While most taxpayers are only concerned with the regular federal income tax system, there exists a parallel tax system known as the Alternative Minimum Tax (AMT). Originally designed to ensure that high-income individuals pay at least a minimum amount of tax, the AMT has become increasingly relevant for certain middle-income earners with specific types of deductions or income. Form 6251 is the IRS form used to determine whether you owe the AMT and, if so, how much.
This comprehensive guide will walk you through what the AMT is, who it affects, how to complete Form 6251, and how to minimize your exposure to this lesser-known but impactful tax.
What Is the Alternative Minimum Tax (AMT)?
The AMT is a separate tax calculation that removes or limits certain deductions and adds back specific types of income. It was created to prevent high-income taxpayers from avoiding taxes by heavily using deductions and exclusions. If your AMT liability is higher than your regular tax liability, you must pay the difference.
Although the AMT originally targeted the wealthy, over time, inflation and changing deduction practices brought many middle-income taxpayers into its net. Recent tax reforms have adjusted AMT exemptions to reduce this impact, but the tax still applies to many households, especially those with:
- High state and local taxes (SALT)
- Large miscellaneous itemized deductions
- Multiple dependents
- Incentive stock options (ISOs)
What Is IRS Form 6251?
Form 6251, officially titled “Alternative Minimum Tax – Individuals,” is used to calculate the amount of AMT you owe. You must complete this form if certain income thresholds or tax situations apply to you.
The form does the following:
- Calculates AMT income (AMTI) by adding back various tax preference items
- Applies the AMT exemption
- Computes your tentative minimum tax
- Determines whether you owe additional tax compared to the regular tax
Who Must File Form 6251?
You must file Form 6251 if any of the following apply:
- Your total income is above the AMT exemption amount
- You claimed deductions or credits that are disallowed or limited under the AMT system
- You exercised incentive stock options (ISOs)
- You have significant passive income or depreciation from rental properties
- Your tax software or tax preparer indicates you are subject to the AMT
2025 AMT Exemption Amounts
These are the IRS-provided AMT exemptions for the 2025 tax year:
- Single or Head of Household: $85,700
- Married Filing Jointly: $133,300
- Married Filing Separately: $66,650
The exemption phases out at higher income levels. Once your income surpasses the threshold, the exemption amount is gradually reduced.
How Form 6251 Works: A Step-by-Step Breakdown
1. Start With Regular Taxable Income
Begin with your taxable income from Form 1040. You then add back certain adjustments and preference items that the AMT disallows. These can include:
- State and local tax deductions
- Miscellaneous itemized deductions
- Tax-exempt interest from private activity bonds
- Depreciation differences
- ISO (Incentive Stock Option) benefits
2. Calculate AMTI (Alternative Minimum Taxable Income)
After adjusting your taxable income, you arrive at the AMTI. This is your income figure used for AMT calculation purposes.
3. Subtract the AMT Exemption
Based on your filing status, subtract the applicable AMT exemption. If your income exceeds the phase-out threshold, reduce the exemption accordingly.
4. Apply AMT Rates
The AMT uses two marginal tax rates:
- 26% on AMTI up to a certain threshold
- 28% on AMTI above that threshold (e.g., $220,700 for single filers in 2025)
This computation gives you your tentative minimum tax.
5. Compare With Regular Tax
If your tentative minimum tax exceeds your regular tax liability, you must pay the difference. This amount is your AMT and is entered on Schedule 2 of Form 1040.
Common AMT Triggers
- Large state and local tax deductions (which are limited under AMT)
- High miscellaneous itemized deductions (e.g., unreimbursed employee expenses)
- Depreciation of business or rental property using accelerated methods
- Large long-term capital gains or qualified dividends
- Exercising incentive stock options (ISOs) without selling the stock
- Interest on private activity bonds
How to Minimize or Avoid AMT
Though the AMT can be complex and unavoidable in some situations, here are some planning strategies that may help reduce your AMT exposure:
- Time deductions: Postpone deductible expenses to a year when you’re not subject to AMT
- Use ISO planning: Time ISO exercises and stock sales to limit AMT impact
- Review your investments: Avoid private activity bonds if you are AMT-sensitive
- Maximize above-the-line deductions: These are not added back for AMT purposes
- Work with a tax advisor: AMT calculations and planning are best handled with expert assistance
How to File Form 6251
Form 6251 is filed along with your federal Form 1040. Most modern tax software programs will automatically generate Form 6251 if your income or deductions trigger the AMT. However, you can also complete the form manually using the IRS instructions.
If you need to file it separately or amend a return to correct AMT reporting, ensure you attach it properly to your Form 1040-X and provide updated tax schedules.
IRS Resources for AMT and Form 6251
- IRS Form 6251 and Instructions
- Tax Topic 556 – Alternative Minimum Tax
- IRS Publication 505 – Tax Withholding and Estimated Tax
Conclusion: Stay Informed and Proactive About AMT
The Alternative Minimum Tax can be an unwelcome surprise if you’re unaware of how it works. By understanding the rules and identifying potential AMT triggers in your financial situation, you can take proactive steps to reduce or avoid additional tax liability.
Form 6251 is the tool the IRS uses to evaluate whether you owe the AMT. Make sure you or your tax advisor properly complete this form if applicable. With thoughtful planning and timely filing, you can minimize your AMT burden and ensure full compliance with federal tax laws.
