To reduce AMT tax, keep your Alternative Minimum Taxable Income (AMTI) below the point where your exemption starts to disappear, and steer clear of the specific items the AMT adds back to your regular income. For 2026, the exemption is $90,100 for single filers and $140,200 for married couples filing jointly, and it phases out at 50 cents on the dollar once AMTI passes $500,000 (single) or $1,000,000 (joint) — double the prior phase-out rate.1Internal Revenue Service. Rev. Proc. 2025-32 That faster clawback is what makes planning matter more this year than last. Every tactic below is aimed at one of two things: lowering the income that feeds into the AMT calculation, or avoiding the preference items and disallowed deductions that inflate it.
Know What Actually Triggers the AMT
The AMT is a parallel calculation. You run your regular return, then run a second version that strips out certain deductions and adds back certain items to produce your AMTI. If the AMT result is higher, you pay the difference.2Office of the Law Revision Counsel. 26 USC 55 – Alternative Minimum Tax Imposed You cannot reduce AMT without knowing which items caused it.
The deductions that vanish under the AMT:
- State and local taxes, including state income tax and property tax. In high-tax states, this single add-back is usually what pushes people into AMT.
- The standard deduction. If you take it on your regular return, the AMT adds the whole thing back.
- Interest on home equity debt used for anything other than buying or improving the home.
- Accelerated depreciation on business assets — the AMT requires a slower schedule, so your annual deduction shrinks.
Medical expenses above 7.5% of AGI survive the AMT calculation, so that deduction is safe. Beyond disallowed deductions, the AMT also treats several items as “preference items” that get added to income directly: the spread on exercised incentive stock options and interest from private activity municipal bonds are the two most common.3Office of the Law Revision Counsel. 26 U.S. Code 57 – Items of Tax Preference
At the AMTI level above the exemption, the tax rate is 26% on the first $244,500 and 28% above that.1Internal Revenue Service. Rev. Proc. 2025-32 Between the phase-out threshold ($500,000 single, $1,000,000 joint) and full exemption elimination ($680,200 single, $1,280,400 joint), each additional dollar of AMTI costs you 50 cents of exemption on top of the base rate. That’s the income zone strategy matters most.
Shrink Your AGI With Retirement and HSA Contributions
Because AMTI starts from your regular taxable income, anything that keeps money out of gross income cuts AMTI by the same amount. Tax-advantaged accounts are the most accessible lever.
401(k), 403(b), and Similar Plans
For 2026, you can defer $24,500 into a traditional 401(k) or 403(b).4Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If you’re 50 or older, add another $8,000 in catch-up contributions.5Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits Under SECURE 2.0, employees ages 60 through 63 get an enlarged catch-up of up to $11,250 in 2026 across 401(k), 403(b), governmental 457 plans, and the federal Thrift Savings Plan.
For someone sitting just inside the phase-out zone, that pre-tax money does double duty: it cuts regular tax and shrinks the AMTI that determines how much exemption you keep.
Health Savings Accounts
If you have a high-deductible health plan, you can contribute $4,400 (self-only) or $8,750 (family) to an HSA in 2026, with an extra $1,000 if you’re 55 or older. Contributions are excluded from gross income, so they reduce AGI the same way a 401(k) contribution does.
Stacking these together adds up. A married 62-year-old with family coverage can shelter as much as $44,450 between the super catch-up 401(k) and family HSA. In the phase-out zone, that reduction is often enough to preserve most or all of the exemption.
Handle Incentive Stock Options Deliberately
ISOs are the most common reason a taxpayer who has never faced the AMT suddenly owes it. On your regular return, exercising an ISO and holding the shares creates no taxable event. Under the AMT, the spread between your exercise price and the fair market value at exercise is added to income.6Office of the Law Revision Counsel. 26 USC 56 – Adjustments in Computing Alternative Minimum Taxable Income
Exercise 1,000 shares at a $10 strike when the stock trades at $100, and you’ve received no cash but added $90,000 to AMTI. If that pushes you across the phase-out threshold, the exemption starts vanishing at 50 cents per dollar on top of the AMT rate itself. The adjustment gets reported on Form 6251.7Internal Revenue Service. About Form 6251, Alternative Minimum Tax – Individuals
Spread Exercises Across Years
Rather than exercising a full grant at once, estimate how large a spread you can absorb each year without crossing the phase-out threshold, and exercise in tranches. Use lower-income years — a job change, a sabbatical, a slow year in your business — to exercise more aggressively.
