Are Charitable Contributions Deductible for AMT?

The U.S. tax code includes a parallel system known as the Alternative Minimum Tax (AMT), designed to ensure that individuals with high economic income pay a certain minimum amount of tax. This system runs alongside the regular tax calculation, and taxpayers must pay whichever amount is higher. Understanding the relationship between charitable contributions and the AMT is important for tax planning.

The AMT calculation starts with regular taxable income and then makes several adjustments, disallowing certain deductions that are permissible under the regular tax rules. This process results in a different income base, called Alternative Minimum Taxable Income (AMTI). The existence of this separate calculation raises the question of whether donations made to qualified charitable organizations are also recognized under the AMT.

The General Deduction Rule for AMT

When calculating the Alternative Minimum Tax, many of the itemized deductions that taxpayers use to lower their regular tax bill are disallowed. For example, the deduction for state and local taxes (SALT), including income and property taxes, is completely added back when determining Alternative Minimum Taxable Income. This is a significant adjustment that often pushes taxpayers into the AMT.

In a notable exception to this trend, the deduction for charitable contributions is allowed for AMT purposes. This means the value of donations to qualified charities can still reduce taxable income, which applies to both cash and non-cash contributions. The charitable deduction is one of the few major itemized deductions that remains available, making it a valuable tool for high-income individuals subject to the AMT.

Appreciated Property Contributions and the AMT

A significant area of complexity involves the donation of appreciated property, such as stocks or real estate, that has increased in value since it was acquired. Historically, the tax treatment of such gifts under the AMT was much less favorable. For many years, the appreciation element of the donated property was considered a “preference item,” meaning the AMT deduction was limited to the property’s original cost basis, not its full fair market value (FMV).

This historical rule created a tax disincentive for donating appreciated assets. For instance, if a taxpayer donated stock with a fair market value of $50,000 that they had originally purchased for $10,000, the regular tax deduction would be the full $50,000. Under the old AMT rule, the deduction was limited to the $10,000 basis, with the $40,000 of appreciation being added back as an AMT preference item.

Under current law, the preference item for appreciated property donations has been eliminated. Taxpayers can now deduct the full fair market value of long-term capital gain property for both regular tax and AMT purposes. This change aligned the treatment of such donations across both tax systems. A donor in the previous example would now be able to claim the full $50,000 deduction under both the regular tax and AMT calculations.

Calculating the Deduction and AGI Limits

The process of claiming a charitable deduction begins on Schedule A of Form 1040, where itemized deductions are listed. The amount a taxpayer can deduct is subject to limits based on their Adjusted Gross Income (AGI). For cash contributions to public charities, a taxpayer can deduct an amount up to 60% of their AGI; however, this limit is scheduled to revert to 50% beginning in 2026. For donations of long-term appreciated property, the limit is 30% of AGI.

Once the allowable charitable deduction is calculated on Schedule A, that amount is factored into the AMT calculation on Form 6251. Unlike deductions for state and local taxes, the charitable contribution deduction is not added back to income on Form 6251 and reduces Alternative Minimum Taxable Income. The deduction itself is calculated based on the AGI from the regular tax system, but its benefit is realized against the AMTI.

If a taxpayer’s donations exceed the AGI limits in a given year, the excess amount is not lost. The tax code allows for a five-year carryover period for most charitable contributions. This carryover provision applies for both regular tax and AMT purposes, allowing taxpayers to benefit from their generosity over time, subject to the same AGI limitations in those future years.

Strategic Considerations for Donors

A taxpayer’s AMT status can influence their charitable giving strategy. With the cap on the State and Local Tax (SALT) deduction, more individuals find their regular tax liability lowered to a point where the AMT becomes applicable. For these taxpayers, the charitable deduction becomes an impactful tool for reducing their overall tax burden.

Donating appreciated property, such as stocks held for more than one year, remains a highly effective strategy for those in the AMT. By donating the asset directly to a charity, the donor avoids paying capital gains tax on the appreciation. This “double benefit”—a deduction for the full fair market value and the avoidance of capital gains tax—is preserved under the current AMT rules.

Taxpayers who anticipate being near the AMT threshold may also consider “bunching” their charitable contributions. This strategy involves consolidating multiple years’ worth of donations into a single tax year. By making a larger contribution in one year, a taxpayer can generate a substantial itemized deduction, potentially maximizing the deduction’s value. Using a vehicle like a donor-advised fund can facilitate this strategy, allowing a large, tax-deductible contribution in one year while recommending grants to charities over several years.