Is Alabama Really Getting Rid of Its State Income Tax?
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Every so often I get a text from a homeowner, an investor, or a buyer relocating to the Gulf Coast asking, “Meredith, are we about to become a no–state-income-tax state like Florida or Tennessee?” Since so many of my conversations are with people comparing Orange Beach, Ono Island, Gulf Shores, Perdido Key, and the Florida Panhandle, it makes sense that taxes come up early. Today, the short answer is no. Alabama leaders are talking about reducing and refining our income tax, not eliminating it.
I wanted to put this in writing for my readers on https://www.searchthegulf.com, because tax rumors have a way of getting ahead of the actual legislation, and those rumors can influence how people time a purchase, a sale, or a 1031 exchange.
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What I’m Seeing in Montgomery Right Now
What’s actually moving forward right now are targeted tax changes, not a full repeal. Lawmakers have been working on things like:
- Lowering the top individual income tax rate (from about 5% down toward 4%).
- Speeding up the grocery tax reduction.
- Extending or protecting the income-tax break on certain overtime pay.
All of that is helpful to a household budget, and it can make owning a condo in Orange Beach or a waterfront home on Ono Island a little easier to carry month-to-month. But none of it equals “Alabama is going to zero tax.” It’s more like “Alabama wants to look more competitive.”
Why Total Repeal Isn’t the Conversation
Here is the practical issue. Alabama leans on income tax and sales tax to fund the Education Trust Fund. If the income tax disappeared tomorrow, the state would have to backfill that money from somewhere else. That could mean higher sales taxes, higher property taxes, or new revenue structures that don’t play well with our local cities and counties. Most of the local officials I talk to on the Gulf Coast are wary of anything that drains local money or shifts it away from their respective waterfront, drainage, and infrastructure needs.
So when people ask, “Why can’t we just do what Florida did,” the answer is that Florida’s whole tax structure has been built for that model for a long time. Alabama’s hasn’t. To make that change here, you’d have to phase it in over several years and you’d need a replacement revenue source. That’s why you’re not seeing a big leadership-backed “let’s scrap the income tax” bill right now.
How This Affects Real Estate Along the Gulf Coast
From a real estate advisor’s perspective, this tax conversation matters because buyers compare states. I work with a lot of people who are looking at:
- A primary or second home on Ono Island with boating access.
- A condo purchase in Orange Beach or Gulf Shores for personal use plus some rental income.
- Waterfront investment property they can 1031 out of another market.
Those buyers often put Alabama, Florida, and sometimes Mississippi in the same shopping basket. Florida has the no–state-income-tax headline, so it looks simple on the surface. But Alabama usually wins on purchase price, lot size, insurance strategies, and local market knowledge. When I can show someone that Alabama is working to lower their tax burden, even if we’re not eliminating income tax, that still supports the long-term ownership story here on the Gulf Coast.
What Investors and Second-Home Buyers Should Watch
If you are buying with rental income in mind, keep an eye on:
- State-level rate reductions. Even one percentage point less is real money over time, especially on higher income.
- Local government reactions. Counties and cities in Baldwin County and along the coast do not want their revenue disrupted. If the state cuts something, they will make noise if it affects them.
- School funding structure. Since so much of the income tax goes to education, any big move away from it would ripple through the budget. That’s another reason I don’t see a clean, fast repeal.
- Comparative states. Mississippi and Georgia have talked more openly about phasing down income tax. Alabama is more cautious. That’s an important distinction when you model five- or ten-year holding periods.
Does This Change Your Timing?
In my opinion, no. If you’re waiting to buy a waterfront lot on Ono, or a new construction in Orange Beach, or a canal-front home with a lift, thinking Alabama is about to eliminate income tax and you’ll save dramatically, I would not wait for that. I would make the purchase when the right property in the right location at the right price shows up.
Our market is still highly location-sensitive. Certain Ono Island streets, certain Old River views, and certain Gulf-front condo stacks do not stay available. Tax policy evolves slowly. Great properties do not.
My Guidance as a Gulf Coast Real Estate Advisor
I have been selling real estate full-time for over 20 years, and I have watched tax conversations come and go. What usually holds true is this:
- Modest, incremental tax relief shows up sooner than big structural change.
- Buyers overestimate how fast a state can become “no income tax.”
- The best long-term hedge is buying well-located coastal property that people will always want to own.
So, browse what’s active today on https://www.searchthegulf.com, and let’s match the tax reality we have, not the rumor mill.
Meredith Amon is a Gulf Coast Expert Real Estate Advisor, licensed in Alabama and Florida. She specializes in helping buyers and sellers navigate the buying and selling of homes along the Gulf Coast.
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