Understanding the 2025 AMT: Exemptions, Phaseouts, and Rates

The Alternative Minimum Tax, a parallel system designed to ensure higher earners pay at least a base level of tax despite deductions and credits, will continue to affect a smaller but important group of U.S. taxpayers in 2025. According to analysis by VisaVerge.com, the AMT’s reach remains limited compared to pre-2018 levels, yet it still captures households with large state and local tax deductions, incentive stock options, or major depreciation differences—groups that include many highly skilled immigrants on work visas with complex compensation packages. Taxpayers must compute AMT using Form 6251 and pay the amount by which the tentative minimum tax exceeds their regular income tax.

2025 AMT key numbers (inflation-adjusted)

• AMT exemption:
  • $137,000 — Married Filing Jointly
  • $88,100 — Single or Head of Household
  • $68,500 — Married Filing Separately
• Exemption phaseout: begins at 25% of Alternative Minimum Taxable Income (AMTI) above:
  • $1,252,700 — joint filers
  • $626,350 — other filers
• Tax rates (two-tier):
  • 26% on AMTI up to $239,100 (or $119,550 if married filing separately)
  • 28% on AMTI above that threshold

These parameters, combined with the AMT structure, mean many wage earners who do not exercise stock options and do not claim large deductions will likely avoid AMT. However, taxpayers with similar incomes but different deductions or compensation types can be captured.

How AMT is calculated (conceptual steps)

1. Start with regular taxable income (Form 1040).
2. Add back certain adjustments and preference items per AMT rules.
3. Subtract the AMT exemption (after any phaseout).
4. Apply the 26%/28% rates to AMTI.
5. Compare the tentative minimum tax to regular tax; if tentative minimum tax exceeds regular tax, the difference is the AMT liability reported on Form 6251.

For step-by-step IRS guidance, see the official instructions for Form 6251 IRS Form 6251 – Alternative Minimum Tax (Individuals).

What changed since TCJA and in 2025

• The Tax Cuts and Jobs Act of 2017 (TCJA) raised the AMT exemption and pushed out phaseout thresholds, dramatically reducing the number of taxpayers subject to AMT (from over five million in 2017 to a few hundred thousand in recent years).
• In 2025, the “One Big Beautiful Bill” made the TCJA AMT framework permanent, keeping the higher exemption and inflation indexing that provides relief to many upper-middle-income families.
• Supporters say permanence aids planning for families and employers (especially those granting equity). Critics warn of a 2026 reset when phaseout thresholds are set to drop to $1,000,000 (married filing jointly) and $500,000 (single), though those amounts will still be indexed. That reset could expand AMT’s reach, particularly in high-tax states and among those with sizable incentive stock options (ISOs).

Core categories that drive AMT differences

AMT differences typically fall into two categories:
– Deferral items — timing differences that usually reverse over time (e.g., certain depreciation methods).
– Exclusion items — permanent differences under AMT (e.g., the standard deduction disallowed for AMT).

To build AMTI, filers generally:
– Add back the standard deduction (or, if itemizing, add back state, local, and foreign taxes).
– Subtract any refunds of those taxes that were included in gross income.
– Add preference items that push AMTI upward.

Common AMT preference items

• Tax-exempt interest from specified private activity municipal bonds
• Differences between regular and AMT rules for investment interest expense
• Differences in depreciation methods and recoveries
• Differences in gain or loss on sale of property under regular tax vs. AMT
• Stricter loss limitations under AMT
• Inclusion of certain income from incentive stock options (ISOs)
• Changes in passive activity loss deductions
• Depletion in excess of adjusted basis (not for independent producers)
• Excess intangible drilling cost deductions not amortized over 60 months

2024 comparison (for amended filings or planning)

• AMT exemption (2024):
  • $133,300 — Married Filing Jointly / Qualifying Surviving Spouse
  • $85,700 — Single / Head of Household
  • $66,650 — Married Filing Separately
• Phaseout thresholds (2024):
  • $1,218,700 — joint filers
  • $609,350 — others
• 26% / 28% breakpoint (2024):
  • $232,600 for most filers
  • $116,300 married filing separately

These 2024 figures help explain why many people who triggered AMT in 2017 no longer do so, though those with unique income or deductions still may be affected.

Who should be most alert?

Three groups often stand out:
– High earners in high-tax states who itemize — state and local taxes (SALT) remain disallowed for AMT purposes and can drive AMTI higher.
– Employees who exercise incentive stock options — holding ISOs past year-end can create large AMT preference items.
– Business owners with property using accelerated depreciation — early-year deferral items can raise AMTI.

Many tax software packages calculate AMT automatically, but planners recommend reviewing AMT-driving inputs before year-end.

Relief: Minimum tax credit

• The credit for prior year minimum tax is a non-refundable credit that can offset future regular tax when prior AMT arose from deferral items.
• It cannot reduce tax below the tentative minimum tax for the year.
• In short: if AMT hits due to timing differences that reverse later, some of that burden can be recovered in future years, but recovery speed is limited.

Practical planning steps (before April / year-end)

1. Run a midyear AMT projection using Form 6251 prompts inside tax software.
2. Review planned ISO exercises and consider timing strategies.
3. Check municipal bond holdings for private activity bond exposure.
4. Model itemized deductions (charitable gifts, medical expenses) across two years.
5. Keep clear records distinguishing regular tax from AMT adjustments to track the future minimum tax credit.

Special considerations for immigrants and equity compensation

For many immigrants working in the U.S. (H-1B, L-1, green card applicants), AMT issues commonly arise when compensation includes equity:
– Exercising ISOs shortly before filing for a green card may produce higher tax due to AMT rather than a filing mistake.
– Accountants often recommend modeling ISO exercises over multiple years or coordinating with disqualifying dispositions depending on goals and market conditions.

Behavioral effects and planning tradeoffs

AMT still influences taxpayer behavior:
– Timing charitable gifts, spreading large deductions, adjusting when to exercise stock options, and selecting municipal bonds with care can reduce AMT exposure in a given year.
– These choices can shift AMTI between years; careful planning helps align tax outcomes with household objectives (supporting family abroad, saving for education, covering immigration costs).

Officials and researchers note that 2025’s permanence of the TCJA AMT framework provides clarity heading into filing season, but the 2026 phaseout reset is a looming concern. The higher 2025 exemptions and inflation indexing offer temporary cushion, especially for families with wage growth or stock gains.

Final takeaway

The AMT remains a backstop aimed at higher-income taxpayers who benefit from special regular-tax rules. With inflation-indexed exemptions in 2025 and a known 2026 reset path, families have both a current guide and an early warning. Those with stock options or large deductions should plan now, keep detailed records, and use official IRS guidance to model outcomes.

For official instructions and updated figures, consult the IRS page for Form 6251 and its instructions: IRS Form 6251 – Alternative Minimum Tax (Individuals).