What Is IRS Form 6251?

Form 6251 is used to calculate the Alternative Minimum Tax, or AMT. The AMT is a parallel tax system that runs alongside the regular income tax. It exists to ensure that high-income taxpayers with significant deductions or certain tax preference items pay at least a minimum amount of tax, even if those deductions would otherwise reduce their regular tax to a very low level.

How the AMT Works

You calculate your income under the regular tax rules, then recalculate it under AMT rules, which add back certain deductions and preference items and use a flat rate. The AMT exemption amount — a threshold below which the AMT doesn't apply — phases out at higher incomes. If your AMT liability exceeds your regular tax, you pay the higher amount.

What Triggers AMT

Several items can push you into AMT territory. Large deductions for state and local taxes (which aren't deductible at all under AMT). Accelerating income through incentive stock option exercises. High depreciation on certain property. Large amounts of tax-exempt interest from private activity bonds. Certain losses from passive activities or at-risk rules.

The AMT Exemption

The Tax Cuts and Jobs Act of 2017 dramatically increased the AMT exemption amounts and raised the income thresholds at which they phase out. This reduced the number of taxpayers subject to AMT significantly. Before 2018, millions of middle-class taxpayers were hit by AMT each year. Today it affects far fewer people, mainly those with very high incomes or who exercise large amounts of incentive stock options.

Incentive Stock Options and AMT

If your employer granted you incentive stock options (ISOs), exercising them doesn't trigger regular income tax — but the spread between the exercise price and fair market value is an AMT preference item. This can result in a significant AMT bill in the year you exercise, even if you hold the shares and receive no cash. This is one of the most common AMT triggers for employees at technology and startup companies.