Alternative Minimum Tax (AMT) Triggers in 2026: ISOs, SALT, and How to Plan

Before the Tax Cuts and Jobs Act nearly doubled the AMT exemption in 2018, an estimated 5 million Americans owed Alternative Minimum Tax each year. The TCJA pulled that number below 200,000. But high-income earners, large ISO exercises, and taxpayers in high-tax states still face AMT exposure — and the mechanics of how it works remain widely misunderstood.

The AMT is a parallel tax system. You calculate your tax liability twice — once under the regular system and once under the AMT — and pay whichever is higher. If the AMT calculation produces a higher number, the difference is your AMT liability, added on top of your regular tax.

How the AMT calculation works

AMT starts with your regular taxable income, then adds back certain deductions and preferences that are allowed under the regular system but disallowed under AMT.

Key items that increase AMT income:

State and local tax (SALT) deduction: Completely disallowed under AMT. Taxpayers who deducted $10,000 in SALT (the TCJA cap) must add it back entirely for AMT purposes.

Incentive Stock Options (ISOs): The spread between the exercise price and the fair market value at the time of exercising ISOs is a preference item for AMT, even though no regular income tax is owed at exercise. This is the most common AMT trigger for tech employees and executives.

Accelerated depreciation: Businesses using accelerated cost recovery must use straight-line depreciation for AMT, adding back the difference.

Private activity bond interest: Interest on private activity bonds is tax-free for regular income tax but counted as a preference item for AMT.

The 2026 AMT exemption amounts

Filing Status	Exemption	Phase-Out Begins
Single	$88,100	$626,350
Married Filing Jointly	$137,000	$1,252,700
Married Filing Separately	$68,500	$626,350

The phase-out rate is 25 cents per dollar above the threshold — the single-filer exemption shrinks by $1 for every $4 of income until fully eliminated at approximately $978,750.

AMT rates: 26% on the first $232,600 of AMTI (Alternative Minimum Taxable Income) above the exemption, and 28% on amounts above that.

The ISO exercise problem

Incentive Stock Options are the biggest modern AMT trap. When you exercise an ISO, you owe no regular income tax — you pay capital gains tax when you eventually sell the shares. But for AMT purposes, the spread at exercise is taxable income immediately.

Example: You exercise ISOs for 10,000 shares at a strike price of $10 when the stock is worth $50. No regular tax owed. But for AMT, you have $400,000 of preference income ($40 spread × 10,000 shares). This can generate tens of thousands in AMT due that same tax year.

The risk compounds in a down market: you exercise ISOs when the stock is at $50, triggering a $400,000 AMT preference item, then the stock falls to $15. You owe AMT calculated on a $400,000 gain that no longer exists as real value. This is what wiped out many employees during the 2001 dot-com crash.

Mitigation strategies:

• Exercise ISOs in small tranches across multiple tax years to keep AMTI below the exemption threshold
• Calculate the maximum ISO exercise that triggers zero AMT each year
• Time exercises to lower-income years
• Use disqualifying dispositions strategically when the AMT cost exceeds the LTCG benefit

The AMT credit: long-term recovery

AMT paid on timing preferences (like ISO exercises) creates a minimum tax credit (Form 8801) that can be carried forward and offset against future regular tax in years when regular tax exceeds AMT. This means AMT is sometimes a prepayment of future tax rather than a permanent additional burden — but the credit can take years or decades to fully recover depending on your income trajectory.

Checking your AMT exposure requires running both the regular and AMT calculations against your actual income, deductions, and ISO exercises. The US Salary Tax Calculator models your federal income tax liability and can serve as the starting point for identifying whether your income level and deductions put you near AMT exposure thresholds.