To determine if a taxpayer is eligible for the Alternative Minimum Tax (AMT), AMTI is used. The initial income is taxable and then adjusted for certain preferences and deductions to produce a broader measure of income.If the taxpayer's AMTI is greater than the AMT exemption amount, an AMT may be owed. For taxpayers, tax preparers, and students, here is an example of how to explain the AMTI concept.

1. A taxpayer earns $87,000 in taxable income.
2. The ISOs were taken out of the regular income tax by the taxpayer. The ISOs amounted to $6,100, while the FMV amounted to $26,000. Thus, the taxpayer decreased their taxable income by $19,900 ($26,000 - $6,100).
3. AMT exemption was $81,300.

We will discover the maximum alternative taxable income after the AMT exemption.

Explanation is outlined below:

1. Add back $19,900 in regular taxable income which is $87,000. Thus, regular taxable income is $106,900 to determine AMTI.
2. Reduce AMT exemption $81,300 from $106,900 to determine Alternative Minimum Taxable income $25,600 ($106,900 - $81,300).

Answer: After using the AMT exemption, the taxpayer's alternative minimum taxable income must be $25,600.