Alternative Minimum Tax was designed to ensure that taxpayers with high incomes, who recognize special tax treatment and substantial tax savings from the use of credits, deductions, exemptions, and losses, pay a minimum amount of federal tax. Therefore, there are certain “tax preference” items that are added back to income after the taxable income has been calculated.
Many of the preferences were limited (taxes, mortgage interest) or eliminated (miscellaneous itemized deductions) for 2018 – 2025 by TCJA; therefore, fewer people will be subject to AMT. Employees who exercise Incentive Stock Options may still be subject to AMT. The AMT exemptions were increased, as well as the income level at which the exemption is phased out.
The chart below provides the 2018 AMT exemptions versus the 2019 exemption amounts. The phase-out of the exemption amount is also included in the chart below for 2018 and 2019.