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Short Answer
The alternative minimum tax is a parallel federal tax under IRC §55. You owe AMT only when the tentative minimum tax (TMT) exceeds your regular tax. TMT is built by adding back disallowed deductions (standard deduction, SALT) and preference items (most often the ISO bargain element) to taxable income, subtracting an exemption that phases out at higher incomes, and applying flat rates of 26 percent up to the breakpoint and 28 percent above. For 2026, OBBBA §70107 doubled the exemption phase-out rate from 25 percent to 50 percent and lowered the phase-out start to $500,000 single / $1,000,000 MFJ - meaningfully expanding AMT exposure for ISO exercisers and high earners in high-tax states.
Key Takeaways
- AMT 2026 exemption: $90,100 single / HOH, $140,200 MFJ / QSS, $70,100 MFS (Rev. Proc. 2025-32). Phase-out starts at $500,000 single / $1,000,000 MFJ at the new 50 percent OBBBA rate.
- 2026 rate breakpoint: 26 percent on AMTI excess up to $244,500 ($122,250 MFS); 28 percent above. LTCG and qualified dividends keep the 0 / 15 / 20 percent preferential rate inside AMT.
- ISO bargain element under IRC §56(b)(3) is the largest single AMT trigger - the spread between FMV at exercise and the exercise price is added to AMTI when shares are exercised and held past December 31.
- Standard deduction and SALT are fully added back to AMTI under IRC §56(b)(1). High earners in CA, NY, NJ, OR with large state-tax bills are most exposed.
- AMT paid on timing differences (ISO bargain element) generates a minimum tax credit on Form 8801 recoverable in future years when regular tax exceeds TMT. AMT on permanent items (SALT, standard deduction) is not recoverable.
- Phase-out zone: from $500K to $680.2K single (and $1.0M to $1.28M MFJ) every additional dollar of AMTI removes 50 cents of exemption - the effective marginal AMT rate inside this band can exceed 35 percent.
How This Calculator Works
Step 1 - Build AMTI from regular taxable income
Start with regular taxable income (Form 1040 line 15). Add back the standard deduction (if taken), the SALT deduction (always added back for AMT), the ISO bargain element if you exercised and held past year-end (IRC §56(b)(3)), and any other §56 / §57 preference items. The result is alternative minimum taxable income (AMTI), Form 6251 line 4.
Step 2 - Apply the exemption with phase-out
The 2026 base exemption is $90,100 single / HOH, $140,200 MFJ, $70,100 MFS. Subtract a phase-out equal to 50 percent of AMTI in excess of $500,000 single / $1,000,000 MFJ / $500,000 MFS. The exemption cannot go below zero. The exemption is fully phased out at AMTI of $680,200 single, $1,280,400 MFJ, $640,200 MFS.
Step 3 - Compute the taxable excess and apply 26 / 28 percent
Taxable excess = max(AMTI minus exemption, 0). Apply 26 percent to the first $244,500 ($122,250 MFS) and 28 percent above that breakpoint. This is the gross tentative minimum tax (gross TMT) on ordinary AMTI.
Step 4 - Carve out LTCG and qualified dividends
Long-term capital gains and qualified dividends are taxed at 0, 15, or 20 percent inside AMT, not at 26 / 28 percent. The calculator excludes the LTCG / QDI portion from the 26 / 28 percent computation and applies the LTCG rates separately. Net TMT = ordinary portion at 26 / 28 percent + LTCG portion at preferential rate.
Step 5 - Compare TMT to regular tax
AMT owed = max(TMT minus regular tax, zero). If TMT <= regular tax, no AMT is owed. If TMT > regular tax, the difference is the AMT amount entered on Form 1040 Schedule 2 line 1. The calculator uses your supplied regular tax if provided, otherwise estimates it from the 2026 / 2025 ordinary brackets on (taxable income minus LTCG) plus LTCG at preferential rate.
Worked Example: David's ISO Exercise in California
David is a senior engineer at a public tech company. He files MFJ and lives in California. He exercises 5,000 ISOs at a $10 exercise price when the stock is at $50 (bargain element $40 per share, $200,000 total). He plans to hold the shares to qualify for long-term capital gain treatment, so the bargain element becomes a 2026 AMT preference item.
