Alabama
AL · state · 17 cited facts
| Category | Provision | Value | Source |
|---|---|---|---|
| trust-nexus | Incomplete-gift nongrantor trust / ING (income tax reach) | REACHED: the conjunctive test would free a trust with no in-state fiduciary or current-permissible beneficiary, but a standard ING names the AL-resident grantor as a discretionary current beneficiary, satisfying both prongs | sources (1)Ala. Code 40-18-1(33) (resident trust: two conjunctive prongs), applied via 40-18-25(a) · medium confidence · as of 2026-07-13 · TY 2026 Alabama taxes a trust with an Alabama settlor at irrevocability AND an in-state fiduciary or current-permissible beneficiary; the ING grantor supplies the second prong a. The trust is created by the will of a decedent who was an Alabama resident at death or by a person who was an Alabama resident at the time such trust became irrevocable; and b. For more than seven months during such taxable year, a person, as defined in this section, who either resides in or is domiciled in Alabama is either a fiduciary of the trust or a beneficiary of the trust to whom distributions currently may be made. Note: Statute text verified via the Multistate Tax Commission's 50-state chart and AL DOR Form 41 materials; the official ALISON code host blocks automated access, hence medium confidence. Kaestner reserved the current-permissible-beneficiary case and Alabama adds the settlor contact. https://www.mtc.gov/wp-content/uploads/2023/02/State-Non-Grantor-Trust-Residency-Rules.pdf |
| conformity | Federal conformity / capital-gains base | Own base: Ala. Code Ch. 40-18 (§ 40-18-14) defines gross income independently of federal AGI; capital gains taxed as ordinary income | sources (1)Ala. Admin. Code r. 810-3-14-.01; Ala. Code § 40-18-14 · high confidence · as of 2026-07-03 · TY 2025 Alabama determines gross income under its own Chapter 40-18 base (not federal AGI or the IRC) The term "gross income" means all wealth flowing to the taxpayer from whatever source derived other than as a return of his capital and other than those items exempted by Section 40-18-14(3), Code of Ala. 1975. Note: Alabama does not key to federal AGI or the IRC; capital gains fold into its own Chapter 40-18 'gross income ... from dealings in property' and are taxed as ordinary income. https://admincode.legislature.state.al.us/administrative-code/810-3-14-.01 |
| estate-none | Estate and inheritance tax | None | sources (1)Ala. Code Title 40 Ch. 15 (as described by AL DOR) · high confidence · as of 2026-07-02 · TY 2025 No Alabama estate/inheritance filing for deaths after Dec 31, 2004 estates where the decedent's date of death is after December 31, 2004, are not required to file with Alabama. Note: Mid-sentence verbatim fragment from the DOR page. Page cites Title 40 Chapter 15. https://www.revenue.alabama.gov/individual-corporate/alabama-estate-and-inheritance-tax/ |
| rate | Top income tax rate (TY2025) | 5% on income above $6,000 single / $12,000 MFJ (own brackets; federal-tax deduction lowers effective rate) | sources (1)Ala. Code §40-18-5 · medium confidence · as of 2026-06-10 · TY 2025 Alabama graduated income tax: 2%/4%/5% (top 5% above $6,000 single / $12,000 MFJ) There is hereby levied upon the taxable income of every resident individual an income tax at the following rates: 2% on the first $500; 4% on the next $2,500; and 5% on any excess income. Every nonresident individual shall be subject to tax at the same rates on Alabama income. Note: Alabama imposes a flat 5% individual income tax rate on net capital gains under Ala. Code §40-18-5. Confidence medium: URL resolves to the chapter table of contents, not the specific section. Alabama uses its own bracket base (not federal taxable income). Deductible: federal income taxes paid (Ala. Code §40-18-15(7)) this deduction is unlimited and large for high earners, so the effective Alabama rate is materially lower than 5% nominal. MFJ standard deduction $8,500; CLIFF to $2,000 above $35,000 FAGI (own schedule). Alabama is one of four states with an unlimited federal-tax deduction (ND dropped it; MO and OR remain). https://alison.legislature.state.al.us/codeofalabama/1975/coatoc.htm |
