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Alabama · Ala. Code §40-18-86Alabama nonresident seller withholding: who withholds, how much and the exemptions

When a nonresident of Alabama – an individual, trust, partnership, corporation or unincorporated organization – sells or transfers Alabama real property, the buyer withholds and remits to the Commissioner of Revenue 3% of the purchase price if the buyer is an individual, or 4% if the buyer is a corporation, partnership or unincorporated association, but never more than the seller's net proceeds; a buyer who fails to withhold is personally liable for the tax (Ala. Code §40-18-86(b)). With the seller's sworn affidavit of the gain, the buyer withholds 3% or 4% of the gain instead (§40-18-86(c)). A seller is treated as a resident by giving an affidavit that it filed Alabama returns for the two prior years, will keep doing business or owns enough remaining Alabama property, will report the sale, and – for corporations and limited partnerships – is registered in Alabama (§40-18-86(a)). No withholding applies to the seller's principal residence under IRC §121, a foreclosure or deed in lieu without extra consideration, or transfers to or from U.S. or Alabama agencies, Fannie Mae, Freddie Mac, Ginnie Mae or a private mortgage insurer (§40-18-86(d)); a pass-through seller that certifies a composite return is also exempt (§40-18-86(e)). The buyer files and pays by the last day of the month after the sale (§40-18-86(f)). On a $500,000 sale that's $15,000 for an individual buyer or $20,000 for an entity buyer.

Who withholds, how much and an example

  1. Rate (§40-18-86(b))

    3% of the price for individual buyers, 4% for entity buyers; capped at net proceeds → $15,000 or $20,000 on $500,000.

  2. Gain affidavit (§40-18-86(c))

    Seller swears to the gain; 3% or 4% of the gain instead.

  3. Residency affidavit (§40-18-86(a))

    Two years of Alabama returns, continuing business or property, reporting the sale.

  4. Deadline (§40-18-86(f))

    Return and payment by the last day of the month after the sale.

No withholding when

  • The property is the seller's principal residence under IRC §121.
  • A mortgagor conveys to the mortgagee in foreclosure or in lieu, with no extra consideration.
  • A U.S. or Alabama agency, Fannie Mae, Freddie Mac, Ginnie Mae or a private mortgage insurer is a party.
  • A partnership, S corporation or other pass-through certifies a composite return for its nonresident owners.

What the TC checks before closing

  • The seller's residency and entity type – asked early, not at the closing table.
  • The signed residency, gain or principal-residence affidavit in the file before funds are disbursed.
  • The withholding line on the seller's settlement statement, and the remittance by the end of the next month.

Questions about Alabama withholding

Does Alabama withhold tax when a nonresident sells a house?

Yes – the buyer withholds 3% of the price (4% for entity buyers), or of the gain with the seller's affidavit, unless an exemption such as the seller's principal residence applies (Ala. Code §40-18-86).

Who is liable if the Alabama withholding isn't made?

The buyer or transferee who fails to withhold is personally liable for the tax (Ala. Code §40-18-86(b)(1)).

Related guides

Put the residency question and the seller's affidavit on the checklist as tasks with an owner and due date in ClosingCode.

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Source: Code of Alabama §40-18-86 (alison.legislature.state.al.us, read October 28, 2026).

General information, not legal or tax advice. ClosingCode is software; it is not a law firm or brokerage. This guide is not a substitute for the advice or services of an attorney.