The Same $400,000 Gain Owes No AMT for 2025 and $9,770 for 2026

A single filer with $250,000 of wages who sells stock for a $400,000 long-term gain owes $9,770 of alternative minimum tax for tax year 2026 (the return filed in 2027) and owed nothing on the same income for 2025. The gain is taxed identically in both years. What moved is the AMT exemption: for 2026 it starts shrinking at $500,000 of alternative minimum taxable income instead of $626,350, and it shrinks by 50 cents per dollar instead of 25 (Rev. Proc. 2025-32 §4.10).

What section 70107 changed

The AMT is a second tax computation. You add back deductions the AMT does not allow, subtract an exemption, apply 26 and 28 percent, and pay the excess of that tentative minimum tax over your regular tax (26 U.S.C. §55(a)). The 2017 tax law raised the exemption and its phase-out threshold for tax years 2018 through 2025 only (Rev. Proc. 2025-32 §2.07). Section 70107 of Public Law 119-21 struck the 2026 end date, which kept the larger exemption, and did two more things for taxable years beginning after December 31, 2025:

• It added §55(d)(4)(A)(ii)(IV), "by substituting '50 percent' for '25 percent'", which doubles the rate at which the exemption phases out.
• It moved the start of indexing for the $1,000,000 joint threshold to years after 2026, measured from calendar 2025. The threshold therefore reads at its statutory $1,000,000 for 2026, and the single threshold, 50 percent of it, at $500,000. Rev. Proc. 2025-32 §2.07 says the $1,000,000 "is not adjusted for inflation for any taxable year beginning before January 1, 2027."

Set side by side, the figures from Rev. Proc. 2024-40 §2.11 and Rev. Proc. 2025-32 §4.10:

The exemption rose $2,000 for a single filer and $3,200 for a couple. The threshold and the phase-out rate moved the other way.

Inside the phase-out band, each dollar of AMTI adds itself to the AMT base and removes 50 cents of exemption, so the base grows $1.50 per dollar. Once the base is past the 28 percent breakpoint, that is a 42 percent marginal AMT rate from $500,000 to $680,200 for a single filer. The 2025 band ran at 1.25 × 28% = 35 percent and started $126,350 higher.

The $400,000 stock sale, line by line

The filer: single, $250,000 of wages, a $400,000 long-term capital gain, the standard deduction. Form 6251's lines are as printed on the 2025 form; the 2026 figures come from Rev. Proc. 2025-32.

Regular tax for 2026. Adjusted gross income is $650,000. The $16,100 standard deduction leaves $633,900 of taxable income, of which $233,900 is ordinary. Table 3 taxes the ordinary part at $41,024 plus 32 percent of the $32,125 above $201,775: $51,304. The gain stacks on top. It is taxed at 15 percent from $233,900 up to $545,500 ($311,600 × 15% = $46,740) and at 20 percent above that ($88,400 × 20% = $17,680). Regular tax: $115,724.

Tentative minimum tax for 2026.

1. Line 2a adds back the standard deduction, because §56(b)(1)(D) does not allow it: $633,900 + $16,100 = $650,000 of AMTI.
2. Line 5, the exemption: $650,000 is $150,000 over $500,000, and half of that is $75,000, so $90,100 − $75,000 = $15,100.
3. Line 6: $650,000 − $15,100 = $634,900.
4. Part III splits line 6. The gain takes $400,000, leaving $234,900 as the ordinary slice (line 17). That is under $244,500, so it is taxed at 26 percent: $61,074.
5. Lines 20 and 27 stack the gain on the regular-tax ordinary income of $233,900, so the gain fills the same 15 and 20 percent bands as before: $46,740 + $17,680.
6. Tentative minimum tax: $61,074 + $46,740 + $17,680 = $125,494.

AMT, line 11: $125,494 − $115,724 = $9,770. It is the gap between 26 percent of the $234,900 AMT ordinary slice and the $51,304 of regular tax on $233,900 of wages.

The same filer for 2025. The $15,750 standard deduction leaves $634,250 of taxable income and $117,065.50 of regular tax under the 2025 tables in Rev. Proc. 2024-40. AMTI is again $650,000, only $23,650 over the $626,350 threshold, so the exemption loses a quarter of that and stays at $82,187.50. The AMT ordinary slice is $167,812.50, taxed at $43,631.25, and the tentative minimum tax is $108,673.75. That is below the regular tax, so the 2025 AMT is zero.

