Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. Alabama’s Form 40 booklet says gain on a personal residence is “taxable to the same extent as reported on your federal return”, so the federal exclusion carries through. Gain above it is taxed at graduated rates that reach “5% All taxable income over $3,000” for single filers.
Alabama tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Follows the federal return: the Form 40 booklet says gain is taxable to the same extent as reported federally |
| Rate on gain above the exclusion | Graduated: 2% on the first $500 up to 5% over $3,000 for single filers |
| Collected at the sale | Nonresident sellers only: 3 or 4 percent of the purchase price withheld, with a principal-residence exemption; nothing shown for resident sellers. The deed carries a state deed tax of $.50 per $500 of value |
| Source | Alabama Department of Revenue |
What the Alabama documents say
The 2025 Form 40 booklet for residents tells filers to report gain from the sale of a personal residence and says it is “taxable to the same extent as reported on your federal return”. A gain that the federal statute excludes is not reported on the federal return, so it is not taxed by Alabama.
The Department’s rate page lists the single-filer brackets, from “2% First $500 of taxable income” to “5% All taxable income over $3,000”. For married couples filing jointly the Department prints 2% on the first $1,000, 4% on the next $5,000 and 5% over $6,000.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Alabama sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Alabama. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000, which is taxed at the graduated rates; this page computes no tax because the bracket depends on the rest of the return.
What is collected at the sale
The Department’s page on nonresident sellers describes “withholding at a rate of 3 percent or 4 percent” on the sale of real property, citing “Section 40-18-86, Code of Ala. 1975”. Its exemptions page says “the sale of a principal residence is exempt from the withholding requirement”. The pages read apply the requirement to nonresident sellers, not to Alabama residents.
Separately, the Department’s recordation tax page lists the deed tax rate as “$.50 per $500 of value or fraction thereof.” The page read does not say who bears it.
What changes in 2026
The documents read for Alabama announce no change for 2026 that is specific to the tax on a home sale. The forms and instructions read are for tax year 2025 or the newest page archived; check the state agency for 2026 forms when they are published.
What the documents do not say
- The booklet ties the gain to the federal return but does not print the $250,000 and $500,000 limits itself. The Alabama statute on income was not archived; the withholding statute is cited from the Department’s page. The booklet is for tax year 2025.
Common mistakes
- Treating the 3 or 4 percent nonresident withholding as a rule for Alabama residents; the pages read apply it to nonresident sellers.
- Assuming Alabama has its own home-sale exclusion; the booklet read ties the gain to the federal return.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Alabama taxes capital gains, Alabama retirement taxes, and home sale exclusion calculator.
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Answer againSources
- Form 40 Booklet, Residents and Part-Year Residents (2025): https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf
- What is Alabama’s Individual Income Tax Rate?: https://www.revenue.alabama.gov/faqs/what-is-alabamas-individual-income-tax-rate/
- Exemptions from Nonresident Withholding Requirement on Sales of Real Property: https://www.revenue.alabama.gov/individual-corporate/nonresidentwhexmpt/
- Withholding Requirement on Sales/Transfers of Real Property & Tangible Personal Property by Nonresidents: https://www.revenue.alabama.gov/individual-corporate/nonresidentwh/
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
- Recordation Tax, Alabama Department of Revenue (read October 8, 2026): https://www.revenue.alabama.gov/tax-types/recordation-tax/
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.