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.
The July 2025 bill introduced several updates specifically relevant to executives and high-income employees with stock-based compensation:
| 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.
If selling shares to cover taxes, ensure settlement occurs by December 31 to lock in the deduction.
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.
Starting in 2026, the AMT exemption amounts are slightly higher due to inflation adjustments, and the phaseout rules become more aggressive:
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.
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.
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.
✓ Keep AMTI under exemption to avoid AMT cliffs.
✓ If the stock price falls, a disqualifying sale before year-end can neutralize AMT exposure.
✓ Even with permanent thresholds, AMT modeling remains essential.
✓ Evaluate multiple exercise levels to manage exposure.
✓ Avoid stacking RSU vesting and ISO exercises in the same AMT cycle.
✓ 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
✓ Realize losses in other portfolios to offset capital gains.
✓ Offset ordinary income up to $3,000 per year.
Any AMT paid on ISO exercises becomes a credit on Form 8801 for future years when the regular tax exceeds AMT.
Equity compensation works best when integrated with:
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 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.
No. Large ISO spreads or other AMT adjustments (state tax deductions, private activity bonds) can still trigger AMT. Always model using Form 6251.
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.
Charitable deductions, tax-loss harvesting, and careful ISO/RSU timing can reduce AMTI and manage AMT liability.
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.
Any AMT paid becomes a credit on Form 8801, which can offset regular tax in future years when AMT does not apply.
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.