For the 2025 U.S. federal tax year, a single taxpayer's Alternative Minimum Taxable Income (AMTI) is $700,000. Under IRC Section 55, what happens to that taxpayer's AMT exemption amount?
- The $88,100 exemption is eliminated entirely because AMTI exceeds the $626,350 phase-out threshold for single filers
- The exemption is unaffected because the phase-out threshold applies only to married taxpayers filing jointly
- The exemption is reduced by 25 cents for every dollar of AMTI above $626,350, so it is only partially reduced rather than eliminated at this income level
- The exemption increases because higher AMTI triggers a higher exemption under the AMT's inflation-adjustment mechanism
Why C? And why not the others?
Correct answer: C. The exemption is reduced by 25 cents for every dollar of AMTI above $626,350, so it is only partially reduced rather than eliminated at this income level
Under IRC Section 55, the 2025 AMT exemption for single filers is $88,100, and it phases out at a rate of 25 cents for every dollar of AMTI above a $626,350 threshold. At $700,000 of AMTI, the excess over the threshold is $73,650, so the exemption is reduced by roughly $18,413 (25% of $73,650), leaving a partial exemption of about $69,687 rather than zero. The option claiming total elimination at $700,000 is wrong because full phase-out to zero does not occur until AMTI reaches roughly $978,750 for a single filer (the point at which the full $88,100 exemption has been consumed by the 25-cent-per-dollar reduction); $700,000 is well short of that point. The option claiming the threshold applies only to joint filers is wrong because the AMT exemption phase-out applies to every filing status, each with its own threshold, and $626,350 is specifically the single/head-of-household threshold. The option describing an increasing exemption is wrong because the mechanism only ever reduces the exemption as AMTI rises above the threshold; it never increases it.
Source: IRS Rev. Proc. 2024-40 (2025 inflation adjustments); IRS Instructions for Form 6251, Alternative Minimum Tax—Individuals