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Alternative minimum tax implications under current law

by | Oct 3, 2025 | Technical Research & Calculations

Here’s what HIVE AI had to say about “Alternative minimum tax implications under current law”:

Alternative Minimum Tax implications under current law

What the AMT is and who it affects now

  • The individual AMT is an extra 3-step computation: determine alternative minimum taxable income (AMTI) by adjusting regular taxable income for AMT preference items, subtract the AMT exemption, apply AMT rates (26%/28%) to get tentative minimum tax, and compare it to regular tax; AMT owed equals the excess of tentative minimum tax over regular tax. The AMT foreign tax credit can reduce tentative minimum tax. 1
  • Under the One Big Beautiful Bill Act (OBBBA), Congress made the expanded AMT exemptions permanent and changed the phaseout mechanics starting in 2026: AMT exemption phaseout thresholds drop (to $500,000 single/$1,000,000 joint) and the phaseout rate doubles from 25% to 50%. This increases AMT exposure for some higher-income households beginning in 2026. 2
  • Practical effect: through 2025, relatively few individuals owe AMT; starting in 2026, more upper‑income filers near or above the new thresholds may see reduced exemption and increased tentative minimum tax, particularly those with classic AMT adjustments (e.g., ISO exercises, private activity bond interest, accelerated depreciation, passive loss differences).

Key AMT adjustments and preference items to monitor

  • Common individual AMT lines remain: tax‑exempt interest from private activity bonds, ISO exercises (bargain element), depreciation differences, passive activity and loss limitation differences, long‑term contract method differences, and certain deferral/preference items shown on Form 6251. 3
  • Passive activity coordination: section 58(b) confirms section 469 applies for AMT with adjustments under sections 56 and 57, and without qualified housing interest in lieu of 469(j)(7). 4
  • Special rule for REMIC residual interests: AMTI cannot be below excess inclusion; excess inclusion is excluded in computing the AMT NOL. 5

AMT foreign tax credit and cross‑border issues

  • Individuals may claim a separate AMT foreign tax credit (AMT FTC) with its own limitation and must prepare separate Forms 1116 for AMT and regular tax. 6
  • The section 59(a) AMT FTC regime uses AMTI-based limitation if the taxpayer made the post‑1997 election; once made, it applies unless revoked with IRS consent. 7
  • Certain sourcing/apportionment elections can interact with AMT FTC (e.g., the alternative tax book value method for asset apportionment specifically mentions its relevance to AMT FTC computations). 8

Estimated tax and mechanics

  • For quarterly estimated tax using annualization, the AMT exemption under section 55(d)(2) is applied after annualizing AMTI for the period. This affects safe-harbor calculations and avoids underpayment penalties. 9

Corporate AMT context (separate from individual AMT)

  • Corporate AMT was repealed after 2017 and replaced in 2022 with the 15% corporate alternative minimum tax (CAMT) based on adjusted financial statement income for large corporations (generally $1B+ AFSI). Consolidated estimated tax rules are being updated for CAMT; substantive CAMT operations are addressed in separate guidance. 10
  • For tax‑exempt organizations, CAMT filing exceptions and reporting mechanics are described for 2023; CAMT applies only to AFSI from unrelated trades or businesses and is reported via Form 990‑T if applicable. 11

Planning implications and actions

2025 vs. 2026 timing

  • Consider accelerating AMT‑sensitive items into 2025 when feasible (e.g., exercising incentive stock options, realizing private activity bond decisions) before the 2026 phaseout threshold reduction and 50% phaseout rate take effect.

Modeling AMTI and exemption phaseout

  • Model AMTI with Form 6251 lines to identify which adjustments are binding and how close you are to the 2026 phaseout thresholds; the higher 50% phaseout rate will erode the exemption faster, increasing tentative minimum tax at higher incomes. 3 2

Coordination with foreign tax credit

  • If you claim foreign tax credits and are near AMT liability, prepare separate FTC computations (regular and AMT) and consider elections that affect allocation/apportionment (e.g., asset method choices) to optimize the AMT FTC limitation. 6 8 7

Estimated tax alignment

  • If AMT is likely, use the annualization method properly applying the AMT exemption after annualizing AMTI; consider increasing withholding or estimates to avoid penalties. 9

Compliance reminder

  • The IRS emphasizes verifying AMT exposure; refunds can be reduced or additional tax assessed if AMT applies but wasn’t computed. 12

Special notes and edge cases

Innocent spouse allocation

  • If seeking relief under section 6015(c), AMT deficiency amounts are allocable between spouses based on items giving rise to AMT. 13

Interactions with specific items

  • Investment/charitable SALT strategies that reduce regular tax may increase AMT exposure; historically, increasing AMT exemptions reduced AMT incidence post‑TCJA, but OBBBA’s 2026 changes partly reverse that trend. 14 14 2

If you share filing status, estimated 2025–2026 AMTI drivers (ISOs, PAB interest, K‑1 passive items, depreciation), and foreign taxes paid, I can run a targeted AMT/AMT‑FTC pro forma and recommend timing strategies around the 2026 changes.

Sources

1 – IRS.gov – Topic no. 556, Alternative Minimum Tax 📄 Summarize
2 – One Big Beautiful Bill Act Sec. 70107. Extension of increased alternative minimum tax exemption amounts and modification of phaseout thresholds 📄 Summarize
3 – IRS – Form 6251 Alternative Minimum Tax – Individuals 📄 Summarize
4 – IRC § 58(b) 📄 Summarize
5 – IRC § 860E(a) 📄 Summarize
6 – IRS.gov – Foreign Tax Credit – Special issues 📄 Summarize
7 – IRC § 59(a) 📄 Summarize
8 – Treasury Regulation 1.861-9 📄 Summarize
9 – Treasury Regulation 1.6655-2 📄 Summarize
10 – REG-134420-10 📄 Summarize
11 – IRS Newsroom – IR-2024-277 📄 Summarize
12 – Notice 2004-13 📄 Summarize
13 – Treasury Regulation 1.6015-3 📄 Summarize
14 – REG–112176–18 📄 Summarize

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