What Triggers AMT?
Unlike the regular income tax, which allows for various deductions and credits, the Alternative Minimum Tax (AMT) imposes a flat rate of either 26% or 28% on a broader income base that may exceed your regular tax rate. Yes, ISOs can have a significant impact on taxpayers under the AMT, but there are other triggers to be aware of as well. With AMT exemption levels set to decrease in 2026, knowing those triggers may help you manage your AMT liability.
What triggers AMT?
#1 High income
If your household income exceeds the phaseout thresholds — $1,252,700 for married couples and $626,350 for others — you could be subject to AMT, especially if you have many itemized deductions. Starting in 2026, those thresholds will drop to $1 million for joint filers and $500,000 for others. Once your AMT income exceeds those levels, the exemption will phase out twice as fast (e.g., 50 cents for every dollar, instead of the current 25 cents per dollar).
#2 Significant itemized deductions
Claiming itemized deductions — like state and local taxes or mortgage interest on home equity loans used for purposes other than buying, building, or improving your home — increases the likelihood of triggering AMT. The AMT calculation also requires medical and dental expenses to exceed 10% of your AGI to be deductible (versus 7.5% for the non-AMT calculation).
#3 Exercising Non-Qualified Stock Options (NQSOs)
Like incentive stock options (ISOs), exercising non-qualified stock options (NQSOs) may significantly increase taxable income. The difference between the exercise price and the stock’s fair market value is treated as ordinary income under the regular tax system. This added income may push you into the AMT phaseout threshold.
For example, a taxpayer with a $200,000 salary exercises and sells vested NQSOs, realizing $400,000 of additional taxable income. The combined $600,000 in income places them near the AMT phaseout threshold of $626,350. At that level, the impact of AMT becomes a real possibility, reducing the benefit of deductions and increasing overall liability.
Exercising NQSOs may dramatically shift taxable income in a single year. Careful planning — such as spreading option exercises over multiple tax years, pairing exercises with charitable contributions, or coordinating with other tax strategies — may help mitigate the risk of unintentionally triggering the AMT.
#4 Investment income
Income from investments, such as significant capital gains or interest income from certain tax-exempt private activity municipal bonds, may increase your income past the AMT exemption phaseout threshold.
#5 Standard deduction
AMT rules don’t allow the standard deduction, even if you claim it on your regular return.
Strategies for managing the AMT
Timing income and deductions
Deferring income into a year with lower AMT liability and accelerating deductible expenses into years with higher AMT liability may help minimize AMT exposure. For instance, a high earner expecting a large bonus, stock sale, and big deductions — like charitable gifts or property taxes — might defer income to next year and accelerate deductions into this one. With exemption thresholds set to drop and the phaseout getting steeper in 2026, timing will matter more than ever.
Maximize tax credits
Take advantage of tax credits, such as the foreign tax credit or the credit for child and dependent care expenses, to reduce your overall tax liability under the AMT.
Diversify investments
By spreading your investments across various asset classes while also avoiding realizing large capital gains, you may minimize the impact of AMT-triggering investments and potentially reduce your overall tax liability. Some investments, particularly private activity municipal bonds, trigger the AMT. Tax-efficient investments, such as municipal bonds (not designated as private activity bonds), are exempt from federal income tax and do not trigger AMT.
Monitor exemptions and phaseouts
For tax year 2025, AMT exemptions and deductions begin to phase out once income exceeds $626,350 for single filers and $1,252,700 for married couples filing jointly. As you approach those limits, it may make sense to proactively manage your liability by accelerating deductible expenses, such as charitable contributions or property taxes, or by maximizing contributions to retirement accounts. You will have a steeper phaseout calculation with thresholds scheduled to drop in 2026 to $500,000 for single filers and $1 million for married couples.
By recognizing potential AMT triggers, you may be able to proactively plan and adjust your financial decisions to minimize AMT exposure. Working with a qualified tax advisor and staying informed about changes in tax laws may further help taxpayers navigate the complexities of the AMT and optimize their overall tax planning efforts.
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