AMT on a Property Sale in 2026: The New $1M Phase-Out

It is one of the costs outside the headline rate; see Beyond the tax bill.

What changed in the AMT for 2026?

The 2025 budget law (P.L. 119-21, §70107) rewrote the exemption phase-out in IRC §55(d)(4). It made the higher exemption permanent, but it cut the phase-out threshold back to $1,000,000 for joint filers ($500,000 for others) and doubled the phase-out rate from 25% to 50%. The new rules apply to tax years beginning after December 31, 2025. The 2026 figures come from Rev. Proc. 2025-32; the 2025 figures from Rev. Proc. 2024-40.

The exemption went up a little. The window where you keep it shrank a lot. In 2025 a couple lost their exemption across a $548,000 band of income. In 2026 it is gone in $280,400. A seller with a seven-figure gain will almost always be past it.

If gains keep their 15% and 20% rates, why do they cause AMT?

Two rules work together.

1. Gain keeps its rate. IRC §55(b)(3) caps the minimum tax on net capital gain at the regular 0%, 15% and 20% rates (25% for unrecaptured §1250 gain). On Form 6251, Part III, the gain is measured with the same bands as your regular return.
2. Gain counts toward the phase-out. Alternative minimum taxable income (AMTI) includes the whole gain. Every dollar of AMTI above $1,000,000 (joint) removes 50 cents of exemption.

So the gain itself is taxed about the same either way. What changes is your ordinary income. Under AMT you lose the standard deduction (§56(b)(1)(E)) and, once the exemption is gone, every dollar of ordinary income is taxed at 26% (28% above $244,500). Under the regular tax, the same dollars are spread through the 10%, 12% and 22% brackets. The AMT is the difference.

What does that look like on a real return?

The illustrative couple: married filing jointly, Texas (no state tax), $200,000 of ordinary income, 2026 law, standard deduction. Engine figures, federal only.

The $1,000,000 row, by hand:

• AMTI: $200,000 + $1,000,000 = $1,200,000 (no standard deduction).
• Exemption: $140,200 minus 50% of the $200,000 over the threshold = $40,200.
• Ordinary income under AMT: $200,000 minus $40,200 = $159,800, at 26% = $41,548.
• Regular tax on the same ordinary income ($167,800 after the $32,200 standard deduction) = $26,340.
• AMT: $41,548 minus $26,340 = $15,208. The gain is taxed the same on both sides.

Under 2025 law the same couple kept their full $137,000 exemption and owed no AMT. That $15,208 is new money for a 2026 seller.

Two more things show in the table. First, in this example AMT starts at a gain of about $883,000 in 2026, against about $1,214,500 under 2025 law. Second, once the exemption is fully gone, the AMT stops growing: a $5,000,000 gain carries the same $25,660 as a $2,000,000 gain, which is simply $200,000 at 26% ($52,000) minus the $26,340 of regular tax on it.

A single filer feels it sooner. With $150,000 of ordinary income, AMT starts at a gain of about $420,500 in 2026 (about $614,400 under 2025 law), and a $500,000 gain carries $10,340 of AMT that 2025 law did not.

Why does more ordinary income mean more AMT?

Because the AMT on a big gain year is really a tax on your other income. Same couple, $2,000,000 gain, exemption fully gone:

At $100,000 it is $26,000 at 26% minus $7,640 of regular tax. At $450,000 part of the income reaches the 28% rate. Flip it around: a couple with only $100,000 of ordinary income and a $1,000,000 gain owed no AMT in the engine: their AMTI of $1,100,000 left $90,200 of exemption, which covered almost all of their ordinary income.

What about itemizers and state tax?

If you itemize, AMT also adds back the state and local taxes you deducted (§56(b)(1)(A)(ii)). In a sale year that interacts with the SALT cap, which phases down toward $10,000 once modified AGI passes $505,000 (IRC §164(b)(7)). In the engine's California itemizer example at $2,000,000 of AGI, AMT was $21,118, and it absorbed most of the SALT cap loss: that cost was $1,438 with AMT against $7,798 if AMT did not apply. You pay one or the other, not both in full. The detail is in the SALT cap on a property sale.