Inputs
Filing statusMFJ
Regular taxable income$350,000
SALT deduction taken$40,000
Itemized (so std ded NOT added back)--
ISO bargain element$200,000
LTCG / QDI$0
AMTI Build (Form 6251 Lines 1-4)
Regular taxable income$350,000
+ SALT add-back$40,000
+ ISO bargain element$200,000
= AMTI$590,000
Exemption (2026, MFJ)
Base exemption$140,200
AMTI under $1,000,000 phase-out startNo phase-out
Exemption after phase-out$140,200
TMT Calculation
Taxable excess ($590,000 - $140,200)$449,800
26% on first $244,500$63,570
28% on $205,300 above breakpoint$57,484
Tentative minimum tax$121,054
Regular Tax and AMT Owed
Regular tax on $350,000 (2026 MFJ brackets)approx $69,872
AMT owed (TMT - regular tax)approx $51,182
AMT credit carryforward (Form 8801)approx $51,182
Planning note: The $51,182 of AMT David pays is almost entirely from the ISO bargain element (a timing difference), which generates a minimum tax credit recoverable in future years. If he sells the ISO shares the same year (a disqualifying disposition), the bargain element converts to ordinary income for both regular and AMT purposes - eliminating the AMT preference. The trade-off is losing the long-term capital gain rate on future appreciation.
Quick Facts: 2026 vs 2025 AMT Parameters
AMT Parameters - IRC Section 55, 2025 vs 2026
| Parameter |
2025 (TCJA) |
2026 (OBBBA §70107) |
| Exemption - Single / HOH |
$88,100 |
$90,100 |
| Exemption - MFJ / QSS |
$137,000 |
$140,200 |
| Exemption - MFS |
$68,500 |
$70,100 |
| Phase-out start - Single / HOH / MFS |
$626,350 |
$500,000 |
| Phase-out start - MFJ |
$1,252,700 |
$1,000,000 |
| Phase-out rate |
25% |
50% (doubled) |
| 26 / 28% rate breakpoint |
$239,100 ($119,550 MFS) |
$244,500 ($122,250 MFS) |
| Exemption fully gone (Single) |
~$978,750 |
$680,200 |
| Exemption fully gone (MFJ) |
~$1,800,700 |
$1,280,400 |
| Effective marginal rate in phase-out band |
~32-35% |
~35-42% |
Practitioner Insight
The most common AMT planning mistake among ISO holders is exercising late in the year without modeling the AMT bill first. By December, taxpayers often have full visibility into their wages, bonuses, and SALT - exactly the information needed for an accurate AMT projection. The unforced errors are: exercising more shares than fit under the regular-tax-equals-TMT crossover, exercising in a high-bonus year (when regular tax already runs close to TMT, giving little room for the bargain element to absorb), and failing to set aside cash for the AMT bill (which is owed at filing, with no withholding event). A second-tier mistake is missing the AMT credit recovery on Form 8801 in subsequent years - the credit can sit unused indefinitely. Track AMT credits in your prior-year files and run Form 8801 every year you might be eligible. Finally, in the new OBBBA 50 percent phase-out zone (between $500K and $680K AMTI for single, or $1.0M and $1.28M for MFJ), a single ISO exercise can push the exemption from full to zero over a narrow income band - producing a marginal AMT cost that exceeds the headline 28 percent rate. Stage exercises across two calendar years when possible.
Real-World Scenario: Jenna in New York with a $300,000 Bargain Element
Jenna files single, lives in Manhattan, and earns $250,000 in wages with $25,000 in SALT (capped). Her regular taxable income after a $40,000 SALT itemized deduction and other deductions is $200,000. She exercises 6,000 ISOs at $5 with the stock at $55 (bargain element $50 per share, $300,000 total) in November and plans to hold for the qualifying disposition.
AMTI build: $200,000 regular taxable income + $40,000 SALT add-back + $300,000 ISO bargain = $540,000 AMTI.
Exemption with 50% phase-out: 2026 single base $90,100. Phase-out start $500,000, so phase-out = ($540,000 - $500,000) x 50% = $20,000. Exemption after phase-out = $90,100 - $20,000 = $70,100.
TMT: Taxable excess = $540,000 - $70,100 = $469,900. 26% on first $244,500 = $63,570. 28% on $225,400 = $63,112. TMT = $126,682.
Regular tax on $200,000 single (2026 brackets) is approximately $39,300. AMT owed = $126,682 - $39,300 = $87,382. Most of this generates a Form 8801 minimum tax credit recoverable in future years when regular tax exceeds TMT (typically after she sells the ISO shares). The cash flow shock is real - Jenna needs to plan estimated tax payments, but the long-term tax cost is closer to the $40,000 SALT add-back component plus a smaller residual.
When This Calculator Does Not Cover Your Situation
- State AMT: Some states (California, New York, Iowa, Minnesota, others) have their own AMT or AMT-like add-on. Not modeled here. California state AMT in particular can be material for ISO exercisers - the state imposes a 7 percent AMT rate on top of the federal hit.
- AMT credit (Form 8801) carryforward: AMT paid on timing differences (ISO bargain element, accelerated depreciation, certain mining costs) generates a credit that carries forward indefinitely. The calculator estimates AMT owed for the current year but does not project recovery in future years - that requires multi-year modeling.
