How Does the AMT Affect Your Standard Deduction?

The alternative minimum tax (AMT) can reduce or eliminate the benefit of the standard deduction for certain taxpayers, particularly those with higher incomes or specific types of tax-preference items. Unlike the regular tax system, which allows a standard deduction to lower taxable income, the AMT calculation follows a separate set of rules that disallows this deduction. Instead, it applies an exemption amount that phases out at higher income levels. This means that individuals subject to the AMT may not see the same reduction in taxable income that they would under the standard tax system, potentially leading to a higher tax liability.

What Is AMT and How Does It Work?

The alternative minimum tax is a parallel tax system designed to ensure that higher income individuals and those with significant deductions still pay a minimum level of tax. It was introduced to prevent taxpayers from using deductions, credits and exemptions to reduce their tax liability too much under the regular tax system.

Unlike standard income tax, the AMT recalculates taxable income using a different set of rules. It disallows certain deductions, such as the standard deduction and some itemized deductions, and applies a separate exemption amount that phases out at higher income levels.

AMT is calculated using two tax rates: 26% and 28%. While the former is applied to income below a certain threshold, the latter applies to income above that threshold. If the resulting AMT liability exceeds regular tax liability, the taxpayer must pay the higher amount.

The AMT primarily affects individuals with high incomes, large capital gains or certain tax-preference items, such as incentive stock options or state and local tax deductions. While fewer taxpayers are impacted due to inflation adjustments in the Tax Cuts and Jobs Act of 2017, those subject to the AMT often face a higher tax bill than under the standard system.

Standard Deduction vs. AMT Exemption

The standard deduction and AMT exemption both reduce taxable income, but they function differently.

The standard deduction is available to all eligible taxpayers under the regular tax system, reducing taxable income by a fixed amount. In 2025, the standard deduction is set at $15,000 for single filers and married individuals filing separately, $30,000 for married couples filing jointly and $22,500 for heads of households.

The AMT exemption, on the other hand, applies only to taxpayers subject to the alternative minimum tax. Instead of allowing a deduction, the AMT exemption provides a set amount of income that is not subject to the AMT.

For 2025, the exemption is $88,100 for single filers, $137,000 for married couples filing jointly and $68,650 for married individuals filing separately. However, these exemptions phase out at higher income levels, starting at $626,350 for single filers and $1,252,700 for married couples filing jointly.

Unlike the standard deduction, which applies automatically, the AMT exemption only comes into play when a taxpayer is subject to AMT calculations. This means those with higher incomes or certain tax-preference items may see a reduction in their exemption amount, increasing their taxable income under the AMT. ​

How to Calculate AMT

To determine if you owe AMT, you’ll need to calculate your AMT liability and compare it to your potential tax bill under the traditional income tax system. Whichever tax bill is higher is the one you’ll need to pay.

For example, suppose you are a single filer in 2025 with an income of $1 million. Under the AMT system, certain deductions are removed, leaving your AMT-adjusted taxable income at $1 million. The AMT exemption for single filers is $88,100, but it begins to phase out once income exceeds $626,350. The excess amount is $373,650 ($1 million-$626,350), and 25% of this excess, or $93,412.50, reduces your exemption. Since this reduction exceeds the full exemption amount, your exemption is eliminated.

With no exemption remaining, your entire $1 million is subject to AMT. The first $239,100 is taxed at 26%, and the remaining $760,900 is taxed at 28%. After calculating total AMT liability, you compare it to your regular tax bill. If the AMT is higher, you pay the AMT instead of the regular tax amount.

Bottom Line

The alternative minimum tax functions as a separate system that recalculates taxable income using different rules, often affecting those with higher earnings or tax-preference items. While the standard deduction lowers taxable income under the regular tax system, the AMT replaces it with an exemption that phases out at higher income levels. Since AMT calculations remove certain deductions and apply different tax rates, those subject to it may face a higher tax liability.

Tax Strategy Tips

• Forming a family limited partnership or family LLC can enable shifting income-producing assets to family members in lower tax brackets. Properly structured, this strategy reduces the family’s overall tax burden while maintaining control over asset distribution and management.
• Some financial advisors can help you plan around your tax liability and potentially lower it. 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.

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