Breaking Down the One Big Beautiful Bill: AMT Relief

by Corey Sunstrom, CFP®
Director of Financial Planning

The Series

The One Big Beautiful Bill (OBBB) is the kind of sweeping tax law that gets a lot of airtime—and even more confusion. Headlines scream big promises, while the fine print tells a different story.

This series is my attempt to clear the air, piece by piece. Instead of soundbites, we’ll look at what actually changed, who it impacts, and how we’re thinking about it in real financial plans.

Today’s Focus: The Alternative Minimum Tax (AMT)

Few things in the tax code inspire more head scratching than the Alternative Minimum Tax. If you’ve ever filed your return, seen one number for “regular tax” and another for “AMT,” and wondered why on earth we have two systems in the first place—you’re not alone.

The AMT was born in the late 1960s, after reports that a small group of wealthy households had managed to pay zero income tax by stacking deductions and loopholes. Congress’s solution was to create a parallel tax system that stripped away many deductions and set a minimum floor. The idea was to make sure no one could avoid paying “their fair share.”

But here’s the rub: the AMT was never indexed properly for inflation in its early years, and even after adjustments, it’s ensnared plenty of families who weren’t living like tycoons. High property taxes, large families with many dependents, or incentive stock options (ISOs) could suddenly trigger AMT liability—even for upper-middle-class professionals who hardly thought of themselves as tax cheats.

How the AMT Works (In Plain English)

At its core, the AMT runs alongside the regular tax system. You calculate your tax bill the normal way. Then the IRS has you recalculate under the AMT system, which adds back certain deductions (like SALT, miscellaneous itemized deductions, and some personal exemptions).

If your regular tax is higher, you pay that.
If your AMT is higher, you pay the AMT instead.

It’s like playing a round of golf where the course makes you keep two scorecards—and then forces you to submit the worse of the two.

What the OBBB Changed

The OBBB didn’t repeal the AMT, but it did significantly reduce how often it comes into play:

Higher AMT exemption amounts: The threshold where AMT kicks in has been raised, shielding more taxpayers from even having to calculate it.
SALT deduction expanded: The cap on state and local tax deductions was lifted from $10,000 to $20,000, which lowers the chances of being pulled into AMT territory simply for living in a high-tax state.
Simplified calculations for stock options: The AMT rules around incentive stock options remain, but with higher exemptions, fewer employees will face unexpected AMT bills from exercising shares.

Who Really Benefits

Think of the AMT like a backup toll booth that appears on the highway if you drive a certain kind of car. For years, families with high property or state income taxes were funneled into that lane even if they weren’t particularly wealthy. With the OBBB changes, the booth still exists, but far fewer cars get diverted.
The primary winners here are:

Households in high-tax states (California, New Jersey, New York, etc.) who often hit the SALT deduction ceiling.
Upper-middle-income professionals—doctors, lawyers, small business owners—who weren’t ultra-rich but earned enough to trigger AMT under old rules.
Tech employees with incentive stock options who were vulnerable to AMT spikes from paper gains.
Retirees with significant state tax burdens whose mix of pensions and distributions once put them in AMT crosshairs.

On the other hand, the ultra-wealthy still often structure around AMT through other strategies, and low-to-moderate income families were rarely affected to begin with.

Expanded Examples

Elaine, 62, working professional in New Jersey
Elaine earns $210,000 a year and pays over $25,000 in combined property and state income taxes. Under prior rules, she routinely got caught by the AMT because her SALT deduction was capped at $10,000. Her CPA dreaded delivering the news each spring. Now, with a $20,000 cap and higher AMT exemptions, her income slides comfortably under the AMT radar. For Elaine, it’s not just the tax savings—it’s the relief of predictability.

Raj, 55, executive exercising stock options
Raj’s compensation includes incentive stock options (ISOs). Historically, exercising those options created “phantom income” that triggered AMT, even though he hadn’t sold the shares and didn’t have cash on hand to pay the tax. It was like being taxed on Monopoly money. With the OBBB changes, the higher AMT exemptions provide more breathing room. Raj still needs careful planning when exercising, but the odds of a crippling AMT bill are reduced.

Linda and George, retirees in California
Linda and George have a healthy pension plus required IRA distributions, and they pay steep state income taxes. In the past, they occasionally tipped into AMT territory, shaving hundreds or even thousands off their expected refunds. Under the new rules, the AMT is far less likely to apply. For them, it’s not just about the dollars saved—it’s about simplifying retirement planning.

Why This Matters Beyond the Math

The AMT has always been about uncertainty. Most people don’t mind paying taxes as long as the rules are clear. What rattles households is feeling blindsided—filing what looks like a straightforward return only to be told there’s an entirely different system working in the background.

By raising exemptions and loosening the SALT stranglehold, the OBBB makes the AMT less of a hidden trap. That means fewer “surprise” tax bills and a simpler planning landscape for families who were already juggling plenty of complexity.

How I’m Approaching It With Clients

Stock option planning – We’re revisiting strategies for clients with ISOs, since the new rules allow more flexibility in timing exercises without fearing AMT penalties.
High-SALT households – Homeowners in places with high property and income taxes now have more room to deduct without triggering AMT. That’s a planning win worth baking into future projections.
Retirement distributions – For retirees, the risk of tripping AMT is lower, making distribution strategies cleaner and easier to model.
Still running both scorecards – Even though the AMT will hit fewer people, I’m not ignoring it. I’ll keep calculating both systems to ensure no one is caught off guard.

The Takeaway

The AMT hasn’t vanished, but it’s been meaningfully declawed. For many households, the storm that rolled through every spring may now just be a rare cloud on the horizon.

For some, the change will mean thousands of dollars saved each year. For others, it simply means peace of mind and less complexity. And for a small group, nothing will change at all.

Safeguard Your Finances With Pro Guidance

Want to learn more about changes to the AMT and its place in your plans? You don’t have to navigate this complex terrain alone. Working with an advisor can help you understand your options.

Get in Touch

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