This page covers federal AMT only. For the state side, see capital gains tax by state.

Do you get the AMT back later as a credit?

Generally, no, not for this kind. The minimum tax credit under IRC §53 is figured after removing AMT that would exist from exclusion items alone (the §56(b)(1) adjustments, which include the standard deduction and state and local taxes). The Form 8801 instructions say it plainly: "The minimum tax credit is allowed only for the AMT caused by deferral items," and they list the standard deduction as an exclusion item. AMT created by a gain wiping out the exemption, on a return with only exclusion items, does not carry forward. Have your CPA confirm on your own return, especially if you also have deferral items such as incentive stock options.

Does spreading the gain avoid the AMT?

Usually, because each year's income stays well under the phase-out. The engine example: a $3,000,000 Texas sale, $800,000 basis, $180,000 of selling costs (a $2,020,000 gain), married, $200,000 of other income.

The installment seller recognizes $158,000 to $272,000 of gain a year, so income never gets near $1,000,000 and the exemption stays whole. Interest earned on the payments is taxed separately as ordinary income, and it still produced no AMT in any year of the engine run. The whole difference is about $121,000 of tax, and AMT is about a fifth of it. See the high-income installment sale and the NIIT page.

To be straight about it: spreading does not win on every line. Several years of higher income can mean IRMAA surcharges for several years instead of one, and an itemizer can lose part of the SALT deduction every year instead of in one year where AMT absorbs it. The lever is sizing each year's income against the specific line that matters to you: the AMT phase-out, an IRMAA tier, the $505,000 SALT threshold.

What to know about a structured installment sale: the payment schedule is locked in once set; payments depend on the assignment company and the highly rated life insurer behind it; there is no published IRS ruling on this specific assignment structure, so have your CPA review it; and a commission is built into the pricing. More in what a structured installment sale is and IRC §453.

How do you check your own number?

Form 6251 is the worksheet. It starts from your taxable income, adds back the standard deduction (or, for itemizers, state and local taxes), phases out the exemption, and in Part III keeps your gain at its capital gain rates. The quick test: if your 2026 AGI with the sale is over $1,000,000 (joint) or $500,000 (single) and you have meaningful ordinary income, expect AMT. The calculator shows the AMT inside the cash-sale tax and has a "Beyond the tax bill" slide for the other costs.

Frequently asked

Q: Is capital gain taxed at 28% under the AMT? A: No. §55(b)(3) keeps it at 0%, 15% or 20% (25% for unrecaptured §1250 gain). The 26% and 28% rates hit your ordinary income once the gain has used up the exemption.

Q: What is the 2026 AMT exemption? A: $140,200 for joint filers and $90,100 for single filers, reduced by 50 cents for each dollar of AMTI over $1,000,000 (joint) or $500,000 (single). It is gone at $1,280,400 joint and $680,200 single.

Q: Would the same sale have caused AMT in 2025? A: Often not. In the example, a $1,000,000 gain with $200,000 of ordinary income produced $0 of AMT under 2025 law and $15,208 under 2026 law.

Q: Can I claim this AMT back as a credit in later years? A: Generally not. The §53 credit covers AMT from deferral items; AMT caused by exclusion items such as the standard deduction and state taxes does not create one. Your CPA can confirm with Form 8801.

Q: Does an installment sale stop the AMT? A: In most cases it keeps each year below the phase-out, so the exemption survives. In the engine's $2,020,000 gain example, AMT was $0 in each of the 10 years.

What should you read or run next?

• Beyond the tax bill: the costs outside the capital gains rate
• The SALT cap on a property sale
• IRMAA after a property sale
• Net investment income tax
• Capital gains exit calculator
• Structured installment sale guide

Illustrative estimates using 2026 law. Not tax, legal or accounting advice. Figures change each year; have your CPA confirm with your own return.

Who wrote this?