Taxes on Selling a House in Alabama

State capital gains tax

Alabama taxes capital gains as part of its individual income tax. The state’s graduated income tax rates range from 2% to 5%, depending on your filing status and taxable income.

If you sell a home, Alabama generally taxes any taxable gain to the same extent it is reported on your federal tax return. However, if you qualify for the federal home sale exclusion, that excluded gain generally won’t be taxed by Alabama either. Keep in mind that your actual tax liability depends on your taxable gain, other income, and applicable deductions and exclusions.

Federal capital gains tax

At the federal level, capital gains are classified as either “short-term” or “long-term”:

• Capital gains are considered short-term when an asset is sold within a year of its purchase. Those gains are lumped into your regular income and taxed according to your tax bracket.
• Capital gains are considered long-term when earned from the sale of an asset after at least a full year of ownership. For a home sale, those gains are taxed at a variable rate, depending on your income.

2026 short-term capital gains tax brackets

2026 long-term capital gains tax brackets

It’s possible to have your capital gains excluded at the federal level, assuming you qualify. The maximum amount of capital gain that can be excluded is $250,000 for single filers, and $500,000 for a married couple that is filing jointly.

If you don’t meet the requirements for the full exclusion, you may still qualify for a partial exclusion of your home sale gain. The IRS may allow a reduced exclusion if you sell your home because of certain qualifying events, such as a change in your workplace location, a health-related reason, or an unforeseeable event. For details on the eligibility rules and how to calculate a reduced exclusion, see IRS Publication 523.

How to report your Alabama capital gains taxes

• For your federal return, report your capital gains and losses by using the U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040).
• For your Alabama capital gains, use Schedule D (Form 40).

Transfer tax

A transfer tax is a tax charged when ownership of real estate is transferred from one person to another. It helps generate revenue for state and local governments. The tax is typically collected when the deed is recorded with the county.

In Alabama, the transfer tax, also called the deed record tax, is $0.50 for every $500 of the property’s taxable value, or any fraction of $500. For example, transferring a property with a taxable value of $200,000 would result in a transfer tax of $200, assuming no applicable deductions or exemptions.

After deducting the probate judge’s collection commission, two-thirds of the tax revenue goes to the State Treasury and the remaining third goes to the county treasury. The seller customarily pays the transfer tax in an Alabama real estate transaction, although the buyer and seller can negotiate who pays it as part of their purchase agreement.

Property tax

Property taxes are annual taxes that local governments collect from property owners to help fund public services such as schools, roads, police, and fire departments. The amount you owe is calculated by multiplying your property’s assessed value by the applicable local tax rates, then subtracting any eligible exemptions.

According to the Tax Foundation, Alabama’s effective property tax rate on owner-occupied housing is 0.37%, among the lowest in the country. Property taxes in Alabama are due on October 1 each year and become delinquent if they remain unpaid after December 31.

When a home is sold, property taxes may be prorated at closing according to the purchase agreement, meaning the buyer and seller divide the tax expense based on their respective periods of ownership. Because Alabama generally bills property taxes in arrears, the seller may owe the buyer a credit at closing for the seller’s share of taxes that will be billed later, although the exact arrangement depends on the closing terms.

The Alabama Department of Revenue can provide more information about taxes specific to your city or town here.

Inheritance tax

If you inherit a home in Alabama, you generally won’t have to pay state inheritance or estate taxes. But if you’re planning to sell, check whether the property has unpaid property taxes, a mortgage, or other liens that need to be taken care of.

You may get a tax break called a stepped-up basis when you sell the inherited home. This usually means the home’s starting tax value is its fair market value when the previous owner passed away, rather than what they paid for it originally.

Your capital gains tax will generally depend on how much you make from the sale compared with your adjusted tax basis, after accounting for eligible selling costs and other adjustments. Selling soon after inheriting the property may mean you owe less capital gains tax, especially if its value hasn’t increased much since the previous owner’s death.

»Learn more: Want to know exactly how much you’ll walk away with from your home sale? Use our Alabama Closing Cost Calculator to get a personalized estimate of your selling expenses and see your potential proceeds after closing.

Other selling expenses you might encounter in Alabama

• Title fees: Title fees typically include a title search and title insurance. Title insurance helps protect the buyer and lender if problems with the home’s ownership pop up, such as forged documents, a previously undiscovered will, or restrictions on the property. In Alabama, the seller typically pays for title insurance, though the buyer and seller can agree to a different arrangement.
• Settlement fees: These fees cover the work involved in wrapping up a home sale, including preparing the final paperwork and distributing funds. They’re paid to the title company, escrow company, or closing attorney handling the transaction. The cost can vary, and while settlement fees are sometimes estimated at around 1% of the sale price, there’s no fixed rate. In Alabama, the buyer and seller can negotiate how to divide these costs, so both parties may end up paying a share.
• Agent commissions: Real estate agent commissions used to total about 5% to 6% of a home’s sale price, with the amount typically shared between the seller’s agent and the buyer’s agent. Following changes brought about by the National Association of Realtors settlement, buyers now negotiate their agent’s compensation directly with their agent. As a seller, you’ll typically pay your listing agent based on your agreed-upon rate, often around 2.5% to 3% of the sale price. You may also agree to cover some or all of the buyer’s agent compensation, but that’s negotiable and not required.

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How to prepare for Alabama real estate taxes

Real estate taxes don’t need to be intimidating, and they don’t need to catch you off guard. There are a number of ways you can get an idea of what you’ll owe before the time comes to sell your home, and HomeLight is here to help. Here are some final steps to consider:

• Know your home’s value: Use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your home might be worth can help you calculate the potential capital gains from the home sale.
• Save the right documents: Know what tax documents you will need if you purchase or sell a home before doing so. Consult with your tax professional about the federal and state documents needed in Alabama and the tax breaks you might qualify for.
• Find a top agent: An experienced real estate agent can guide you through the home sale process and help you understand your tax burden and maximize your profits. Our data shows that the top 5% of real estate agents across the U.S. sell homes for 10% more than the average real estate agent.

HomeLight makes it easy to find top real estate agents in your market. From our Agent Match to innovative programs like Simple Sale and Buy Before You Sell, we have you covered when it comes to selling your home, ensuring every transaction is simple, certain, and satisfying.

Editor’s note: This post is for educational purposes only and shouldn’t be construed as financial or tax advice. If you need assistance navigating taxes, reach out to an advisor.

Writer Joseph Gordon contributed to the original version of this post.

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