The Alternative Minimum Tax (AMT) — when does it bite?

How it works

1. Start with AGI.
2. Add back AMT preference items (most common: state and local taxes, certain incentive stock option spreads, accelerated depreciation, tax-exempt private activity bond interest).
3. Subtract the AMT exemption (2026: $89,100 single / $138,500 MFJ, phased out at high incomes).
4. Apply two-bracket AMT rates: 26% up to ~$232k AMT income, 28% above.
5. Compare to regular tax. Pay the larger.

The AMT is not on top of regular tax — it's a floor. You pay the larger number, full stop.

Why most filers never see AMT today

Three TCJA changes made AMT mostly irrelevant for W-2 filers:

1. Higher exemption. Pre-TCJA the exemption was $54,300 single / $84,500 MFJ. Today: $89,100 / $138,500. The phase-out doesn't start until ~$626k single AMT income.
2. SALT cap on the regular side. AMT used to disallow state-tax deductions; regular tax allowed unlimited SALT. The gap was the AMT trigger. Now that regular tax caps SALT at $40,400 (OBBB era) or $10,000 (post-2030), the gap is small.
3. Personal exemption gone. AMT used to disallow personal exemptions (4+ kids = AMT). Personal exemptions were eliminated in 2018.

Result: AMT is now a niche concern, not a planning consideration for most.

When AMT still bites

1. ISO exercise with hold (no sale). When you exercise incentive stock options and don't immediately sell, the spread (FMV − strike) is an AMT preference. If your ISO spread is large, AMT can hit hard — a paper gain triggers a real tax bill. The fix is usually: exercise smaller batches, time exercises across years, or do a same-day-sale (which converts the spread to ordinary income on the regular side and avoids the AMT preference).

2. Very high state-tax filers in HCOL states. A California filer at $1M AGI with $90k of state tax adds back the SALT deduction beyond the cap, which can push tentative minimum tax above regular tax. The amount of AMT due is usually small ($1k–$10k), but it shows up.

3. Large tax-exempt private activity bond interest. Some muni bonds are AMT preferences even though they're federal-tax-exempt. Most muni bond funds don't carry these, but some do. Check the fund's annual report.

Credit for prior-year AMT

If you pay AMT one year because of a timing item (most common: ISO exercise with hold), you generate an AMT credit you can use in future years against regular tax until the credit is exhausted. This is why ISO exercise + hold isn't free money even when AMT bites — you're effectively pre-paying tax on the spread, with a credit you'll later use.

Permanent AMT preferences (state taxes, depreciation) don't generate a credit. The AMT you paid for those is just permanent extra tax.

How Horizons handles it

The /taxes page line "AMT" shows the additional tax above your regular tax that AMT is forcing. If the line is $0, your tentative minimum tax is below your regular tax — AMT isn't binding. If it's positive, that's the extra you owe because of AMT.

Run the engine with different scenarios to see how AMT moves: a Roth conversion, an ISO exercise, or a state move can each change the AMT line.

When to call a tax professional

If your AMT line is non-zero AND you have ISO exposure or significant capital gains: get professional advice. AMT planning interacts with the AMT credit carryforward, ISO holding period rules, and bracket-fill timing in ways that benefit from a tax-pro's eyes on your specific situation.