Originally introduced in the 1980s, the alternative minimum tax (AMT) system is designed to prevent higher income taxpayers from avoiding federal income taxes through the use of 
various exclusions, deductions, and credits. However, taxpayers who have a large number of personal exemptions, take large itemized deductions for state and local taxes, or have a spike in capital gains, among other things, may find themselves subject to the AMT.
Determining whether you will be subject to the AMT requires a thorough review of your tax situation, but here are the general rules.
HOW IT WORKS
Generally, the AMT calculation starts with your regular taxable income and requires you to make revisions for certain “tax preferences” and “adjustments” to arrive at alternative minimum taxable income (AMTI). Some of the more common adjustment and preference items relate to interest on certain tax-exempt bonds, personal and dependency exemptions, the exercise of incentive stock options, and itemized deductions for certain types of home equity loan interest, state and local income taxes, and medical expenses.
EXEMPTION AMOUNTS
Once AMTI has been calculated, an AMT exemption amount is subtracted from it to determine the final taxable figure. For 2016, the AMT exemption amounts are $83,800 (married filing jointly), $53,900 (single), and $41,900 (married filing separately). A 26% tax rate is applied to the first $186,300 of the resulting income, while a 28% tax rate is applied to any amounts above $186,300. For married persons who file separately, the rate changes at $93,150 in 2016.
Taxpayers with AMTI over a certain threshold do not qualify for the AMT exemption. For example, individuals in 2016 will have their exemption reduced by 25% of the amount by which their AMTI exceeds $119,700, which means that their exemption equals zero at AMTI of $335,300 or more.
PLANNING
Taxpayers who expect a potential AMT problem may be able to use certain strategies to reduce their taxes. For example, if a tax projection indicates that you may be subject to AMT this year but not next year, it may be helpful to delay prepaying certain expenses, such as state and local income taxes.