The Alternative Minimum Tax (AMT) is one of the most misunderstood parts of the US income tax system. Many taxpayers — especially high-income earners and commercial real estate (CRE) professionals with complex deductions — aren’t sure whether it applies to them or how it affects their total tax bill. Understanding how the AMT works can help you avoid surprises and plan more strategically.
Before we get started, here’s what you can expect.
What This Article Covers
- How AMT is calculated, including preference items and disallowed deductions
- Current AMT exemption amounts and who is most likely to be affected
- Common AMT triggers for high‑income earners and CRE professionals
- How AMT rates work and when you must pay the higher AMT amount
- Tax‑planning strategies to reduce AMT exposure
- How AMT interacts with depreciation, ISOs, SALT deductions, and entity structures
- Why proactive planning helps avoid AMT surprises
What Is the Alternative Minimum Tax?
The AMT is a parallel tax system designed to ensure that taxpayers with significant deductions still pay a minimum level of tax. Every taxpayer must calculate their liability under both the regular tax system and the AMT system — and then pay whichever amount is higher.
The AMT calculation starts with your regular taxable income, then adds back certain “preference items” and disallowed deductions. After subtracting the AMT exemption amount, the remaining income is taxed at special AMT rates.
Although most people think of AMT as an individual issue, it also applies to corporations, estates, and trusts.
Due to changes in income levels over time, lack of inflation adjustments, and the structure of AMT exemptions, more taxpayers may find themselves subject to AMT now and in the future.
Who Is Most Likely to Be Affected by AMT?
While the AMT technically applies to all taxpayers, you will only owe AMT if your Alternative Minimum Taxable Income (AMTI) exceeds the AMT exemption amount. For 2025 (taxes filed in 2026):
- $88,100 exemption for single filers
- $137,000 exemption for married filing jointly
CRE professionals — especially those with large depreciation deductions, incentive stock options, or significant state and local tax payments — may be more likely to trigger AMT due to the nature of their income and deductions.
What Triggers AMT? Key Factors to Watch
Your AMTI is calculated by:
- Starting with your taxable income
- Adding back excluded preference items
- Adding back the standard deduction or certain itemized deductions
- Subtracting the AMT exemption amount
The AMT rates are:
- 26% on the first $244,500
- 28% on income above $244,500
Your filing status does not matter—these rates and income levels apply to single, head of household, and married filing jointly taxpayers. If your AMT liability is higher than your regular tax liability, you must pay the AMT amount.
Tax Planning Strategies to Reduce AMT Exposure
The worst time to discover you owe AMT is when you’re preparing your tax return. Proactive planning — especially for CRE professionals with fluctuating income, depreciation schedules, and large deductions — can help you avoid unnecessary tax burdens.
1. Manage the Timing of Deductions
Some deductions reduce regular tax but do not reduce AMT. For example:
- State and local taxes (SALT)
- Certain miscellaneous itemized deductions
Delaying or accelerating these payments can help optimize your tax outcome, but the strategy must be coordinated across multiple years.
2. Consider the Timing of Incentive Stock Options (ISOs)
Exercising ISOs can dramatically increase AMTI. Strategic timing — especially in years when AMT is already likely — can reduce the overall tax impact.
3. Coordinate Income and Deductions Across AMT and Non-AMT Years
If you are already subject to AMT, you may want to:
- Accelerate income into the AMT year (taxed at 26–28%)
- Defer deductions (such as charitable contributions) into a regular tax year where they may offset income taxed at higher rates
However, accelerating too much income or deferring too many deductions can backfire. This is where professional planning becomes essential.
How AMT Affects Commercial Real Estate Professionals
CRE professionals often have:
- Large depreciation deductions
- Passive activity income and losses
- State and local tax exposure
- Incentive compensation
- Complex entity structures
These factors can increase AMTI and make AMT more likely. Strategic planning around depreciation schedules, entity structure, and timing of income can help reduce exposure.
Conclusion: Plan Ahead to Avoid AMT Surprises
The Alternative Minimum Tax doesn’t have to be confusing — but it does require proactive planning. For CRE professionals, the combination of high-value deductions, depreciation, and variable income makes AMT awareness especially important.
At Dominion Financial Advisors, we help clients anticipate AMT exposure, plan income and deductions strategically, and build long-term tax-efficient financial plans. Whether you’re navigating complex CRE income, planning ISO exercises, or simply trying to avoid unexpected tax bills, we’re here to guide you with clarity and confidence. Schedule a complimentary consultation to learn how we may help with your personal financial needs.