’s landscape is different. Dual-income households, families with large itemized deductions, mid-career professionals with stock compensation, and retirees making strategic financial moves may all find themselves closer to AMT triggers than expected.

“The AMT isn’t just for the ultra-wealthy anymore — it tends to find taxpayers with complexity, not necessarily extreme income.”

This type of uncertainty makes proactive planning even more important. With thoughtful modeling, it’s possible to coordinate income timing, stock compensation, charitable deductions, and investment decisions to minimize AMT surprises.

The Bottom Line

The AMT has always been a quiet presence in the tax code — but under OBBBA, it becomes a more active consideration for many households. Understanding your exposure early can help you make wise timing decisions and avoid costly surprises.

If you’d like to explore how AMT interacts with your own plan, or whether 2025 presents opportunities before the rules shift again, I’m here to help.