The One Big Beautiful Bill Act (OBBBA) signed into law earlier this year tweaks the alternative minimum tax (AMT) rules for individuals. Overall, the news for taxpayers is “mixed,” beginning in 2026.
[This is part of a Special Series on the tax implications of the broad One Big Beautiful Bill Act, which was enacted in July 2025. It includes a wide range of changes to individual and corporate taxes, deductions, credits, forms and other topics, that affect tax filing starting this year into the future.]
First, here’s some background information. The AMT exists in a parallel universe to the regular federal income tax system. Basically, you must work through both the regular tax calculation and the AMT and then pay the higher of the two taxes.
With regular income tax, you simply add up your total income, subtract various deductions to find the amount of taxable income and then figure out the tax. Currently, the graduated seven-rate structure for individuals extends from a low of 10% to a high of 37%. The tax liability may be reduced still further though tax credits.
On the flip side, the AMT calculation involves a completely different income computation involvingjust two tax rates. Briefly stated, you arrive at AMT liability by:
- Making various adjustments and adding back certain items into income, including so-called “tax preference” items;
- Subtracting an AMT exemption based on filing status; and
- Multiplying the result by the appropriate tax rate.
However, the AMT exemption for upper-income taxpayers is subject to a phase-out. The phase-out occurs at a rate of 25 cents for every dollar above the specified threshold.
After years of complaints, Congress provided some AMT relief for taxpayers through legislation, including the Tax Cuts and Jobs Act (TCJA). The TCJA increased the thresholds used to compute the AMT, including a hike in the phase-out thresholds, with inflation indexing. But the TCJA changes were only scheduled to last from 2017 through 2025.
For 2025, the lower AMT tax rate of 26% applies to AMT income up to $119,550 for single filers and $239,100 for joint filers. The higher 28% AMT rate applies above these thresholds.
Similarly, for 2025, the exemption amounts have been raised by the TCJA to $88,100 for single filers and $137,000 for joint filers, respectively.
Finally, the TCJA substantially increased the phase-out thresholds to $500,000 for single filers and $1 million for joint filers, a point at which most taxpayers are no longer affected. For 2025, the phase-out begins at $626,350 for single filers and $1,252,700 for joint filers.
Now there’s both good news and bad news in the OBBBA.
The good news: Beginning in 2026, the $500,000 and $1 million exemption phase-out thresholds become permanent. Plus, this will include future indexing.
The bad news: In 2026, the phaseout thresholds will be reset to the $500,000 mark for single filers and $1 million for joint filers. Thus, the thresholds are temporarily lower than the ones in effect for 2025.
Furthermore, the AMT exemption phaseout rate is doubled from 25 cents for each dollar above the threshold to 50 cents for each dollar. So, the phase-out will occur twice as fast as it did before the OBBBA.
There’s some sentiment in Congress for modifying the AMT rules again or repealing them completely. In the meantime, analyze the potential liability of your clients at year-end. Depending on their situation, they might postpone preferences to 2026 to avoid paying the AMT. Alternatively, if they’re stuck with the AMT, they might accelerate income into 2025 if the top 28% AMT rate is lower than their top regular income tax rate. Present the best options to your clients.
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