- Disqualifying ISO dispositions same year: If you exercise and sell ISO shares in the same calendar year, the bargain element is reclassified as ordinary income for both regular and AMT purposes - generally eliminating the AMT preference. Set ISO bargain to $0 for same-year disqualifying dispositions.
- Qualified small business stock (QSBS) under §1202: Excluded gain has a special AMT treatment - 7 percent of the excluded gain is an AMT preference for pre-2010 acquisitions, zero for post-Sept-2010 acquisitions. Not modeled.
- Net operating loss (NOL) for AMT: AMT NOL is computed separately from regular NOL with its own 90 percent limit (or 100 percent under CARES-era rules). Not modeled.
- Foreign tax credit AMT limit: AMT FTC is computed separately under IRC §59 and can differ materially from the regular FTC. High-foreign-income taxpayers should run Form 1116 AMT alongside Form 6251.
- Trusts and estates: AMT for trusts and estates uses a much lower exemption ($30,200 in 2026 indexed) and applies at the top 28 percent rate quickly. Not modeled - this calculator is for individuals.
FAQ: Alternative Minimum Tax
What is the alternative minimum tax (AMT)?
The alternative minimum tax is a parallel federal income tax system under IRC section 55 designed to ensure high-income taxpayers pay at least a minimum level of tax even after taking deductions and preferences. You compute regular tax and tentative minimum tax (TMT) separately, then pay the higher of the two. TMT is calculated by starting with taxable income, adding back specific preference items and adjustments under IRC sections 56 and 57, subtracting an exemption that phases out at higher incomes, and applying flat rates of 26 percent and 28 percent. AMT applies whenever TMT exceeds regular tax, and the difference is reported on Form 6251.
Who is most affected by AMT in 2026?
In 2026 the OBBBA tightening of the AMT exemption phase-out from 25 percent to 50 percent and the lower phase-out thresholds ($500,000 single / $1,000,000 MFJ) substantially expand AMT exposure compared to TCJA years. The most affected groups are: tech employees who exercise incentive stock options and hold past calendar year-end (the bargain element is the largest single AMT preference), high earners in high-tax states (California, New York, New Jersey, Oregon) where SALT add-back is large, taxpayers with very large miscellaneous itemized deductions or private activity bond interest, and households in the $500,000 to $1,500,000 income range where the 50 percent phase-out claws back the exemption fastest.
How do incentive stock options (ISOs) trigger AMT?
Under IRC section 56(b)(3), the spread between the fair market value of the stock at exercise and the exercise price is added to AMTI in the year you exercise an ISO and hold the shares past December 31. For regular tax purposes, no income is recognized at exercise of a qualifying ISO, but for AMT the spread (the bargain element) is treated as a preference item. This is the single largest AMT trigger for tech employees. If you sell the shares in the same calendar year as exercise (a disqualifying disposition), the bargain element converts to ordinary income for both regular and AMT purposes, which generally eliminates the AMT preference for that year.
What is the AMT exemption for 2026?
For tax year 2026, the AMT exemption amounts under IRC section 55(d)(1) as inflation-adjusted by Rev. Proc. 2025-32 are: $90,100 for single filers and heads of household, $140,200 for married filing jointly and qualifying surviving spouses, and $70,100 for married filing separately. The exemption is reduced (phased out) at higher incomes - see the next answer for thresholds. The exemption is subtracted from AMTI before applying the 26 percent and 28 percent rates.
What is the AMT phase-out and why is it more aggressive in 2026?
The AMT exemption phases out by 50 cents for every dollar of AMTI above the threshold under OBBBA section 70107 - up from the 25 percent rate in effect for tax years 2018 through 2025. For 2026, the phase-out begins at $500,000 of AMTI for single, head of household, and married filing separately, and at $1,000,000 of AMTI for married filing jointly. The exemption is fully phased out at AMTI of $680,200 for single, $1,280,400 for MFJ, and $640,200 for MFS. Inside the phase-out zone, every additional dollar of AMTI removes 50 cents of exemption, which is the equivalent of an extra 13 to 14 cents of marginal AMT (50 percent of 26 or 28 percent), creating a marginal AMT rate that can exceed 35 percent in this band.
What are the AMT tax rates?
AMT applies a two-tier flat rate to the AMTI excess over the exemption. For 2026, the 26 percent rate applies to the first $244,500 of taxable excess ($122,250 if married filing separately), and the 28 percent rate applies to amounts above that breakpoint. These rates are flat - they do not stack like regular tax brackets. Long-term capital gains and qualified dividends keep their preferential 0, 15, or 20 percent rates inside AMT - the 26 / 28 percent rates apply only to the ordinary AMTI portion.
What is the AMT credit and can I get my AMT back later?
