When Congress passed the One Big Beautiful Bill in July 2025, headlines focused on splashy headlines—like lifting the SALT cap and eliminating taxes on tips. But quietly tucked inside was a profound change to an often misunderstood tax mechanism: the Alternative Minimum Tax (AMT).
If you've ever exercised incentive stock options (ISOs), held municipal bonds, or claimed large deductions, the AMT may have blindsided you. The new law doesn't eliminate AMT, but it does fundamentally rewrite how it works for high-income earners.
Let's break down what's changed, why it matters, and what high earners—especially those with equity compensation—need to do now.
The AMT was created in 1969 to ensure wealthy taxpayers couldn't zero out their tax bill using aggressive deductions or shelters. It created a parallel tax system that adds back “preference items” and removes many common deductions. If your AMT is higher than your regular tax, you pay the higher amount.
Common AMT triggers include:
The AMT became increasingly painful over time because it wasn't originally indexed to inflation. That dragged more upper-middle-class professionals—especially those in tech, finance, and real estate—into its net.
The 2017 Tax Cuts and Jobs Act (TCJA) temporarily raised the AMT exemption and phaseout thresholds, sparing many taxpayers. But that relief was set to expire after 2025.
The One Big Beautiful Bill locks in higher exemption levels—and introduces new limits that create both planning opportunities and new tax cliffs.
Starting in 2026, the elevated AMT exemptions are now permanent:
These amounts shield many from AMT—unless they have significant preference income, such as ISO exercises.
Here's the major shift. The exemption doesn't last forever—it phases out at certain income levels. Under the old rules, which started at:
Under the new law, starting in 2026:
That's a drop for both groups, and it means more high earners will start losing their exemption sooner.
Once you reach those thresholds, your exemption disappears more quickly. The rate increases from 25% to 50%—so for every $1 you earn over the threshold, you lose $0.50 of exemption.
Beginning in 2027, the phaseout thresholds will be indexed for inflation again, but starting from this new, lower 2025 base.
These changes will take effect in 2026. If you're planning a major income event—like exercising options or selling a business—timing it in 2025 vs. 2026 could significantly impact your AMT exposure.
The AMT may no longer be a mystery, but it's now more aggressive and less forgiving, especially for high earners with lumpy incomes.
This creates a new AMT cliff, where crossing a narrow income band can wipe out thousands in exemption and trigger unexpected liability.
If you're:
...then how and when you recognize that income has never mattered more.
If you hold Incentive Stock Options (ISOs), these new AMT rules are especially important.
Exercising ISOs and holding the stock past year-end creates AMT income, even if you haven't sold the shares. And that income can push you past the new phaseout threshold faster than ever.
Here's what to watch:
Implication: Even moderate ISO exercises can cause disproportionate AMT liability if not carefully modeled. What worked last year may blow up in 2026.
Here's how we're helping VIP clients adjust:
We run AMT simulations to compare what happens if you exercise in 2025 vs. 2026 and beyond. With a sharper phaseout curve, precise modeling is essential.
Selling a business? Vesting large RSUs? Break that income across multiple years when possible. Staying below the exemption cliff can reduce AMT exposure dramatically.
Private activity bonds can trigger AMT. If you're near the new thresholds, you may need to rethink your allocation.
If you've paid AMT in previous years, you may be entitled to a credit. With lower exemption thresholds ahead, smart planning around when to use those credits is crucial.
The AMT has always been a stealth tax, easy to overlook until it significantly impacts your cash flow in a high-income year.
The 2025 law didn't kill AMT. It rebuilt it with a sharper cliff, a steeper phaseout, and a tighter room for error, especially for high earners with equity compensation or multi-source income.
At VIP Wealth Advisors, we're already helping clients restructure ISO timing, rebalance investment strategies, and prepare for a more complex AMT environment.
If you're navigating seven-figure income decisions, this isn't the year to wing it.
Looking for expert guidance on equity compensation, tax strategy, and advanced planning? Book your complimentary discovery call and see how VIP Wealth Advisors can help.