As 2025 draws to a close, executives, founders, and employees with stock and equity compensation face a rare opportunity: a year under elevated AMT thresholds and a stable, favorable tax environment established by the One, Big, Beautiful Bill (OBBBA), signed into law on July 4, 2025.

The bill permanently locked in the key TCJA provisions, including individual tax brackets, the standard deduction, and related tax benefits, removing any uncertainty about a looming reversion. This clarity enables taxpayers to make informed year-end decisions regarding Incentive Stock Options (ISOs), Restricted Stock Units (RSUs), and Nonqualified Stock Options (NQSOs) without concern for a broad tax-law change in 2026.

Key Changes in 2025 for Equity-Heavy Taxpayers

The July 2025 bill introduced several updates specifically relevant to executives and high-income employees with stock-based compensation:

AMT Exemption and Phaseout Adjustments

Filing Status Exemption Phaseout Begins 26%/28% Breakpoint
Single $88,100 $626,350 $239,100
Married Filing Jointly $137,000 $1,252,700 $239,100
Married Filing Separately $68,500 $626,350 $119,550

These elevated thresholds are permanent under OBBBA, providing clarity for planning ISO exercises. While high-value ISO exercises still require careful modeling, taxpayers no longer need to worry about a TCJA reversion in 2026.

Long-Term Capital Gains and NIIT

  • The 20% long-term capital gains rate applies to gains exceeding $457,000 (single) / $612,500 (joint).
  • The 3.8% Net Investment Income Tax (NIIT) continues to apply for income above $200,000 (single) / $250,000 (joint).

Qualified Small Business Stock (QSBS) Rules

  • The 100% exclusion remains intact for qualifying C-corp shares held more than five years.
  • Founders and early employees who received post-2023 stock continue to benefit.

Year-End Planning Highlights for Common Equity Types

Restricted Stock Units (RSUs)

  • RSUs are taxed at ordinary income rates upon vesting; there is no deferral.
  • Company withholding is often 22%, below the top marginal brackets.
  • Consider additional withholding or estimated payments to avoid underpayment penalties.
  • Pair RSU vesting with charitable giving or donor-advised fund contributions to offset the spike in AGI.

Nonqualified Stock Options (NQSOs)

  • Taxable upon exercise:
    Ordinary income = (FMV − Strike Price) × Shares exercised.
  • Reported on Form W-2 and subject to Social Security and Medicare taxes.
Year-end tip:

If selling shares to cover taxes, ensure settlement occurs by December 31 to lock in the deduction.

Incentive Stock Options (ISOs)

  • ISOs are generally not subject to regular income tax at exercise, but the spread (FMV − strike) is an AMT adjustment.
  • With permanently elevated AMT thresholds, fewer employees will trigger AMT, but proper modeling remains essential.
  • Timing and tranche management can still significantly reduce AMT exposure.

Understanding 2025 AMT Rules and Why They Matter

  • Exemption amounts: $88,100 (single), $137,000 (married filing jointly)
  • Phaseout begins: $626,350 (single), $1,252,700 (joint)

These thresholds are permanent under OBBBA, giving taxpayers clarity for multi-year ISO exercises and long-term equity planning. With these elevated exemptions, fewer employees are likely to trigger AMT at moderate exercise levels. However, careful year-end modeling remains vital for high-income taxpayers managing large equity positions.

What Changes in 2026?

Starting in 2026, the AMT exemption amounts are slightly higher due to inflation adjustments, and the phaseout rules become more aggressive:

  • Exemption amounts (2026): $90,100 (single), $140,200 (married filing jointly)
  • Phaseout begins (2026): $500,000 (single), $1,000,000 (joint)
  • Phaseout rate: Increases to 50% of the excess over the threshold, compared with 25% in 2025.

This faster phaseout means that for every dollar of AMTI above the threshold, half of the exemption is lost, which effectively increases the marginal AMT rate in the phaseout range. As a result, even though the nominal exemption is slightly higher, high-income taxpayers may see AMT exposure rise more quickly once AMTI enters the phaseout range.

Implications for ISO Planning

  • Multi-Year Planning: Taxpayers can continue to model ISO exercises across 2025 and 2026 with confidence that the exemption amounts are permanent; however, they must account for the accelerated phaseout starting in 2026.
  • AMT Modeling is Still Critical: Large exercises or stacking RSU vesting with ISO exercises can push taxpayers into the faster 50% phaseout, creating a higher marginal tax impact.
  • Strategic Timing: Properly staggering ISO exercises and coordinating RSU vesting with other income events can help minimize exposure in 2026 while taking advantage of the higher base exemption.

How AMT Impacts ISOs: Form 6251 Mapping (2025 vs 2026)

When exercising ISOs, the spread (FMV − strike) is not included in W-2 income but is included for AMT purposes. Below is a line-by-line example illustrating how the adjustment is applied through Form 6251 for a married filing jointly (MFJ) taxpayer.

Line Description 2025 Entry 2026 Entry
Line 1 Regular taxable income $400,000 $400,000
Line 2k ISO exercise adjustment (FMV − strike) +$350,000 +$350,000
Line 3 AMTI before exemption $750,000 $750,000
Line 5 AMT exemption −$137,000 −$140,200
Line 6 AMT taxable income (AMTI − exemption) $613,000 $609,800*
Line 7 Apply 26% / 28% rates $166,858 $166,940*
Line 11 Compare to regular tax ($120,000) +$46,858 AMT due +$46,940 AMT due

*Note: In 2026, the faster 50% phaseout starts at $1,000,000 (MFJ). In this example, AMTI ($750,000) is below the phaseout, so no reduction applies yet, but larger ISO exercises or stacking with RSUs could push AMTI above $1M, triggering a faster phaseout.

