What Are the Tax Rates for the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax (AMT) is a parallel income tax system designed to ensure that high-income individuals pay a minimum level of tax, regardless of deductions and credits that might otherwise lower their tax liability. Unlike the regular income tax, which has a progressive structure with several tax brackets, the AMT operates under a separate set of rules and applies just two different tax rates.

Working with a financial advisor who has tax experience can help you properly plan for the future.

How Does the AMT Tax Work?

The Alternative Minimum Tax is a parallel tax system designed to ensure that high-income individuals pay a minimum level of federal income tax, even if they qualify for numerous deductions and credits under the regular tax system. It recalculates taxable income by adding back certain deductions, known as preference items and applying one of two rates: 26% and 28%.

To prevent the AMT from impacting middle-income earners, the IRS sets an exemption amount that reduces the portion of income subject to AMT calculations. However, this exemption begins to phase out once income exceeds a certain threshold, meaning higher earners are more likely to be affected. The exemption amount is adjusted annually for inflation.

The AMT only affects some taxpayers, primarily individuals with high state and local tax deductions, large numbers of dependents, significant investment income or stock-based compensation. Because these tax preferences are treated differently under the AMT system, affected taxpayers may not find out they owe AMT until they have almost completed their returns. Those who are uncertain whether the AMT applies to them can use IRS Form 6251 to calculate their potential liability.

Alternative Minimum Tax Rates in 2025

For the 2025 tax year, the AMT 26% rate applies to the first $239,100 of income above the exemption amount, while income exceeding this threshold is taxed at the 28% rate.

Here is a look at the exemption rates by the type of tax filer:

How To Calculate How Much AMT You Owe

The AMT system applies different rules for determining taxable income, removing certain deductions and credits that might reduce liability under the standard tax system.

The first step in calculating AMT is determining your Alternative Minimum Taxable Income (AMTI). This begins with your adjusted gross income (AGI) and then adds back specific tax preference items that are disallowed under the AMT system.

Common adjustments include removing deductions for state and local taxes, certain medical expenses and interest on some home equity loans. Additionally, gains from exercising incentive stock options (ISOs) may be included in your AMTI, even if you haven’t sold the shares yet.

After calculating AMTI, the next step is applying the AMT exemption, which reduces the portion of your income subject to AMT. The exemption amount varies based on filing status and is phased out at higher income levels. If your income exceeds the phase-out threshold, the exemption gradually decreases, meaning more of your income becomes taxable under AMT rules. These exemption amounts are adjusted for inflation, so taxpayers should check the latest IRS figures to determine their eligibility.

Once the AMT exemption is applied, the remaining AMTI is taxed using one of two AMT rates. The 26% rate applies to income up to a designated threshold, while amounts above that threshold are taxed at 28%. If the resulting AMT liability exceeds your regular income tax liability, you must pay the higher amount.

Tax Breaks You Could Lose With AMT

When a taxpayer falls under AMT rules, certain tax breaks they might typically rely on to lower their tax bill no longer apply. This can result in a higher tax liability than expected, particularly for those who claim large deductions for state and local taxes, home mortgage interest or incentive stock options.

One of the biggest tax breaks lost under the AMT is the ability to deduct state and local taxes, including property taxes. Under the regular tax system, taxpayers can deduct up to $10,000 in combined state and local taxes. Under the AMT, these deductions are eliminated. This particularly impacts taxpayers in high-tax states, as they may see a significant increase in taxable income when subjected to AMT calculations.

While mortgage interest is generally deductible, the AMT restricts certain types of interest deductions. Specifically, interest on home equity loans that are not used to buy, build or substantially improve a home is not deductible under AMT rules. Taxpayers who have refinanced their homes or taken out home equity loans for purposes other than home improvements may find that their deductible interest is reduced or eliminated when calculating AMT liability.

Taxpayers who rely on medical expense deductions may also be impacted by AMT. While the regular tax system allows deductions for qualified medical expenses that exceed a certain percentage of adjusted gross income, the AMT applies stricter limits. Many medical expenses that would typically qualify for a deduction may no longer reduce taxable income, leading to a higher tax bill for those with significant healthcare costs.

Various other deductions, such as unreimbursed employee expenses and investment advisory fees, are eliminated under the AMT. Taxpayers who normally deduct expenses related to their profession or investment activities may find that these tax breaks no longer apply, further increasing their taxable income.

Bottom Line

Understanding how AMT tax rates work is essential for taxpayers who may be impacted, as proper planning can help mitigate unexpected liabilities. If you think the AMT might apply to you, consulting a tax professional can help you navigate its complexities and optimize your tax strategy.

Tips for Tax Planning

• A financial advisor can help you determine how you should prepare your finances for potential tax liabilities. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Property taxes can have a significant impact on returns from an investment in real estate. SmartAsset’s Property Tax Calculator helps you understand average cost of property taxes in your state and county.

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