Sell in the Same Year You Exercise
Selling ISO shares in the same calendar year you exercised them wipes out the AMT preference item entirely. The gain becomes ordinary income on both your regular return and the AMT. You lose the long-term capital gains treatment you’d have earned by holding, but you also avoid the AMT hit on a paper gain and the risk of holding concentrated stock. When the AMT liability on the spread would exceed the regular tax on a same-year sale, this is usually the cheaper path.6Office of the Law Revision Counsel. 26 USC 56 – Adjustments in Computing Alternative Minimum Taxable Income
Track Two Cost Bases
Once you exercise and hold, your shares have a regular tax basis (what you paid) and an AMT basis (fair market value at exercise, since you already paid AMT on that spread). Keep both numbers. When you eventually sell, the AMT gain will be smaller than the regular tax gain, and that difference is how you recover the AMT through the minimum tax credit. Lose the records and you lose the recovery.
Time Capital Gains to Stay Below the Phase-Out
Long-term capital gains are taxed at the same 0/15/20% rates under both systems, so the rate itself doesn’t change.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses The problem is what the gain does to your AMTI: a big realized gain pushes you deeper into the phase-out zone, where each dollar costs you an extra 50 cents of exemption.
Harvest Losses in the Same Year
Sell losing positions in the same year you take gains. Net losses beyond that also deduct up to $3,000 of ordinary income per year ($1,500 married filing separately), with the rest carrying forward.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses That $3,000 comes off both your regular return and your AMTI.
Split Large Sales Across Tax Years
A large one-time gain — from a business sale, a rental property, or a concentrated position — is worth spreading over two or three years when the deal structure allows. Pair the sale years with maxed-out retirement and HSA contributions to offset as much of the spike as possible.
One timing point worth knowing: the AMT only applies when it produces a higher number than your regular tax. In a year your regular tax is already high (large bonus, few deductions), the AMT is less likely to bite. Recognizing gains in those years sometimes means the AMT never applies at all.
Skip Private-Activity Municipal Bonds
Most municipal bond interest is exempt from federal tax under both the regular and AMT systems. Private activity bonds are the exception: interest from bonds funding airports, housing developments, and similar projects with significant private involvement is added back as a preference item.3Office of the Law Revision Counsel. 26 U.S. Code 57 – Items of Tax Preference
If you’re near the phase-out range, buy public-purpose bonds — schools, roads, public utilities, and generally hospital bonds from qualifying nonprofits. Every prospectus discloses whether interest is AMT-preference. The small yield premium on private-activity bonds disappears fast once that interest is taxed at 26% or 28%.
Recover Past AMT With the Minimum Tax Credit
AMT you’ve already paid isn’t always permanent. When the AMT was caused by deferral items — timing differences that reverse later — you can carry the tax forward as a credit on Form 8801.9Internal Revenue Service. Instructions for Form 8801 ISO exercises and accelerated depreciation are the main deferral items. AMT paid on an ISO spread generates a credit you can use in any future year where your regular tax exceeds your tentative minimum tax, and the credit carries forward indefinitely. When you eventually sell the ISO shares, the smaller AMT gain (because of that higher AMT basis) usually opens up room to absorb the credit.
Not everything qualifies. Exclusion items — the standard deduction, SALT, private-activity bond interest, the Section 1202 small business stock exclusion — generate no credit.9Internal Revenue Service. Instructions for Form 8801 AMT triggered by those items is a permanent cost. That distinction shapes strategy: it’s worth paying AMT on ISOs if you’re getting it back later, but paying AMT because you lost your SALT deduction is money gone.
To claim the credit, file Form 8801 in any year you have a carryforward and your regular tax exceeds your tentative minimum tax. The amount you can use in a given year equals that difference; the rest carries forward. Keep the paperwork. Reconstructing which items triggered which year’s AMT from decade-old returns is one of the harder jobs in tax compliance.