Alabama
Reviewed July 2026Federal §453 conformity
Yes — Alabama starts from federal concepts and taxes installment gain as payments arrive, at a 5% top rate that flatters the state: Alabama is one of the last states to let residents deduct their federal income taxes, so the true rate on a big gain runs meaningfully below the sticker. The deduction also rewards the installment structure quietly — each year's federal tax on the recognized gain is deducted on that year's Alabama return, keeping the two systems aligned payment by payment.
Nonresident sourcing
Gain from Alabama real estate or a business operating in Alabama is Alabama income for sellers anywhere, and the payments keep that character across the stream; intangible gain generally follows the seller home.
Withholding
Alabama withholds at closing when a nonresident sells real estate: 3% of the price for individuals, 4% for entities — unless the seller's affidavit establishes the gain, in which case withholding can be computed on the gain instead. For an installment sale, get that affidavit; withholding computed on the full price at closing defeats the deferral the structure was built for.
Selling, then moving (residency change)
Alabama-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border.
Pass-through entity (PTE) tax election
Alabama's electing pass-through entity tax is available at 5% with owner-level relief, on the usual annual terms. Model it per recognition year, and confirm the election deadline early — it falls with the entity's return timeline, not the closing.
Estate and IRD
Alabama has no estate or inheritance tax. At death the federal rules apply — heirs pay income tax as payments arrive — with no state layer.
Planning notes
Alabama's list: for nonresident real estate sellers, file the gain affidavit before closing so withholding follows the gain rather than the price; compute the real rate with the federal deduction before comparing structures; and check the PTE election calendar in sale years.
Alabama's closing-table withholding on nonresident sellers — 3% of the price for individuals, 4% for entities — can be computed on the gain instead when the seller furnishes the affidavit. For an installment sale, that paperwork is the difference between withholding matched to the structure and a year-one cash cost the deferral was meant to avoid.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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