After last week’s email, I received a lot of tax bill questions.
Tax Bill Questions
Here are some of the most popular ones:
“What are the changes to the Alternative Minimum Tax (AMT)?”
“I read that there will be a change to Qualified Small Business Stock (QSBS), is it true?”
“How will mortgage interest change with the new tax bill?”
Let’s dive into these questions and the new tax provisions associated with them.
Alternative Minimum Tax (AMT)
The new tax bill maintains the increased AMT exemption limits from the Tax Cuts and Job Act (TCJA):
- $137,000 for joint filers
- $88,000 for single filers
Remember that the income phaseout thresholds are $626,350 for single filers and $1,252,700 for joint filers. However, starting in 2026 the AMT phaseout thresholds will be reduced to $500,000 for single filers and $1,000,000 for joint filers.
Once a taxpayer’s AMT income surpasses the exemption threshold, the new tax bill increases the exemption phaseout rate to 50% of the dollar amount above the threshold compared to the current 25% rate.
This will likely increase the AMT exposure for certain taxpayers.
For example, if you have unexercised Incentive Stock Options (ISOs), you may consider exercising them in 2025 to take advantage of the currently higher AMT exemption thresholds and lower phaseout rates. You may have to pay the AMT in 2025, but if you wait until 2026 or later, you may face a significantly higher tax bill.
Qualified Small Business Stock (QSBS)
The QSBS exemption increases from $10 million to $15 million for qualified small business stock acquired after July 4, 2025.
Additionally, there are different exclusion levels for QSBS acquired after July 4, 2025:
- 50% when held between 3 and 4 years
- 75% when held between 4 and 5 years
- 100% when held for 5 years or more
There are many tax bill questions about qualified small business stock acquired before July 4, 2025. The old law still applies here and the QSBS must be held for at least 5 years to be exempt from any gain.
Mortgage Interest
Under the TCJA, you can deduct interest payments on the first $750,000 of mortgage indebtedness. Buying, building, or improving the taxpayer’s residence all qualify for this deduction. This is still in place.
The new tax bill grants the ability to deduct mortgage insurance premiums permanently starting in 2026. This will provide a bigger deduction for some homeowners who paid less than a 20% down payment on their home.
Putting it All Together
And in the end, these are all very good questions and important pieces of the new legislation. Hopefully you can put them to good use and reduce your tax bill this year and beyond.