Detailed 2025 ISO Exercise Example

Scenario
  • Married filing jointly
  • 10,000 ISOs granted March 1, 2022
  • Strike price: $10
  • FMV at exercise (Nov 15, 2025): $45
  • Regular taxable income before exercise: $400,000

Step 1 – Compute AMT Adjustment (Form 6251, Line 2k):
(45 − 10) × 10,000 = $350,000

Step 2 – Compute AMTI:
$400,000 + $350,000 = $750,000

Step 3 – Subtract AMT Exemption (MFJ = $137,000):
AMTI − Exemption = $750,000 − $137,000 = $613,000
(No phaseout applies; $613,000 < $1,252,700)

Step 4 – Calculate Tentative Minimum Tax (Line 7):
26% on first $239,100 = $62,166
28% on remaining $373,900 = $104,692
Total AMT = $166,858

Step 5 – Compare to Regular Tax (Line 11):
Regular tax = $120,000 → AMT owed = $46,858
This AMT can be used as a Minimum Tax Credit (MTC) in future years.

Key Takeaways

  • Elevated 2025 and 2026 AMT exemptions provide taxpayers with more flexibility to exercise ISOs, reducing the likelihood of triggering AMT.
  • A faster 50% phaseout starting in 2026 means that larger exercises or stacking RSU vesting can push taxpayers into higher AMT territory more quickly.
  • Multi-year ISO planning is now possible, but careful modeling remains essential to optimize AMT exposure and maximize MTC utilization.

Tactical Year-End Strategies

Exercise ISOs Early or in Tranches

✓ Keep AMTI under exemption to avoid AMT cliffs.
✓ If the stock price falls, a disqualifying sale before year-end can neutralize AMT exposure.

Model Future Scenarios

✓ Even with permanent thresholds, AMT modeling remains essential.
✓ Evaluate multiple exercise levels to manage exposure.

Coordinate RSU Vesting

✓ Avoid stacking RSU vesting and ISO exercises in the same AMT cycle.

Charitable Contributions

✓ Donate appreciated stock or RSU shares to a Donor-Advised Fund (DAF).
✓ Deduct FMV up to 30% of AGI
✓ Avoid capital gains
✓ Potentially reduce AMTI below AMT phaseout

Tax-Loss Harvesting

✓ Realize losses in other portfolios to offset capital gains.
✓ Offset ordinary income up to $3,000 per year.

Post-Exercise Liquidity and Tax Credit Planning

Minimum Tax Credit (MTC)

Any AMT paid on ISO exercises becomes a credit on Form 8801 for future years when the regular tax exceeds AMT.

Future Sale Timing

  • Hold ISOs at least 1 year after exercise and 2 years after grant for long-term capital gains treatment.
  • Year-end exercise starts the holding clock, optimizing tax outcomes for IPOs or tender offers.

Integrating Equity Planning With Broader Tax Strategy

Equity compensation works best when integrated with:

  • Estimated tax payments to avoid underpayment penalties
  • Retirement contributions (401(k), cash balance plans, Mega Backdoor Roth)
  • Charitable bunching to maximize deductions
  • Estate and gifting strategies using discounted private shares before liquidity events

Even with a stable TCJA environment, aligning equity decisions with broader year-end tax strategies can result in savings of tens of thousands of dollars in taxes.

The Takeaway: 2025 Is a Strategic AMT Planning Year

The One Big Beautiful Bill locks in the TCJA environment, removing any uncertainty about the 2026 reversion.

Elevated AMT thresholds are now permanent, creating a clear planning environment for ISO exercises.

Executives and founders can capture substantial tax savings with careful ISO exercises, RSU coordination, charitable contributions, and tax-loss harvesting.

AMT modeling, tranche management, and Form 6251 projections remain essential.

Bottom line: The math of AMT and equity compensation in 2025 is favorable and stable. Take advantage of the elevated thresholds and make informed, proactive year-end moves.

Common Year-End AMT Questions

Q1: Will the higher AMT exemption in 2025 eliminate AMT for ISO exercises?

No. Large ISO spreads or other AMT adjustments (state tax deductions, private activity bonds) can still trigger AMT. Always model using Form 6251.

Q2: Does the One, Big, Beautiful Bill affect TCJA sunset concerns?

Yes. OBBBA permanently locks in TCJA-level individual brackets and deductions. Planning urgency now stems from AMT thresholds and equity-specific windows, rather than a reversion of TCJA.

Q3: How can I offset AMT exposure?

Charitable deductions, tax-loss harvesting, and careful ISO/RSU timing can reduce AMTI and manage AMT liability.

Q4: Will AMT risk increase in 2026 even though thresholds are permanent?

Potentially. Beginning in 2026, the phaseout rate increases to 50%, which can reduce the exemption more quickly for high-income taxpayers. AMT modeling is essential for planning exercises across multiple years.

Q5: How does the Minimum Tax Credit (MTC) work?

Any AMT paid becomes a credit on Form 8801, which can offset regular tax in future years when AMT does not apply.

Need a year-end AMT and stock option game plan?

You only get one shot at 2025's elevated AMT thresholds. If you are sitting on ISOs, RSUs, or NQSOs and are not modeling Form 6251, you are guessing - and that can be a six-figure mistake.

We help executives, founders, and equity-heavy employees design multi-year exercise strategies, coordinate AMT with liquidity events, and turn AMT into a usable Minimum Tax Credit instead of a surprise bill.

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