Which Itemized Deductions Are Disallowed Under AMT

The alternative minimum tax (AMT) does not permit all of the itemized deductions that reduce your regular taxable income. The disallowed deductions include state and local taxes, miscellaneous business expenses, some mortgage interest on home-equity debt, and certain investment expenses — which means your “alternative minimum taxable income” (AMTI) starts from a higher base and can trigger an unexpected tax bill.

The Core Rule: Deductions Allowed Only If They Reduce Regular Taxable Income

The AMT is not a separate tax code; it is an alternative minimum calculation that starts with regular taxable income and then applies its own set of adjustments and preferences. When computing AMTI, you generally take the deductions that are allowed under regular tax law and then remove any deduction that the AMT specifically disallows. This means your starting point for AMT is often higher than for regular tax, even if your income is identical.

Most of the disallowed deductions fall into a single category: miscellaneous itemized deductions and taxes that provide relief only under the regular system. The IRS published this structure to ensure that high-income filers cannot use certain deductions to reduce their taxable base below what Congress deemed an acceptable minimum.

State and Local Tax Deductions

One of the largest AMT hits comes from the state and local income-tax deduction (SALT). Under regular tax, you can deduct state income tax or state sales tax (your choice, but not both in the same year) up to a combined $10,000 per year along with property taxes — again, up to $10,000 together.

Under the AMT, no deduction is allowed for state income tax, state sales tax, or state property tax of any kind. If you live in a high-tax state (California, New York, Connecticut, New Jersey) and itemize, this single disallowance can create a substantial AMT adjustment. A resident paying $15,000 in state income and property tax would have a $15,000 positive adjustment (meaning $15,000 of additional AMTI). Over time, repeated state-tax disallowances can build an AMT liability even if regular tax is moderate.

Miscellaneous Itemized Deductions

Under regular tax, if you itemize, you can deduct miscellaneous expenses — such as professional development, union dues, job-search costs, and (before 2018, and scheduled to return in 2026 under current law) investment advisory fees — after reducing them by 2% of adjusted gross income (AGI). In other words, only the excess over 2% of AGI gets a deduction.

Under the AMT, these miscellaneous itemized deductions are not allowed at all. The entire category is removed from the AMTI calculation, regardless of whether you pass the 2% threshold. For a self-employed person or consultant with high professional expenses, this can be a meaningful reduction in shelter.

Home-Equity Loan Interest

The deduction for mortgage interest is more nuanced under AMT than under regular tax. Under regular tax, you can deduct:

• Interest on up to $750,000 of mortgage debt on your primary residence and one second home (or $1 million if the loan was taken before December 15, 2017).
• This applies whether the debt is a primary mortgage, a home-equity line of credit, or a home-equity loan.

Under the AMT, mortgage interest is allowed only on debt incurred to acquire or substantially improve the home. Interest on home-equity debt — borrowed against the home’s value but not used to buy or improve it — is not deductible for AMT purposes, even if it is deductible under regular tax.

For example, suppose you borrowed $300,000 against home equity to pay off consumer debt or fund a business venture. Under regular tax, the interest on that $300,000 is deductible. Under AMT, it is not. This creates a positive adjustment to AMTI (the deduction is added back).

Medical Expenses

Unlike SALT and miscellaneous deductions, medical and dental expenses remain deductible for AMT purposes — but only to the extent they exceed 7.5% of AGI (the same threshold as under regular tax; there is no separate AMT floor). This means medical deductions do not trigger an AMT adjustment; if they are allowed on your regular return, they are also allowed on AMT.

Charitable Donations and Casualty Losses

Charitable contributions are allowed under both regular tax and AMT without adjustment. No AMT disallowance applies to donations to qualified charities.

Casualty losses — losses from theft, storms, accidents — are generally allowed under both systems, although the AMT has its own treatment of gains and losses from passive activities, which can affect how a casualty loss interacts with other income and deductions.

Form 6251 Schedule for Deduction Adjustments

When filing Form 6251, Part III (“Adjustments Based on the Way You Figure Taxable Income”) is where you document these deduction disallowances. Typical entries include:

• Line 19: Subtract state and local taxes (not allowed for AMT).
• Line 20: Subtract miscellaneous itemized deductions (not allowed for AMT).
• Line 21: Subtract home-equity loan interest (if borrowed for purposes other than home acquisition or improvement).

Each of these lines asks you to identify the deduction from your regular return and remove it from the AMT calculation. The sum of all positive adjustments inflates your AMTI, bringing you closer to (or into) AMT liability.

Interaction With Alternative Minimum Tax Preferences

It is worth distinguishing between adjustments (like deduction disallowances) and preferences (like the excess of accelerated depreciation over straight-line depreciation, or tax-exempt interest on private-activity bonds). Deduction disallowances are adjustments; they add back amounts you deducted on your regular return. Preferences are entirely separate tax benefits that the AMT does not allow.

The combination of deduction adjustments and preference items can push you into AMT even if your income is moderate but you have high state taxes or significant depreciation from real-estate or business assets.

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