The Alternative Minimum Tax is about to reach a wider pool of high-income taxpayers, and the planning window for 2026 is already open.
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, made the higher TCJA-era AMT exemption amounts permanent. But it also reset the exemption phaseout thresholds to the lower 2018 levels and doubled the phaseout rate from 25% to 50%. Together, those two changes narrow the band of income where the exemption disappears and steepen the effective rate once a client lands inside it.
So for CPAs with clients who exercise ISOs, see liquidity events, take carried interest allocations, or hold real estate tied to private activity bond interest, the usual deferral-and-deduction toolkit won’t always land on the best outcome. AMT modeling has to move earlier in the planning conversation, and come up more often, than it did during the TCJA years.
What changed in 2026
For 2026, the AMT exemption is $140,200 for married joint filers and $90,100 for single filers. The phaseout starts at $1,000,000 of AMTI for joint filers and $500,000 for single filers, and the exemption drops 50 cents for every dollar above those thresholds.
That compresses the exposure window. A married couple’s exemption is now fully phased out at roughly $1.28 million of AMTI, down from about $1.8 million under 2025 rules. Inside the phaseout band, effective marginal rates can land in the low-to-mid 30% range, even though the stated AMT rates are still 26% and 28%. An ISO exercise, a large capital gain, or a deferred compensation payout that was manageable in 2025 can carry a materially higher AMT cost in 2026.
Which clients are most exposed
A handful of client profiles deserve closer AMT modeling than they got under the old rules.
- Founders and employees holding ISOs need the closest look. The bargain element at exercise is still a core AMT preference item, and under the faster phaseout, an exercise that was tolerable in 2025 can push that same client well into AMT territory in 2026.
- Clients with concentrated liquidity events face the same math. A bonus, a partnership distribution, a carried interest allocation, or one large capital gain landing in a single year gets amplified by the smaller exemption.
- High-tax state residents stay exposed through SALT. Those deductions are still fully disallowed for AMT, and even with the higher regular-tax SALT cap, the add-back interacts with the new phaseout to speed up exemption loss.
- Private activity bond holders carry a quieter version of the same problem. Interest that’s tax-exempt for regular tax is still an AMT preference item, and the lower phaseout threshold brings that exposure forward.
- Real estate investors with Section 469 activity are harder to read. Depreciation timing differences under AMT rules and passive activity loss limitations both feed AMTI, and they can move a client’s exposure in ways that aren’t obvious at first pass.
Four planning options to model now
Once you’ve flagged the exposed clients, these four are worth modeling, roughly in order of impact.
- Timing of income events is the highest-impact decision for most clients. Shifting ISO exercises, capital gains recognition, or deferred compensation across tax years can keep AMTI below the phaseout band, or split it across two years.
- A multi-year ISO exercise strategy usually beats a single block. Exercising in tranches across two or three years tends to preserve more of the exemption and lower cumulative AMT. If a client is planning a disqualifying disposition, timing also decides whether the income hits the regular system or the AMT system.
- Minimum tax credit utilization matters when a client cycles in and out of AMT across years. AMT paid on deferral preferences, especially ISO bargain elements and depreciation differences, creates a minimum tax credit that carries forward on Form 8801. Modeling when that credit can actually be absorbed against future regular-tax liability keeps it from sitting unused.
- Transferable federal tax credits give clients another option when deferral and deductions are exhausted. Purchased Section 48 investment tax credits and other transferable IRA credits generally offset AMT liability the same way they offset regular tax, subject to the 75% general business credit limitation for most corporate buyers and the passive activity rules for individuals. For a client whose AMT exposure traces to one specific event, a liquidity moment or a large ISO exercise year, that can be a useful path. The spread between purchase price and face value also isn’t taxable income to the buyer.
Getting ahead of the 2026 filing season
Clients approaching $500,000 or $1,000,000 of AMTI are the ones to flag first. Run parallel regular-tax and AMT projections during Q2 and Q3 planning meetings, rather than waiting for year-end. That gives you room to sequence income events, stage ISO exercises, and slot in credit purchases before positions lock in.
If transferable federal tax credits come into the conversation, Armagh Capital works with CPAs to match client exposure to vetted inventory. Schedule a call to walk through specific client scenarios before your 2026 planning calendar fills up.
