What Is Alternative Minimum Taxable Income?

Alternative Minimum Taxable Income (AMTI) is a separate income calculation under the Alternative Minimum Tax (AMT) system, which was established to ensure individuals with high economic income pay a certain base level of tax. It runs parallel to the regular income tax system but has its own rules for income and deductions. The Tax Cuts and Jobs Act of 2017 increased the AMT exemption amount, which means fewer taxpayers are now subject to the AMT. However, for those who still fall within its parameters, understanding how AMTI is determined is part of tax compliance. The calculation starts with regular taxable income and then makes a series of specific adjustments.

Establishing the AMTI Base

Determining AMTI begins with the regular taxable income from a tax return. This figure, which is your income after all regular deductions, serves as the starting point. From here, the calculation diverges from the regular tax system, as certain deductions are disallowed for the AMT.

The first adjustment involves the standard deduction. Under the AMT system, the standard deduction is not permitted. Individuals who do not itemize must add the entire amount of their standard deduction back to their regular taxable income.

For the 2025 tax year, the standard deduction for single filers is $15,000, and for married couples filing jointly, it is $30,000. Adding this back increases the income base upon which the alternative tax is calculated.

Common Adjustments and Preference Items

After adding back the standard deduction, the next step in calculating AMTI involves several adjustments for items treated differently under AMT rules. These adjustments and preference items, detailed on Form 6251, further increase the income base. Common items that must be added back to income for AMTI include:

• State and Local Taxes (SALT): For regular tax, itemizers can deduct payments for state and local income, sales, and property taxes up to a $10,000 limit. For AMT purposes, this deduction is entirely disallowed, and the full amount claimed must be added back to AMTI.
• Incentive Stock Options (ISOs): For regular tax, no income is recognized when an employee exercises an ISO. Under the AMT, the “bargain element”—the difference between the stock’s fair market value at exercise and the price paid—is considered income for AMTI in that year. For example, if you exercise options to buy stock for $10 per share when it’s worth $60, the $50 per share difference is added to AMTI.
• Interest from Private Activity Bonds: These bonds are often issued by state or local governments to finance projects for private entities, such as building an airport terminal or a sports stadium. While the interest earned is exempt from regular federal income tax, it is taxable under the AMT and must be added to AMTI.
• Other Itemized Deductions: Various other itemized deductions allowed for regular tax are not permitted for AMT. This broad disallowance is a feature of the AMT designed to limit the extent to which tax breaks can reduce an individual’s overall tax liability.

Calculating the Tentative Minimum Tax

Once the final AMTI is determined, the next step is to calculate the tentative minimum tax. First, the AMT exemption amount is subtracted from the AMTI, shielding a portion of income from the tax. For the 2025 tax year, the exemption is $88,100 for single filers and $137,000 for married couples filing jointly. This exemption is subject to a phase-out for high-income taxpayers.

For 2025, the exemption begins to decrease for single filers with AMTI above $626,350 and for joint filers with AMTI above $1,252,700, reducing by 25 cents for every dollar above these thresholds. After subtracting the exemption, the remaining income is subject to the two-tiered AMT tax rates. The first $232,600 of income above the exemption ($116,300 for those married filing separately) is taxed at 26%. Any income exceeding this threshold is taxed at 28%.

The result is the tentative minimum tax. A taxpayer must pay the higher of their regular tax or the tentative minimum tax. If the tentative minimum tax is higher, the difference is the Alternative Minimum Tax owed. This amount is then reported on Schedule 2 of Form 1040 and added to the final tax bill.

The Minimum Tax Credit

Paying the AMT in one year can create a minimum tax credit for subsequent years, a benefit designed to prevent double taxation on certain items over time. The availability of this credit, calculated on Form 8801, depends on what triggered the AMT liability. The credit distinguishes between “deferral items” and “exclusion items.”

Deferral items are timing differences, where income is recognized in different years for regular tax and AMT. The most common example is the exercise of incentive stock options (ISOs), where income is recognized for AMT at exercise but for regular tax at the time of sale. AMT paid on these deferral items generates a credit.

Exclusion items represent permanent differences between the tax systems. These are deductions allowed for regular tax but permanently disallowed for AMT, such as the deduction for state and local taxes. Tax paid on these items does not generate a credit. The credit generated from deferral items can be carried forward indefinitely to reduce a taxpayer’s regular tax liability in future years. However, the credit cannot be used to reduce the regular tax below the tentative minimum tax for that future year.