For many higher-income taxpayers, itemizing deductions seems like a guaranteed way to reduce taxable income. However, the Alternative Minimum Tax (AMT) can throw a wrench in this plan. In certain cases, itemized deductions that reduce your regular tax do not lower your AMT liability—and may be completely disallowed under AMT rules. Here’s how the AMT works and how it can eliminate the benefit of itemizing.
🧾 What Is the Alternative Minimum Tax (AMT)?
The AMT is a parallel tax system created to ensure that high-income earners pay a minimum amount of tax, even after taking advantage of deductions and credits. It requires you to calculate your tax twice:
- Once under the regular tax rules (Form 1040)
- Again under AMT rules (Form 6251)
You pay the higher of the two amounts.
📌 2025 AMT Exemption Amounts
- Single or Head of Household: $85,700
- Married Filing Jointly: $133,300
- Phaseout starts at: $609,350 (Single), $1,218,700 (MFJ)
❌ Deductions Disallowed Under AMT
The AMT disallows or limits many deductions that are otherwise valid under the regular tax system. Some common itemized deductions that don’t reduce AMT include:
- State and local income taxes (SALT)
- Property taxes
- Miscellaneous itemized deductions (e.g., investment fees, unreimbursed employee expenses)
- Home equity loan interest (if not used for home improvement)
- Medical expenses (subject to a higher threshold under AMT)
These deductions may lower your regular taxable income but are ignored or recalculated under AMT rules.
📊 Real-World Example
Emily and Chris, a married couple with a combined income of $275,000, itemize $40,000 in deductions, including $12,000 in SALT taxes, $4,000 in unreimbursed employee expenses, and $8,000 in medical bills. While these deductions help under the regular tax calculation, Form 6251 strips away most of them. Under AMT rules, their taxable income is higher—resulting in thousands of dollars in additional tax liability.
🧮 How AMT Is Calculated
- Start with your regular taxable income
- Add back certain deductions and preference items to calculate AMTI (Alternative Minimum Taxable Income)
- Subtract the AMT exemption amount
- Apply AMT rates: 26% on the first portion, 28% above the threshold
- Compare to regular tax and pay the higher amount
🔍 Deductions That Still Help Under AMT
- Mortgage interest on acquisition debt
- Charitable contributions
- Investment interest expense (if tied to investment income)
- Qualified medical expenses that exceed 10% of AGI for AMT purposes
These deductions are typically still allowed under AMT and can reduce your overall AMTI.
💡 Planning Strategies to Minimize AMT Impact
- Avoid bunching SALT deductions in years where AMT is triggered—it won’t help.
- Maximize deductions that count for both regular and AMT tax, such as charitable donations.
- Spread out income or deductions over multiple years to reduce spikes that trigger AMT.
- Use a tax advisor or AMT-aware software to run projections, especially if income nears the phaseout thresholds.
🧾 Tools and Forms
- Form 6251: Alternative Minimum Tax—Individuals
- Schedule A: Itemized Deductions (used for regular tax)
- Form 1040: U.S. Individual Income Tax Return
✅ Summary
If you’re subject to AMT, itemizing might not reduce your tax bill—and could even make things worse. State taxes, property taxes, and many miscellaneous deductions are ignored under AMT rules. Before assuming that itemizing will save you money, check your AMT exposure with Form 6251 or consult a tax professional. A proactive review can ensure you’re not surprised by a higher-than-expected tax bill.
Need help determining if AMT applies to you? Share your income and deduction profile, and we’ll walk through the impact together.
