Alternative minimum tax (AMT)
The alternative minimum tax is a parallel tax system that adds back certain deductions and preferences so that higher-income taxpayers pay at least a minimum tax. You pay the larger of regular tax and tentative minimum tax.
Common adjustments include state and local taxes, the bargain element of incentive stock options and private activity bond interest. OBBBA made the higher exemption permanent but lowered the phase-out thresholds and doubled the phase-out rate starting in 2026.
Example. An employee exercises incentive stock options with a $150,000 spread. There is no regular tax at exercise, but the spread is added for AMT and may trigger the tax.
By Binod Raj Singh, CPA (licensed in Montana) · Updated for the 2026-2027 exam windows · Last updated 2026-11-05