Alternative Minimum Tax

What Changed

Beginning in 2018, tax reform increases the alternative minimum tax (AMT) exemption amount and the exemption phaseout thresholds to the following amounts:

  • $54,700 for separate filers
  • $109,400 for married couples filing jointly
  • $70,300 for singles and heads of households

Here are the exemption phaseout thresholds:

  • $1 million for married couples
  • $500,000 for all other taxpayers with the exception of estates and trusts

These amounts will be adjusted for inflation until the provision expires after 2025.

Planning Opportunities

Most taxpayers will no longer find themselves subject to AMT for the following reasons:

  • Nonbusiness miscellaneous deductions are no longer deductible
  • The state and local tax deduction is significantly limited
  • A substantial increase to the AMT exemption phaseout level

Note that the first two are traditional add-backs for AMT.

AMT will continue to impact taxpayers with more substantial transactions that have AMT adjustments, such as incentive stock options. The planning opportunities will revolve around keeping taxable income below the income threshold amounts during the years that the AMT transaction transpires.

For example, taxpayers could potentially exclude gain from certain small business stock if it meets the Internal Revenue Code (IRC) Section 1202 guidelines. The exclusion does include an AMT add-back component, which historically made the provision less lucrative. If you’re expecting a transaction that meets the IRC Section 1202 guidelines, it will be vital to defer income or accelerate deductions to remain below the income threshold of $1 million for married filers or $500,000 for other taxpayers.

More Resources

Individuals will need to consider the effects of President Trump’s tax reform in their 2017 income taxes.

Learn how eligible small businesses and individuals can offset alternative minimum tax (AMT) with R&D credits.