| carryforward | Capital-loss carryforward | NONE, but the entire loss deducts against income generally in the year incurred (no $3,000 cap); a loss unusable that year is forfeited | sources (1)Ala. Code §§40-18-6 to 40-18-8; Alabama DOR, 2024 Form 41 Instructions · medium confidence · as of 2026-07-03 · TY 2025 Alabama deducts the entire capital loss in the year incurred (no cap, no carryforward, no carryback) Under current Alabama law, the entire gain is taxable, and the entire loss is deductible in the year in which it occurs. §§40-18-6,(7) and (8). Note: Alabama does NOT year-lock losses to capital gains: the whole loss is deductible against income generally in the year incurred, with no federal-style $3,000 cap. The flip side is that nothing carries: an unusable loss (income already zero) dies at year-end. machine 0 = zero carryforward years. https://www.revenue.alabama.gov/wp-content/uploads/2025/01/24f41instr.pdf |
| carryback | Capital-loss carryback | NONE year-locked: no carryback to prior years | sources (1)Ala. Code §§40-18-6 to 40-18-8; Alabama DOR, 2024 Form 41 Instructions · medium confidence · as of 2026-07-03 · TY 2025 Alabama deducts the entire capital loss in the year incurred (no cap, no carryforward, no carryback) Under current Alabama law, the entire gain is taxable, and the entire loss is deductible in the year in which it occurs. §§40-18-6,(7) and (8). Note: Alabama does NOT year-lock losses to capital gains: the whole loss is deductible against income generally in the year incurred, with no federal-style $3,000 cap. The flip side is that nothing carries: an unusable loss (income already zero) dies at year-end. machine 0 = zero carryforward years. https://www.revenue.alabama.gov/wp-content/uploads/2025/01/24f41instr.pdf |
| muni-instate | In-state muni bond interest | Exempt: Ala. Code §40-18-14 exempts interest on Alabama state and local obligations | sources (1)Alabama Department of Revenue, Income Exempt from Alabama Income Taxation · medium confidence · as of 2026-06-18 · TY 2025 AL exempts AL-issued bonds; out-of-state muni bond interest is taxable per Ala. Code §40-18-14 Interest on obligations of the state of Alabama or any county, city, or municipality of Alabama. Note: Ala. Code §40-18-14 exempts interest on Alabama state and local bonds. Interest on other states' bonds receives no Alabama exemption and is taxable Alabama income. https://www.revenue.alabama.gov/individual-corporate/income-exempt-from-alabama-income-taxation/ |
| muni-outstate | Out-of-state muni bond interest | Taxable: Ala. Code §40-18-14 exemption is limited to Alabama bonds; out-of-state muni interest is AL taxable income | sources (1)Alabama Department of Revenue, Income Exempt from Alabama Income Taxation · medium confidence · as of 2026-06-18 · TY 2025 AL exempts AL-issued bonds; out-of-state muni bond interest is taxable per Ala. Code §40-18-14 Interest on obligations of the state of Alabama or any county, city, or municipality of Alabama. Note: Ala. Code §40-18-14 exempts interest on Alabama state and local bonds. Interest on other states' bonds receives no Alabama exemption and is taxable Alabama income. https://www.revenue.alabama.gov/individual-corporate/income-exempt-from-alabama-income-taxation/ |
| qoz-conformity | QOZ conformity (IRC §1400Z-2) | Partial conformity via Ala. Code §40-18-6.1, conditioned on ADECA designation; no QOZs were ever designated, so federal deferral and exclusion are not available in practice | sources (1)Ala. Code §40-18-6.1 · medium confidence · as of 2026-06-19 · TY 2025 Alabama partially conforms to IRC §1400Z-2 QOZ gain deferral and exclusion The provisions of Section 1400Z-2 of the Internal Revenue Code of 1986, as amended, shall apply for Alabama income tax purposes with respect to any investment in a qualified opportunity fund that is designated by the Alabama Department of Economic and Community Affairs. Note: ADECA approval gate was never operationalized; no Alabama-approved QOZs were ever designated, so the partial conformity is effectively a nullity in practice. https://alison.legislature.state.al.us/codeofalabama/1975/OC/40-18-6.1.htm |
