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Capital Gains Tax in Alabama
By Priya Raman
Alabama taxes the gain like any other income, no special break for real estate.
Alabama taxes the gain like any other income, no special break for real estate.
Sell investment property in Alabama and the state treats the profit as ordinary income, taxed at up to 5%. Add the federal 20% rate and the 3.8% net investment income tax and an investor can lose close to 28.8% of the gain before reinvesting anything.
Alabama doesn't carve out a lower rate for capital gains the way some states do. A sale runs through the same bracket structure as wages, up to 5% at the top. Combined with the federal side, that puts the ceiling at 28.8%. Run your own numbers through the capital gains tax calculator, which also accounts for depreciation recapture on the property.
None of that 28.8% is due right away if the proceeds go into a qualifying replacement property under Section 1031. The 1031 exchange calculator walks through your specific basis and gain, and the timeline calculator keeps the 45- and 180-day clocks straight.
For the deadline and boot mechanics behind the Alabama numbers above, read the 1031 exchange guide, then see how Alabama compares to other states in the rate table.