Will Alternative Minimum Tax (AMT) apply if I only have long-term capital gains income?

The good news is that you don't need to worry about paying AMT on your long-term capital gains. The Alternative Minimum Tax system still respects the preferential tax rates for long-term capital gains and qualified dividends. Your understanding of the capital gains rates is correct - 0%, 15%, and 20% depending on your income level, plus the 3.8% Net Investment Income Tax (NIIT) for income above $200,000 for single filers. These preferred rates still apply under the AMT system. The 26% and 28% AMT rates only apply to ordinary income and short-term capital gains when calculating your AMT liability. Long-term capital gains maintain their preferential rates even under AMT calculations. So in your scenario, your tax burden calculation looks correct at around $270,000. You won't have an additional AMT liability on top of that just because your effective tax rate is below 26%.

Just wanted to share my experience with this exact situation. I sold a bunch of stocks last year with about $900k in long-term gains, and was freaking out about AMT. I found an awesome service called taxr.ai (https://taxr.ai) that analyzed my specific situation and confirmed I wouldn't owe AMT on those capital gains. What I liked about it was that I could upload all my statements and ask specific questions about my situation. They explained that the AMT calculation still preserves the preferential capital gains rates, so I wasn't hit with that 26% or 28% rate on my long-term gains. Saved me a ton of worry since I was planning to set aside an extra $70k just in case!

I was extremely skeptical about using an AI tax service, but after the recommendation here, I decided to try taxr.ai for my own capital gains situation. I sold my rental property this year with a substantial gain and was confused about AMT implications. I'm honestly impressed with how thorough the analysis was. They confirmed what others said here - the AMT calculation still preserves the preferential capital gains rates. But they also identified a potential issue with my state taxes that I hadn't considered. Apparently my state has its own version of AMT that works differently from the federal version. The documentation they provided helped me understand why my effective tax rate being below 26% wasn't going to trigger additional federal AMT. Definitely worth checking out if you're dealing with a complex tax situation involving capital gains.

If you're struggling to get clear answers about AMT and your specific situation, you might want to try calling the IRS directly. I know, I know - getting through to them is nearly impossible. I spent DAYS trying to reach someone about a similar capital gains question. That's when I found Claimyr (https://claimyr.com). I was super skeptical, but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they get you past the IRS phone tree and hold times, then connect you with an actual IRS agent. I had questions about AMT calculations with capital gains from selling my business, and the IRS agent I spoke with confirmed that long-term capital gains still get preferential treatment under AMT. They walked me through the specific calculations for my situation. Having that direct confirmation from the IRS gave me peace of mind that I wasn't misunderstanding something that could cost me thousands.

I have to eat my words about Claimyr. After expressing skepticism, I decided to try it for myself because I've been trying to reach the IRS for WEEKS about my capital gains situation. The service actually worked exactly as advertised. I got connected to an IRS representative in about 20 minutes (versus the 2+ hours I spent on hold last time I tried). The agent confirmed everything that's been said here - long-term capital gains keep their preferential rates even under AMT calculations. She walked me through how to complete Form 6251 for my situation and explained that while I need to calculate the AMT, I wouldn't owe additional tax just because my effective rate was below 26%. For anyone dealing with complex tax situations, especially with large capital gains, getting that direct confirmation from the IRS is incredibly valuable. Definitely worth the service fee to save hours of frustration.

Just to add another perspective - I was in a similar situation last year (retired, sold stocks with large gains), and I still had to pay AMT despite having only capital gains. The reason was that I had a lot of state and local tax deductions that get added back in for AMT purposes. So while the capital gains themselves keep their preferential rates under AMT, other aspects of your tax situation could still trigger AMT. If you have large state/local tax deductions, private activity bond interest, or certain other preference items, you might still end up paying AMT even with only capital gains income. My advice is to run the numbers both ways or use tax software that calculates AMT automatically. In my case, I ended up owing about $12k in AMT on top of my regular tax.

Don't forget about the impact of realizing $1.3 million in gains on your Medicare premiums two years from now! With income that high, you'll likely hit the top IRMAA bracket for Medicare Part B and D premiums. In 2025, your premiums would be based on your 2023 income. For single filers with income above $500,000, the monthly Part B premium jumps to around $500-600 per month (vs the standard $170ish). Just something else to budget for since this kind of one-time capital gain has lingering effects on your retirement expenses.

This is a great discussion! As someone who went through a similar situation a few years ago, I wanted to add that it's also worth considering the timing of when you realize these gains if you have any control over it. If you're planning to have lower income in future years (which is common in retirement), you might benefit from spreading the gains across multiple tax years to stay in lower capital gains brackets. The 0% bracket goes up to about $44k, and the 15% bracket extends to around $492k for single filers. Also, if you're doing any charitable giving, this could be a great year to consider donating appreciated securities directly to charity rather than cash. You avoid the capital gains tax entirely and still get the charitable deduction. With $1.3M in gains, even a modest charitable giving strategy could save significant tax dollars. Just another angle to consider while you're planning!