Alternative Minimum Tax (AMT) Explained: What EA Candidates Need to Know

2026-07-09

Last reviewed: July 9, 2026. This article reflects current IRS rules and EA exam requirements as of this date.

The Alternative Minimum Tax is one of the most-tested topics on EA Part 1. And one of the most confusing for candidates. Let's break it down.

What Is the AMT?

The AMT is a parallel tax system. You calculate your tax twice: once under the regular tax system, once under the AMT system. You pay whichever is higher.

Think of it as a "floor" on your tax bill. Congress created it to prevent high-income taxpayers from using so many deductions and credits that they pay little or nothing. The AMT says: "Nice deductions. Here's your minimum."

How the AMT Calculation Works

Start with regular taxable income.
Add back AMT preference items. These are deductions allowed under regular tax but disallowed (or limited) under AMT. The big ones:
- State and local tax deduction (SALT). added back entirely
- Miscellaneous itemized deductions. added back
- Personal exemptions (pre-2018). added back
- Private activity bond interest. added back
- Percentage depletion in excess of basis. added back
Result: Alternative Minimum Taxable Income (AMTI).
Subtract the AMT exemption.
Apply AMT rates (26% on first $232,600, 28% above that for 2025).
Subtract the AMT foreign tax credit (if applicable).
Result: Tentative Minimum Tax.

If tentative minimum tax exceeds your regular tax, you pay the difference as AMT.

2025 AMT Exemption Amounts

Filing Status	Exemption	Phaseout Begins	Phaseout Ends
Single / HoH	$88,100	$626,350	$978,750
MFJ / QSS	$137,000	$1,252,700	$1,800,700
MFS	$68,500	$626,350	$900,350

The exemption phases out at 25% of AMTI above the threshold. For example: a single filer with $726,350 AMTI has $100,000 over the phaseout threshold. 25% of $100,000 = $25,000 reduction in exemption. $88,100 - $25,000 = $63,100 allowable exemption.

What Gets Added Back for AMT (Preferences & Adjustments)

Tax preference items (always added back):

Private activity bond interest (generally tax-exempt, taxable for AMT)
Excess of percentage depletion over adjusted basis
Intangible drilling costs (certain excess amounts)

Adjustment items (added back depending on the calculation):

State and local tax deduction. fully added back
Miscellaneous itemized deductions. fully added back
Standard deduction. not allowed for AMT; you add it back
Personal exemptions. not allowed; added back
Depreciation. recalculated under AMT rules (generally slower, creating an adjustment)
Incentive stock options (ISOs). the bargain element at exercise is AMT income

Common EA Exam Traps

Trap 1: Confusing exemption amounts by filing status. MFS gets half the MFJ exemption. QSS uses MFJ amounts. HoH uses Single amounts. Know which goes where.

Trap 2: The phaseout math. It's 25% of the excess, not 25% of AMTI. Read the question carefully. They'll test whether you know the difference.

Trap 3: Which items are preferences vs adjustments. Preferences are always added back. Adjustments can go either way depending on the calculation. The exam tests this distinction.

Trap 4: ISOs and the AMT. The spread on exercise (fair market value minus strike price) is AMT income in the year of exercise, even though no cash changes hands. This surprises people.

How to Study AMT for the EA Exam

Memorize the exemption amounts by filing status using flashcards
Practice the phaseout calculation until it's automatic. It's pure math
Know the preference items cold. They're a short, testable list
Do practice questions until you can spot the trap answers

Practice AMT questions for free → (AMT is covered in the Deductions & Credits section)

EA Dojo has 484 deduction and credit questions, including full AMT coverage with instant grading and explanations.