Wonder why you have to pay alternative minimum tax? Here are the main AMT triggers.
Updated September 12, 2025
This page lists the most important AMT triggers: items that can cause (or contribute to) alternative minimum tax. Various other items can contribute to AMT, but these are the most likely culprits.
For a complete list, see IRS Form 6251 and its instructions.
Starting point
The starting point in calculating AMT is your taxable income, taken straight from your regular Form 1040. All the income there, including capital gains, go into the AMT calculation. From there, the AMT rules require various changes, mostly to include more income, reduce or eliminate deductions, and deny credits, all leading toward a more comprehensive view of your financial income.
Top AMT triggers
Two items are far more important than others in causing people to pay alternative minimum tax. These are not the kind of special tax benefits that provided the motivation to create the AMT, but Congress designed the tax to exclude these benefits, and they’ve become the main generators of AMT liability.
State and local taxes. If you itemize, there’s a good chance you claim a deduction for state and local tax, including income tax or sales tax and, if you own a home, property tax. These deductions are not allowed under the AMT. If you live in a place where state and local taxes are high, you’re more likely to be subject to the alternative minimum tax.
Standard deduction. If you don’t itemize, you get to claim the standard deduction in calculating regular income tax. AMT rules disallow this deduction, so it gets added back.
IRS statistics indicate that these two AMT triggers account for nearly 70% of the difference between regular taxable income and alternative minimum taxable income (AMTI).
Investment-related AMT triggers
Net operating losses. AMT rules restrict your ability to claim deductions for net operating losses. This is the next largest in the list of AMT triggers, accounting for more than 25% of the spread between taxable income and AMTI.
Long-term capital gains. These gains (and qualified dividends) receive the same preferential rate under the AMT as they do under the regular income tax. In theory, they shouldn’t cause you to pay alternative minimum tax. In practice, it’s possible to be stuck with AMT liability because of a large capital gain. The reasons are a little complicated, but mainly have to do with the fact that a large capital gain reduces or eliminates the AMT exemption amount, which is designed to protect most taxpayers from having to pay alternative minimum tax.
details: AMT and Long-Term Capital Gain
Tax-exempt interest. Interest that’s exempt from the regular income tax may or may not be exempt from the AMT. The distinction depends on complicated rules that are fully understood only by bond lawyers. Bonds that aren’t exempt from AMT (the IRS calls them specified private activity bonds) generally pay a slightly higher rate of interest to compensate for the fact that they aren’t fully tax-exempt. If you invest in bonds that aren’t exempt under the alternative minimum tax, you’ll see an entry for this item on Form 1099-INT.
Many mutual funds that provide exempt interest invest at least some of their money in bonds that aren’t exempt under the AMT, to get a higher rate of interest. In this case you’ll see an entry for this item on Form 1099-DIV.
Tax shelters. The Tax Reform Act of 1986 — the same law that created the current version of the AMT — severely curtailed opportunities to reduce income tax through tax shelters. Yet there are still some legitimate ways of reducing tax liability through investments in certain types of partnership or limited liability company arrangements involving such activities as oil and gas drilling. The AMT restricts the tax benefits you can claim based on these investments. You should always explore the alternative minimum tax consequences (among other issues) before investing in a tax shelter.
Incentive Stock Options
You don’t report anything on your regular income tax when you exercise an incentive stock option unless you sell the shares the same year. You report income for purposes of the AMT, however. Only about half of one percent of people paying AMT reported income from incentive stock options, but the income they reported was over four percent of the total additions from all AMT triggers.
For more about the AMT consequences of incentive stock options see our online Guide to Compensation in Stock and Options — or our book, Consider Your Options.
Other potential AMT triggers
Mortgage interest. The AMT allows a deduction for mortgage interest, but under narrower rules that may disallow part of the deduction claimed for purposes of regular income tax.
Senior bonus deduction. The 2025 tax law created a new senior bonus deduction of up to $6,000 for each taxpayer age 65 or older. This deduction isn’t allowed in calculating AMT.
Certain credits. Some of the credits used to reduce regular income tax are limited or disallowed in the AMT calculation. However, credits known as “personal credits,” which include the most common ones claimed by individuals, are permitted.