Who has to pay the Alternative Minimum Tax (AMT) in 2025, and how can I avoid it?

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high-income taxpayers can't use too many deductions and credits to reduce their tax bill to near zero. You owe AMT only if your tentative minimum tax — calculated under the AMT rules — is higher than your regular income tax.

Who pays AMT in 2025?

Far fewer taxpayers pay AMT today than before the 2017 Tax Cuts and Jobs Act (TCJA), which dramatically raised the AMT exemption. The One Big Beautiful Bill Act (OBBBA) made those higher exemptions permanent. For the 2025 tax year, the AMT exemption amounts are:

• Single filers: $88,100
• Married filing jointly: $137,000
• Married filing separately: $68,500

These exemptions phase out at higher incomes ($626,350 for single / $1,252,700 for MFJ), meaning very high earners lose the exemption dollar for dollar.

Common AMT triggers:

• Exercising Incentive Stock Options (ISOs) — the spread between exercise price and fair market value is an AMT preference item even if you don't sell the shares
• Large miscellaneous itemized deductions (though most were eliminated by TCJA)
• High state and local tax (SALT) deductions — though the new $40,000 SALT cap reduces this trigger
• Accelerated depreciation on business assets
• Certain tax-exempt private activity bond interest

How to check if you owe AMT: Use Form 6251 (Alternative Minimum Tax — Individuals). Most tax software calculates this automatically. If your AGI is under $200,000 and you have no ISOs or unusual deductions, you almost certainly don't owe AMT.

Strategies to minimize AMT exposure:

• Time ISO exercises carefully: Consider exercising ISOs when your regular income is lower, or spread exercises across multiple years
• Avoid or time tax-exempt bond income: Private activity bonds add to AMT income
• Run the numbers before year-end: If you're close to an AMT threshold, a CPA can model both scenarios and suggest timing strategies
• AMT credit (Form 8801): If you paid AMT in a prior year due to ISOs, you may be able to recover it through the minimum tax credit in future years when your regular tax exceeds your tentative AMT