The alternative minimum tax (AMT) is a parallel federal income-tax calculation. You generally pay the higher of your regular income tax or your tentative minimum tax, after applicable credits. The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, changed an important part of that calculation. It kept the higher individual AMT exemption amounts permanently. But it reset the phaseout thresholds to their 2018 levels of $500,000 and $1,000,000 and doubled the phaseout rate, so the exemption disappears faster at high incomes.

What The OBBBA Changed

The Tax Cuts and Jobs Act had increased the individual AMT exemption and the income levels at which the exemption begins to phase out. Those provisions were scheduled to expire after 2025. OBBBA made the higher exemption permanent. It reset the phaseout thresholds to $500,000 and $1,000,000, indexed after 2026, and raised the phaseout rate from 25% to 50%. It did not repeal the AMT, and it did not make every taxpayer subject to it.

The result is a 2026 calculation based on the permanent framework, with dollar amounts adjusted for inflation. That is different from saying that a taxpayer has a fixed AMT bill or that the exemption protects all income from AMT.

2026 Exemption And Phaseout Amounts

For tax year 2026, the AMT exemption is $90,100 for unmarried filers, including head-of-household filers, and $140,200 for married couples filing jointly. The exemption begins to phase out when alternative minimum taxable income (AMTI) exceeds $500,000 for unmarried filers and $1,000,000 for married couples filing jointly. Married taxpayers filing separately have a $70,100 exemption that phases out starting at $500,000. The 28% rate applies to AMT income above $244,500 ($122,250 if married filing separately).

Starting in 2026, the exemption is reduced by 50% of AMTI above the phaseout threshold, up from 25%. For a joint return the exemption is fully gone at $1,280,400 of AMTI, and for an unmarried filer at $680,200. The exemption is not a credit. It can be reduced or eliminated at higher AMTI, so the headline exemption amount is only the starting point. These are 2026 tax-year figures. Most 2026 individual returns will be filed in 2027.

How The AMT Calculation Works

Form 6251 starts with regular taxable income and applies AMT adjustments and preference items. Deductions and income items are not always treated the same way under AMT. State and local tax deductions are generally not allowed in the AMT calculation. Certain incentive stock option exercises can create an AMT adjustment even when the shares are not sold.

The calculation applies the AMT rates of 26% and 28% to the relevant AMT base, then compares the tentative minimum tax with regular income tax. The applicable rate breakpoint is adjusted for inflation. The full computation depends on filing status, income, deductions, credits, and other items. Form 6251 and its instructions are the right starting point for a return-level calculation.

California Planning Considerations

California has its own state AMT system. A federal AMT result does not automatically determine California tax, and a California result does not replace the federal calculation. The OBBBA's changes to the federal state-and-local-tax deduction limit do not, by themselves, remove the federal AMT adjustment for state and local taxes.

For California taxpayers, AMT exposure often deserves a closer look when there is an incentive stock option exercise, a large capital gain, significant stock compensation, or deductions that receive different treatment under AMT. The timing of an exercise, sale, or estimated tax payment can matter. The right answer depends on the complete projection.

A Practical 2026 Checklist

  • Project both regular tax and AMT before exercising incentive stock options or selling a concentrated position.
  • Review Form 6251 adjustments instead of relying on regular taxable income alone.
  • Revisit estimated payments after a large transaction, compensation change, or filing-status change.
  • Coordinate federal and California projections; they are separate systems.
  • Keep the 2026 exemption and phaseout amounts separate from other tax thresholds, which may use different definitions of income.

When To Get Help

If you expect an ISO exercise, large gain, or unusual deduction in 2026, a CPA can model the regular and AMT calculations before you commit to the transaction or adjust estimated payments. LaviCPA can help you review the facts and choose a practical next step. A general threshold is not a substitute for your return-specific analysis.