| qsbs-conformity | QSBS conformity (IRC §1202) | Non-conforms to IRC §1202; Alabama piecemeal conformity includes no §1202 provision, so QSBS gain exclusion is not recognized and gain is fully taxable at the state level | sources (1)Ala. Code Title 40 Ch. 18 (no §1202 provision in Alabama piecemeal conformity) · low confidence · as of 2026-07-02 · TY 2025 Alabama does not conform to IRC §1202 QSBS gain exclusion Verbatim text not yet extracted; see note. Note: Structural inference on a negative claim: Alabama adopts federal income tax law on a piecemeal basis, and no provision of Title 40 Chapter 18 incorporates or references IRC §1202, so QSBS gains are fully taxable at the Alabama level. The Code of Alabama is served only through the ALISON table-of-contents portal (no fetchable section-level text), so no verbatim statutory text can be quoted; confidence stays low pending a quotable primary source. https://alison.legislature.state.al.us/codeofalabama/1975/coatoc.htm |
| agency-obligations | GSE bond interest (FNMA/FHLMC) | Taxable: Alabama Form 40 Schedule B (2025 booklet) explicitly lists FNMA and FHLMC under 'Examples of TAXABLE Interest' | sources (1)Alabama Department of Revenue, 2025 Form 40 Individual Income Tax Instruction Booklet, Schedule B · medium confidence · as of 2026-06-22 · TY 2025 Alabama Form 40 Schedule B lists FNMA and FHLMC under 'Examples of TAXABLE Interest' Interest on the following obligations is also taxable: (C.3) Federal National Mortgage Association (FNMA or Fannie Mae) bonds; (C.4) Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) bonds. Note: Alabama Form 40 Schedule B lists FNMA/FHLMC as examples of taxable interest; qualified dividends are not addressed separately in the citation but Alabama provides no IRC §1(h)(11) preference, so they are ordinary income. https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf |
| dividend-qualified | Qualified dividend income | Ordinary rate: Alabama does not adopt the IRC §1(h)(11) qualified dividend preference; dividends are taxable at ordinary rates | sources (1)Alabama Department of Revenue, 2025 Form 40 Individual Income Tax Instruction Booklet, Schedule B · medium confidence · as of 2026-06-22 · TY 2025 Alabama Form 40 Schedule B lists FNMA and FHLMC under 'Examples of TAXABLE Interest' Interest on the following obligations is also taxable: (C.3) Federal National Mortgage Association (FNMA or Fannie Mae) bonds; (C.4) Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) bonds. Note: Alabama Form 40 Schedule B lists FNMA/FHLMC as examples of taxable interest; qualified dividends are not addressed separately in the citation but Alabama provides no IRC §1(h)(11) preference, so they are ordinary income. https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf |
| treasury | U.S. Treasury interest | Exempt: 31 U.S.C. §3124(a) prohibits state taxation of U.S. government obligations (T-bills, T-notes, T-bonds, TIPS, I-bonds) | sources (1)31 U.S.C. §3124(a) · high confidence · as of 2026-06-20 · TY 2025 U.S. Treasury interest exempt from Alabama income tax: 31 U.S.C. §3124(a) prohibits state taxation of U.S. government obligations Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax. Note: 31 U.S.C. §3124(a) preempts state income taxation of U.S. government obligations. Covers T-bills, T-notes, T-bonds, TIPS, and I-bonds. Most states allow a deduction or subtraction by statute cross-referencing this federal preemption. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title31-section3124 |
| fhlb-ffcb | FHLB and FFCB bond interest | Exempt: 12 U.S.C. §1433 (Federal Home Loan Bank Act) and 12 U.S.C. §2023 (Farm Credit Act) mandate state tax exemption for FHLB and FFCB securities | sources (2)12 U.S.C. §1433 (Federal Home Loan Bank Act) · high confidence · as of 2026-06-20 · TY 2025 FHLB and FFCB bond interest exempt from Alabama income tax: federal enabling statutes mandate state tax exemption Any security issued under this chapter by a Federal home loan bank, including the stock thereof, shall be exempt from taxation, except taxes upon real estate, by any State, county, municipality, or local taxing authority. Note: 12 U.S.C. §1433 (FHLB) and 12 U.S.C. §2023 (FFCB/Farm Credit Act) both mandate state tax exemption for securities issued under their chapters. Contrasts with FNMA (12 U.S.C. §§1719(e), 1723a(c)) and FHLMC (12 U.S.C. §1455(a)) which have no bondholder exemption statute and whose interest is taxable by income-tax states. