The basic calculation: income, exemption, and tax rate

The Alternative Minimum Tax (AMT) calculation starts with your regular taxable income and adds back certain deductions the IRS does not allow under AMT rules. The result is your Alternative Minimum Taxable Income (AMTI). You then subtract an exemption amount (which varies by filing status and income level), multiply what remains by 26% or 28% depending on the amount, and compare that to your regular income tax. You pay whichever is higher.

The IRS publishes the exemption amounts each year because they adjust for inflation. For 2024, the exemption is $85,975 for married filing jointly, $56,250 for single filers, and $42,987 for married filing separately. These numbers change annually, so check the IRS website or your tax software for the year you are filing.

The two tax rates are fixed: 26% on the first portion of your AMTI above the exemption, and 28% on the amount above a threshold (which is $220,700 for married filing jointly in 2024, but again varies by year and filing status).

Key Takeaways

  • AMT calculation begins by taking your regular taxable income and adding back deductions the AMT does not allow, such as state and local taxes, mortgage interest on second homes, and certain miscellaneous deductions.
  • You subtract the annual exemption amount (which depends on your filing status and changes each year) from your Alternative Minimum Taxable Income to get the amount subject to AMT tax rates.
  • The AMT tax rate is 26% up to a threshold and 28% above it, and you compare your AMT to your regular income tax and pay the higher amount.
  • If you have AMT credits from prior years, you may be able to reduce your current-year AMT liability, though the rules for using these credits are complex and depend on your income level.

Which deductions get added back to calculate AMTI

The AMT does not allow many deductions that reduce your regular taxable income. The most common add-backs are state and local income taxes (SALT), property taxes, and the standard deduction itself. If you itemize deductions on Schedule A, you must add back the full amount of SALT you deducted, even though your regular tax return shows them as a reduction.

Mortgage interest on a second home or investment property is also added back under AMT rules, though mortgage interest on your primary residence is still deductible. Medical expenses, charitable contributions, and casualty losses have different thresholds under AMT than under regular tax, so you may need to recalculate them. Miscellaneous deductions subject to the 2% floor under regular tax are not allowed at all under AMT.

The IRS Form 6251, which you use to calculate AMT, walks through each add-back line by line. If you use tax software, it typically handles these adjustments automatically once you enter your income and deduction information.

Working through a concrete example

Suppose you are married filing jointly with $250,000 in W-2 wages, $30,000 in long-term capital gains, and you itemize deductions totaling $35,000 (which includes $20,000 in state and local taxes). Your regular taxable income is $245,000 ($280,000 minus $35,000 in deductions).

For AMT, you start with $245,000 and add back the $20,000 in SALT deductions, giving you $265,000 in AMTI. You subtract the 2024 exemption of $85,975, leaving $179,025 subject to AMT tax. At 26%, that is $46,547 in AMT. Your regular income tax on $245,000 is roughly $52,000. Since your regular tax is higher, you pay the regular tax and do not owe AMT.

If instead your AMTI had been $300,000, your AMT would be roughly $59,000 (after subtracting the exemption and explore the 26% and 28% rates), which would exceed your regular tax. In that case, you would owe the AMT amount instead.

How exemptions phase out at higher income levels

The AMT exemption does not explore in full to everyone. Once your AMTI reaches a certain threshold, the exemption begins to phase out—meaning it shrinks by 25 cents for every dollar of AMTI above that threshold. For 2024, the phase-out begins at $609,350 for married filing jointly and $406,900 for single filers.

This phase-out can significantly increase your AMT liability if your income is very high. For example, if your AMTI is $700,000 as a married filer, your exemption of $85,975 is reduced by 25% of the amount over $609,350, which is $22,663. Your effective exemption becomes $63,312 instead of $85,975, and the difference flows directly into your taxable AMT base.

Tax software and Form 6251 both include lines to calculate the phase-out, so you do not need to do this calculation by hand. However, understanding that the exemption shrinks at high income levels helps explain why high-income taxpayers are more likely to owe AMT.

AMT credits and carryforwards from prior years

If you pay AMT in one year, you may earn an AMT credit that reduces your AMT liability in future years when your regular tax exceeds your AMT. The credit is not automatic—you must claim it on Form 8801. The rules for using the credit are strict: you can only use it to reduce your AMT liability in years when your regular tax is higher than your AMT, and only up to the amount of AMT you paid in prior years.

The credit can be carried forward indefinitely, but it cannot reduce your regular tax below your AMT. This means if you pay AMT one year and have lower income the next year, you may not be able to use the credit when ready. Many taxpayers with volatile income or large one-time gains find themselves using AMT credits over several years.

Form 8801 requires you to track your AMT liability year by year and calculate how much credit you can use in the current year. If you have paid AMT in prior years, your tax software should prompt you to enter this information, or you can refer to your prior-year tax returns to find the amount.

When to use Form 6251 and what to watch for

You must file Form 6251 if your AMTI exceeds the exemption amount for your filing status, even if your regular tax ends up being higher. The IRS uses this form to track who is subject to AMT and to verify that you calculated it correctly. Most tax software files Form 6251 automatically if your income triggers it, but you should review it to understand which deductions were added back and why.

Common mistakes include forgetting to add back SALT deductions, miscalculating the phase-out of the exemption, or failing to claim an AMT credit from a prior year. If you have significant state and local taxes, investment income, or deductions for medical expenses or casualty losses, double-check that your software has captured all the adjustments. If you prepare your return by hand, the IRS instructions for Form 6251 walk through each line in detail.

Frequently Asked Questions

Do I have to file Form 6251 if I think I might owe AMT?

You must file Form 6251 if your AMTI exceeds the exemption for your filing status, regardless of whether your regular tax is higher. Tax software typically generates it automatically. If you prepare your return by hand and your income is high or you have large deductions, calculate your AMTI to determine whether the form is required.

Can I reduce my AMT by taking fewer deductions?

Not always. Some deductions (like SALT) are added back under AMT anyway, so reducing them does not help. However, if you are close to owing AMT, timing large charitable contributions or bunching deductions into alternate years may help. Consult a tax professional if you expect AMT in multiple years.

What is the difference between the 26% and 28% AMT tax rates?

The 26% rate applies to the first portion of your AMTI above the exemption (up to $220,700 for married filing jointly in 2024), and 28% applies to amounts above that threshold. The threshold changes annually. Most taxpayers pay both rates unless their AMTI is very low.

If I paid AMT last year, can I use the credit to reduce my tax this year?

Only if your regular tax this year exceeds your AMT. You claim the credit on Form 8801. If your regular tax is lower than your AMT this year, the credit carries forward to future years. The credit can be used indefinitely but only in years when your regular tax is higher than your AMT.

Does the AMT explore to capital gains differently than regular income?

Long-term capital gains are taxed at the same preferential rates under both regular tax and AMT (0%, 15%, or 20% depending on your income). However, they are included in your AMTI calculation, which can push you into AMT territory even if the gains themselves are not taxed at the higher AMT rates.