The One Big Beautiful Bill Act (OBBBA) introduces several tax-law changes that significantly affect how the Alternative Minimum Tax (AMT) applies beginning in 2026. While the law keeps the higher AMT exemption amounts originally introduced under the Tax Cuts and Jobs Act (TCJA), it lowers the income thresholds where the exemption begins to phase out and accelerates the phaseout rate once those thresholds are crossed.
Starting in 2026, the exemption’s phaseout thresholds revert to lower levels than under TCJA: $500,000 for single filers, and $1,000,000 for married (joint) filers, before income-based reduction of the exemption. Simultaneously, the phaseout rate doubles, from 25% under TCJA rules to 50% under the OBBBA.
These changes make the AMT more likely to affect higher-income taxpayers and anyone with large AMT “preference items,” most notably, Incentive Stock Option or “ISO” exercises.
The Impact on ISOs
For people with Incentive Stock Options, the AMT impact becomes particularly important. When you exercise an ISO and hold the shares, the “bargain element” (the difference between the stock’s market value at exercise and your strike price) is not regular taxable income, but it is included in AMT income. Under OBBBA’s tightened phaseout thresholds, this AMT add-on can tip many taxpayers into AMT liability—even those who previously avoided it under TCJA’s more generous rules.
In addition, OBBBA modifies the SALT deduction cap, allowing a higher deduction for many taxpayers. But under the AMT system, SALT deductions are added back, meaning a larger SALT deduction can unintentionally contribute to triggering AMT when combined with ISO exercises.
Because of these changes, many ISO holders may face greater AMT exposure beginning in 2026 than they have before.
What to Do
Everybody’s tax situation is different. But if you are in a high tax bracket and have access to ISOs as part of your compensation, you may include the following as part of your tax plan this year:
Model your AMT exposure before exercising ISOs. Consider front-loading ISO exercises this year rather than waiting, if it also makes sense financially and you can afford any cash outlays or holding risks.
Plan your SALT deduction more carefully. If you live in a high-tax state or expect large state and local taxes, combining that with ISO exercises may magnify AMT risk.
Keep in mind your AMT carryforward credit potential. If you do trigger AMT in a year because of timing (e.g., a big ISO exercise), you might be eligible to recover some of the extra AMT paid in future years via the “minimum tax credit.”
Most importantly, check with your financial and tax advisors if you have both ISOs and large itemized deductions. Ignoring or not fully understanding and planning for the changes to the AMT tax regimen in the OBBBA may subject you to significant additional tax exposure.
If you would like to learn more about ISOs, the AMT, and the OBBBA, please reach out to your Crestwood team. If you are not yet working with Crestwood, please contact us to discuss your individual circumstances.
This document is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal advice, and this document should not be construed as containing legal advice. For legal advice, consult with a licensed attorney. This document should not be construed as containing tax advice. For tax advice, consult with your tax adviser.