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1433&num=0&edition=prelim12 U.S.C. §2023 (Farm Credit Act) · high confidence · as of 2026-06-20 · TY 2025 Farm Credit Act: notes, bonds, debentures, and other obligations of Farm Credit Banks are instrumentalities of the United States exempt from all State, municipal, and local taxation The mortgages held by the Farm Credit Banks and the notes, bonds, debentures, and other obligations issued by the banks shall be considered and held to be instrumentalities of the United States and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 (31 U.S.C. 3124). Note: 12 U.S.C. §2023 explicitly covers 'the income therefrom' (i.e., interest payments to bondholders), exempting it from all State and local taxation. The only carve-out is federal income tax on the holder. Parallel to 12 U.S.C. §1433 (FHLB Act), which exempts FHLB securities from state taxation. Together §1433 and §2023 mandate state and local tax exemption for both FHLB and FFCB bond interest. Shared across all jurisdictions: a single object reference satisfies buildCitationIndex() identity check. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section2023&num=0&edition=prelim |
| character | Long-term capital gains treatment | Ordinary rate: no preferential long-term rate; capital gains taxed as ordinary income at rates up to 5%; Alabama makes no distinction between long-term and short-term capital gains (Ala. Code §40-18-5) | sources (1)Ala. Code §40-18-5 · medium confidence · as of 2026-06-10 · TY 2025 Alabama graduated income tax: 2%/4%/5% (top 5% above $6,000 single / $12,000 MFJ) There is hereby levied upon the taxable income of every resident individual an income tax at the following rates: 2% on the first $500; 4% on the next $2,500; and 5% on any excess income. Every nonresident individual shall be subject to tax at the same rates on Alabama income. Note: Alabama imposes a flat 5% individual income tax rate on net capital gains under Ala. Code §40-18-5. Confidence medium: URL resolves to the chapter table of contents, not the specific section. Alabama uses its own bracket base (not federal taxable income). Deductible: federal income taxes paid (Ala. Code §40-18-15(7)) this deduction is unlimited and large for high earners, so the effective Alabama rate is materially lower than 5% nominal. MFJ standard deduction $8,500; CLIFF to $2,000 above $35,000 FAGI (own schedule). Alabama is one of four states with an unlimited federal-tax deduction (ND dropped it; MO and OR remain). https://alison.legislature.state.al.us/codeofalabama/1975/coatoc.htm |
| filing-status-doubled | MFJ brackets double Single brackets | Yes: Code of Alabama §40-18-5 MFJ bracket thresholds are exactly double Single/MFS thresholds ($500/$1,000 and $3,000/$6,000); same rates at each doubled boundary (marriage neutral) | sources (1)Alabama Department of Revenue, Individual Income Tax Filing Information · high confidence · as of 2026-07-04 · TY 2025 Alabama income tax: MFJ bracket thresholds double Single/MFS thresholds at each boundary (marriage neutral) For single, head of family, and married filing separate returns: 2% First $500 of taxable income 4% Next $2,500 of taxable income 5% All taxable income over $3,000 For married persons filing a joint return: 2% First $1,000 of taxable income 4% Next $5,000 of taxable income 5% All taxable income over $6,000 Note: Single/HOH/MFS: 2% on first $500; 4% on next $2,500; 5% on all taxable income over $3,000. MFJ: 2% on first $1,000; 4% on next $5,000; 5% on all taxable income over $6,000. MFJ bracket thresholds are exactly 2x Single/MFS thresholds: $500/$1,000 and $3,000/$6,000. Same marginal rates (2%/4%/5%) apply at each doubled boundary. Marriage neutral on the graduated schedule. https://www.revenue.alabama.gov/individual-corporate/individual-income-tax-filing-information/ |
| migration-loss-conformity | Migration loss carryforward conformity | Disallowed: Alabama does not recognize capital loss carryforwards; out-of-state losses cannot be imported upon migration per Ala. Code § 40-18-16. | sources (1)Ala. Code §§40-18-6 to 40-18-8; Alabama DOR, 2024 Form 41 Instructions · medium confidence · as of 2026-07-03 · TY 2025 Alabama deducts the entire capital loss in the year incurred (no cap, no carryforward, no carryback) Under current Alabama law, the entire gain is taxable, and the entire loss is deductible in the year in which it occurs. §§40-18-6,(7) and (8). Note: Alabama does NOT year-lock losses to capital gains: the whole loss is deductible against income generally in the year incurred, with no federal-style $3,000 cap. The flip side is that nothing carries: an unusable loss (income already zero) dies at year-end. machine 0 = zero carryforward years. https://www.revenue.alabama.gov/wp-content/uploads/2025/01/24f41instr.pdf |