Alternative Minimum Tax (AMT) Rules and Exclusions for 2025

SmartAsset Team

Sun, Mar 23, 2025, 1:12 PM 5 min read

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The alternative minimum tax (AMT) is a separate way to calculate taxes that makes sure high-income earners pay at least a minimum amount, even if they claim many deductions or credits. In 2025, the AMT exemption is $88,100 for single filers and $137,000 for married couples filing jointly. These amounts start to phase out if income is over $626,350 for singles or $1,252,700 for joint filers. A financial advisor can help you figure out if the AMT affects you and plan for it.

The AMT operates as a separate tax framework aimed at limiting the use of deductions and credits by high-income taxpayers to significantly lower their tax obligations. It was introduced in 1969 in response to concerns that some wealthy individuals were paying little to no federal income tax.

Unlike the regular tax system, which allows various deductions and exemptions, AMT recalculates taxable income by adding back certain tax preferences, such as state and local tax (SALT) deductions and particular business net operating losses.

AMT applies only if the recalculated tax liability exceeds what a taxpayer would owe under the standard tax system. If so, the taxpayer must pay the higher amount. This system primarily affects individuals with high incomes, large capital gains or substantial deductions.

To adjust for inflation, AMT includes an exemption amount, which phases out at higher income levels. While fewer taxpayers are subject to AMT today due to automatic inflation adjustments, it still impacts those with complex financial situations.

AMT uses a separate set of tax brackets from the regular income tax system. Instead of progressive marginal rates that increase with income, AMT applies only two tax rates: 26% and 28%. The first $239,100 of taxable AMT income ($119,550 for married couples filing separately) is taxed at 26%, while any amount above either of those amounts is taxed at 28%.

This separate tax system also includes exemption amounts, which reduce the portion of income subject to the tax. For 2025, the exemption is $137,000 for married couples filing jointly and $88,100 for single filers. However, the exemption begins to decrease once a taxpayer's alternative minimum taxable income (AMTI) surpasses a specific threshold, which is adjusted for inflation annually. The exemption is completely eliminated once AMTI hits a secondary threshold, which is also subject to annual inflation adjustments.