New Alabama Tax Law: Nonresidents to withhold 3% for Certain Real Estate Transactions

The summary of this tax law is: In the past it was the sellers responsibility to report, now that has been changed so that it is now the BUYERS responsibility.


A new Alabama tax law requires real estate investors to withhold 3% of the sales price for the purpose of fulfilling capital gains tax requirements. The Act applies specifically to the sale of real property by sellers who are nonresidents of the State of Alabama. If the following conditions are met, the seller will be deemed to be a resident of Alabama and the 3% withholding requirement will not apply:
the seller must have filed income tax returns or certain extensions each of the two years preceding the sale; the seller must be in business in Alabama and continuing “substantially the same business in Alabama” after the sale, or have additional real property in the state at the time of closing that is of “equal or greater value than the withholding tax liability as measured by the 100 percent property tax assessment of such remaining property;” and the seller must report the sale on their current year Alabama income tax return and file accordingly.

Additional requirements should receive careful consideration to avoid penalties. For example, in some instances, failure to withhold and file the correct amount by the seller causes the buyer to be held liable.

There are some exemptions to this act as well