Alternative Minimum Tax (AMT) = parallel tax system ensuring high-income taxpayers pay minimum tax despite deductions/credits. **2025 AMT rates**: 26% on AMTI up to $220,700 ($110,350 married separate), 28% above. **Exemption**: $85,700 single, $133,300 married (phases out $0.25 per dollar over $609,350 single / $1,218,700 married).

Example: Single, $500k AGI, $100k state tax, $50k ISO exercise.

Regular tax = $500k taxable - itemized deductions.

AMT calculation: Start $500k AGI, ADD BACK $100k state tax (disallowed for AMT), ADD $50k ISO spread (bargain element) = **$650k AMTI**.

Subtract $85,700 exemption = $564,300 × 26-28% = **$153,286 tentative AMT**.

If regular tax = $120k, owe AMT = $153,286 - $120k = **$33,286 additional** (total tax $153,286).

**Who pays AMT (2025 triggers)**: (1) **ISO exercises**: Bargain element (FMV - strike) = AMT income but not regular. $200k ISO exercise = $56k-$62k AMT hit. (2) **High state/local taxes**: SALT deduction capped $10k regular, $0 AMT.

Live in CA/NY with $50k state tax = $40k AMT add-back × 28% = $11,200 extra AMT. (3) **Large families**: Personal exemptions eliminated post-TCJA but still factor in AMT calculation complexity. (4) **Accelerated depreciation**: Bonus depreciation creates AMT preference for certain property. (5) **Private activity bonds**: Tax-exempt interest for regular tax = taxable for AMT.

**AMT Credit**: If you pay AMT from timing items (ISO, depreciation), generate AMT credit = carry forward indefinitely, use when regular tax > AMT in future years.

Deferral items (state tax, personal exemptions) = NO credit (permanent difference).

Example: Pay $30k AMT in 2025 from ISO exercise.

In 2027, sell ISO stock, trigger $150k regular tax, $100k AMT = Use $30k AMT credit → Owe $120k total ($150k - $30k credit).