Under IRC section 53, AMT paid on timing differences (such as the ISO bargain element preference) generates a minimum tax credit that you can claim in future years when your regular tax exceeds your tentative minimum tax. The credit is reported on Form 8801 and can be carried forward indefinitely until used. AMT paid on permanent differences (such as standard deduction or SALT add-backs) does not generate a credit - those are simply lost. For ISO exercises, this means much of the AMT you pay is recoverable over time, though the cash flow timing can still be painful in the year of exercise.
Does AMT apply to long-term capital gains?
Long-term capital gains and qualified dividends keep their preferential rates inside AMT - they are still taxed at 0, 15, or 20 percent under IRC section 55(b)(3), not at 26 or 28 percent. However, large LTCG can still increase your AMT exposure indirectly because the gain is included in AMTI, which can push you into the exemption phase-out zone and reduce or eliminate your exemption. So while the gain itself is not taxed at AMT rates, it can cause the rest of your ordinary income to face higher effective AMT.
What deductions are disallowed for AMT?
For AMT purposes, IRC section 56(b)(1) disallows or restricts several deductions allowed for regular tax: the standard deduction is fully added back to AMTI, state and local tax (SALT) deduction is fully added back to AMTI, miscellaneous itemized deductions subject to the 2 percent floor are added back (though most of these are already suspended for regular tax through 2025 under TCJA), home mortgage interest on debt not used to buy/build/improve a primary or secondary home is added back, and the medical expense deduction may have a different floor. Personal exemptions were already eliminated. Charitable contributions, qualifying mortgage interest, and qualifying medical above the AMT floor are allowed for both.
How is AMT reported and which form do I file?
AMT is computed on Form 6251, Alternative Minimum Tax - Individuals, attached to Form 1040. The form walks through: Part I computes AMTI by starting with taxable income and applying adjustments and preferences (lines 1-3); Part II computes the exemption with phase-out and tentative minimum tax at 26 / 28 percent (lines 5-9); Part III computes regular tax for comparison and reports the AMT owed as the difference (line 11). If you exercised ISOs and held past year-end, you also report the bargain element on Form 6251 line 2i. The minimum tax credit available from prior-year AMT is computed and claimed on Form 8801, with ISO purchase and transfer information from Form 3921 supporting the basis tracking.
Correction · October 2026. An earlier version of this calculator used single-filer bracket edges for 2026 head of household, a 2025 married-filing-separately 15% capital gain cut-off of $300,025 instead of $300,000, and omitted the separate-return AMTI add-on (Form 6251 line 4, IRC §55(d)(2)). Results changed for those filers. See our Corrections Policy and Log.
Decision Step: Which AMT Path Applies to You?
Route A - ISO Exercise This Year
You exercised (or plan to exercise) incentive stock options and intend to hold the shares past December 31 to qualify for long-term capital gain treatment. The bargain element is your single largest AMT preference, and a multi-hundred-thousand exercise can produce a five-figure or six-figure AMT bill in the year of exercise. Use this calculator to project the AMT cost before you exercise, set aside cash for the April balance, and decide whether to stage the exercise across two calendar years to keep the exemption from fully phasing out. The AMT Guide walks through the exercise-and-hold versus same-year-sell tradeoff and shows when staging materially reduces total tax.
Route B - High SALT in a High-Tax State
You file in California, New York, New Jersey, Oregon, Massachusetts, or Minnesota and your SALT (state income + property tax) exceeds the $40,000 OBBBA cap. The full SALT amount you claim on Schedule A is added back to AMTI - and this is a permanent difference, meaning AMT paid on this component does not generate a Form 8801 credit. Use this calculator to test whether your other deductions and income put you over the AMT line, and use the SALT Deduction Calculator to confirm your final SALT number under the new $40,000 cap. The Itemize vs Standard Calculator can help confirm whether itemizing still beats the standard deduction once AMT is in play.
Route C - Post-AMT Credit Recovery via Form 8801
You paid AMT in a prior year (most often from an ISO exercise) and you are now in a year where regular tax exceeds your tentative minimum tax. Form 8801 lets you reclaim the timing-difference portion of that prior AMT as a credit against current-year regular tax. Run this calculator to confirm your current-year TMT is below regular tax, then walk through Form 8801 to compute the recoverable credit. Track the carryforward year over year - it does not expire, but it is easy to forget. The AMT Guide includes a worked Form 8801 walkthrough for ISO holders post-sale.
This calculator is for educational and illustrative purposes only. It does not constitute tax, legal, or financial advice. AMT calculations are estimates based on the inputs you provide and the federal 2026 or 2025 AMT parameters. State AMT, AMT NOL, AMT foreign tax credit, and the AMT credit recovery on Form 8801 are not modeled. Individual circumstances vary. Consult a qualified tax professional before making any ISO exercise or AMT planning decision.