Alternative Minimum Taxable Income: Federal and California

Alternative minimum taxable income is your regular taxable income recalculated under a parallel set of rules that disallow or modify certain deductions and pull in certain income items the regular system ignores. The resulting figure, after an exemption, is what the alternative minimum tax (AMT) is applied to. If the tax on that figure exceeds your regular income tax, you pay the difference. For 2026, the federal AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly, with tax applied at 26% and 28% above those amounts.¹ California runs a separate AMT at a flat 7% with lower exemptions, so the state version catches more taxpayers than the federal one.²

How the Tax on AMTI Is Calculated

The federal AMT uses two brackets. AMTI above the exemption is taxed at 26% up to a statutory threshold of $175,000 (indexed for inflation), and income beyond that threshold is taxed at 28%.³ The result is your tentative minimum tax. If that figure exceeds your regular income tax, you add the difference to your return as AMT.

California applies a flat 7% to AMTI above the state exemption.² Because California does not fully conform to federal tax law, you can owe state AMT in a year you owe no federal AMT, and vice versa.

What Goes Into Federal AMTI

Federal AMTI starts with your regular taxable income. From there you add back or modify specific items under 26 U.S.C. § 56 and § 57.⁴ A handful of adjustments drive most AMT bills.

Incentive Stock Options

This is the item that pulls most individuals into AMT. For regular tax, exercising an incentive stock option (ISO) is a non-event. For AMT, the spread between the exercise price and the stock’s fair market value on the exercise date counts as income, because the favorable treatment of Section 421 does not apply to the AMT calculation.⁴ Exercise options on stock worth $50 at a $10 strike, and $40 per share flows into your AMTI. On a large grant that one line can create the entire AMT liability.

Private Activity Bond Interest

Interest from most municipal bonds is tax-free. Interest from private activity bonds is not: it must be included in AMTI.⁵ Taxpayers holding large positions in these securities sometimes assume the income is fully sheltered and are surprised at filing time.

Depreciation

Business property requires a separate AMT depreciation calculation. For tangible property placed in service between 1987 and 1998, you use the 150% declining balance method over the asset’s class life rather than the faster 200% declining balance and shorter periods allowed for regular tax.⁴ For property placed in service after 1998, the method is still 150% declining balance but the recovery period matches the regular-tax period, which shrinks the adjustment. Either way, you track AMT depreciation separately for each asset.

Net Operating Losses

An AMT-specific net operating loss deduction cannot zero out your AMTI the way a regular NOL can zero out regular taxable income. That limit prevents a large carryforward from washing out the minimum tax entirely. Track the AMT NOL separately from the regular NOL, because the starting figures and adjustments differ.

What Changes for California AMTI

California AMT runs under Revenue and Taxation Code Section 17062.² You begin with California taxable income and work through a separate set of adjustments on Schedule P (540). The result frequently differs from federal AMTI by a meaningful amount.

Depreciation

California often uses different recovery periods and methods than the IRS allows, so you track a California regular basis and a California AMT basis for every piece of business property. These differences accumulate across an asset’s life. Equipment bought in 2026 can still generate a California AMT adjustment on a 2035 return.

Property and Personal Property Tax Add-Backs

State and local personal property taxes, and state, local, or foreign real property taxes deducted on Schedule CA, must be added back for California AMT.⁶ For homeowners with high property tax bills, this add-back alone can swing the AMT calculation.

Passive Activity Losses

Passive activity losses must be recomputed under AMT-specific rules for the state return. A rental loss that offsets your regular California tax may be partly or fully disallowed in the AMT calculation. Combined with the lower state exemption, this adjustment pushes more taxpayers into actually owing California AMT.

Exemption Amounts and Phaseouts

Both systems shelter a portion of AMTI with an exemption. As income rises, the exemption phases out, and at a high enough AMTI it disappears entirely.

Federal, Tax Year 2026

Single or head of household: exemption of $90,100, phaseout begins at $500,000 of AMTI.
Married filing jointly: exemption of $140,200, phaseout begins at $1,000,000 of AMTI.

These figures reflect adjustments made by the One Big Beautiful Bill Act, signed July 4, 2025.¹ Above the phaseout threshold, the exemption shrinks for every additional dollar of AMTI.

California, Most Recent Published Figures (2025)

Single or head of household: exemption of $92,749, phaseout begins at $347,808 of AMTI.
Married filing jointly: exemption of $123,667, phaseout begins at $463,745 of AMTI.
Married filing separately: exemption of $61,830, phaseout begins at $231,868 of AMTI.

These amounts are inflation-indexed, so 2026 figures will be modestly higher once the Franchise Tax Board publishes them.⁷ Compare the married-joint phaseouts: California begins at $463,745 while federal does not start until $1,000,000. A California couple with $600,000 of income can owe state AMT while owing no federal AMT.

Where the Numbers Go: Forms and Records

Federal AMTI and AMT are calculated on IRS Form 6251, attached to Form 1040.⁸ California AMTI and AMT are calculated on Schedule P (540), attached to Form 540.⁶ Both forms walk through adjustments and preferences line by line, convert regular taxable income into AMTI, apply the exemption, and produce the tentative minimum tax. Tax software handles the mechanics, but you still have to feed it the right inputs.

The records that drive the biggest AMTI adjustments:

ISO exercises: exercise date, share count, exercise price, and fair market value on the exercise date.
Private activity bond interest: the 1099-INT or broker statement line showing it.
Depreciation schedules: separate regular-tax and AMT schedules for every business asset, tracked across the asset’s full life (and, in California, state-specific versions of each).
Prior-year AMT carryforward: your prior Form 8801 or FTB 3510 showing any unused credit.

Recovering AMT Later Through the Minimum Tax Credit

AMT caused by timing differences is often recoverable. If you paid federal AMT because of a deferral item like depreciation or an ISO exercise, Form 8801 calculates a minimum tax credit you can apply against regular tax in a later year, when the same income or deduction shows up on the regular side.⁹ AMT caused by exclusion items, like the standard deduction, does not generate a credit. Unused credit carries forward indefinitely.

California has a parallel credit computed on Form FTB 3510, available if you had a credit carryover from a prior year or paid AMT in the prior year on adjustments other than exclusions.¹⁰ The form sorts prior AMT into the deferral-based portion (creditable) and the exclusion-based portion (not creditable). Any year in which you paid AMT is a year to run this form, because the credit frequently goes unclaimed by taxpayers who do not know it exists.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
California Legislative Information. California Revenue and Taxation Code 17062
3
Office of the Law Revision Counsel. 26 USC 55 – Alternative Minimum Tax Imposed
4
Office of the Law Revision Counsel. 26 USC 56 – Adjustments in Computing Alternative Minimum Taxable Income
5
Office of the Law Revision Counsel. 26 USC 57 – Items of Tax Preference
6
Franchise Tax Board. 2024 Instructions for Schedule P (540)
7
Franchise Tax Board. 2025 Schedule P (540) Alternative Minimum Tax and Credit Limitations
8
Internal Revenue Service. About Form 6251, Alternative Minimum Tax – Individuals
9
Internal Revenue Service. Instructions for Form 8801
10
Franchise Tax Board. 2025 Instructions for Form FTB 3510