A bigger gain does not push the 2026 bill much further. Once AMTI passes $680,200 the exemption is gone, the ordinary slice is the full $250,000 of wages, and the AMT settles at 28 percent of $250,000 less $4,890 (2 percent of the $244,500 breakpoint), minus the $51,304 regular tax: $13,806 at any gain from $430,200 up.

The net investment income tax applies to the gain separately under §1411 and is not in these figures.

The incentive stock option exercise

§56(b)(3) switches off §421 for the AMT, so exercising an incentive stock option and holding the shares puts the spread, the stock's fair market value at exercise minus what you paid, into AMTI on line 2i (Form 6251 instructions). The regular return reports no income at exercise.

Same single filer, $250,000 of wages, exercising options with a $300,000 spread. Regular tax for 2026 is the $51,304 above. AMTI is $233,900 + $16,100 + $300,000 = $550,000, which is $50,000 into the phase-out, so the exemption falls to $65,100. The taxable excess is $484,900, and 28 percent of it less $4,890 is $130,882. The 2026 AMT is $79,578.

For 2025 the same $550,000 sat below the $626,350 threshold and kept the full $88,100 exemption: 28 percent of $461,900 less the form's $4,782 is $124,550, against $52,023 of regular tax, for $72,527 of AMT. The 2026 bill is $7,051 higher. Almost all of that is the $23,000 of lost exemption taxed at 28 percent ($6,440); the rest is the regular tax falling $719 under the 2026 brackets, offset by $108 from the higher breakpoint.

This filer owed AMT in both years. The new rules add $420 for every further $1,000 of spread until AMTI reaches $680,200. The Form 6251 instructions point a filer who pays AMT to Form 8801 for a possible credit against regular tax in a later year.

The high-SALT itemizer still owes nothing

A married couple with $450,000 of wages, at least $40,400 of state and local taxes paid, and $25,000 of mortgage interest. Their income is under the $505,000 point where §70120 starts phasing the SALT cap down, so they deduct the full $40,400 and itemize $65,400. Taxable income is $384,600, and joint Table 1 taxes it at $35,932 plus 24 percent of the $173,200 above $211,400: $77,500.

Form 6251 line 2a adds back every dollar of the $40,400, because §56(b)(1)(A)(ii) allows no deduction for those taxes. AMTI is $425,000, far below the $1,000,000 joint threshold, so the whole $140,200 exemption applies. The taxable excess is $284,800, and 28 percent of it less $4,890 is $74,854. That is $2,646 under the regular tax, so the couple owes no AMT.

The cushion is the AMT's own measure of how close they sit: at 28 percent, $9,450 of incentive-option spread or other added-back income would close it. For 2025 the same couple's cushion was $2,236. Below $1,000,000 of AMTI a joint return never meets the new phase-out, and the $3,200 larger exemption lowers its AMT. The same couple exercising $100,000 of option spread owes $25,354 of AMT for 2026, $410 less than the $25,764 they would have owed for 2025.

Four states that run their own

Each of these states imposes an individual AMT for tax year 2025, and each charges the excess of its minimum tax over its regular tax. They differ in how much of the federal computation they borrow.

Colorado and Connecticut start from federal numbers. Colorado's 2025 schedule begins at federal line 6, the figure left after the federal exemption, and its instructions say a Colorado AMT "ordinarily" follows a federal one. Connecticut's 2025 CT-6251 is required only of residents with a federal AMT liability, and it prints the federal 2025 exemption of $88,100, the $626,350 threshold and the 25 percent rate on its own lines 6 to 9.

Minnesota borrows the federal phase-out but not the 2026 change. Subdivision 3(b) of §290.091 phases its exemption out under IRC §55(d)(2) and adds that "section 55(d)(4) of the Internal Revenue Code does not apply." The 50 percent substitution lives in §55(d)(4), so Minnesota's exemption keeps phasing out at §55(d)(2)'s own 25 percent. Its 6.75 percent AMT rate sits below its 9.85% top regular rate. California’s 7.0 percent sits below its 13.30% top rate, a 2026 figure TaxMath marks provisional because its California tables carry the 2025 structure forward until a 2026 schedule is verified.

The Tax Foundation's 2021 survey counted five states with an individual AMT: these four and Iowa, whose individual AMT was then scheduled for repeal at the beginning of 2023.

Under §55(d)(4)(B)(i) as amended, the $1,000,000 joint threshold is indexed only for taxable years beginning after 2026, from a calendar-2025 base. For tax year 2026 alone, the thresholds are the statute's round $500,000 and $1,000,000.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.