Understanding Income Taxes and Property Taxes on the Gulf Coast: Florida vs. Alabama
By Meredith Amon, Licensed in Alabama and Florida
Guided by Integrity. Backed by Experience. Search the Gulf with Meredith Folger Amon.
When I work with buyers and sellers across the Gulf Coast, one of the most common questions I hear is, “How do taxes work between Florida and Alabama when it comes to real estate?” Because I’m licensed in both states, I’m often helping clients compare property ownership and investment strategies across the state line. While I always advise speaking directly with a CPA or tax attorney for your specific situation, I want to share some key insights I’ve learned over my career.
Primary Residences in Florida vs. Alabama
-
Florida: Florida is one of only a handful of states with no state income tax, which is a huge incentive for relocating homeowners. Florida also offers one of the strongest Homestead Exemptions in the country. This exemption reduces the assessed value of your primary residence by up to $50,000 and includes the Save Our Homes cap, which limits annual increases in assessed value to 3% or the Consumer Price Index (whichever is lower). Over time, this can save Florida homeowners thousands of dollars annually and also provides creditor protection for your primary home.
-
Alabama: Alabama also offers a homestead exemption, but it functions differently than Florida’s. Alabama exempts the first $4,000 of assessed value from state property taxes and the first $2,000 of assessed value from county property taxes on a primary residence. This may seem modest, but Alabama’s property tax rates are already some of the lowest in the nation, making it appealing for luxury property owners.
For example, if your luxury home in Alabama has a market value of $1,000,000, it would be assessed at 10% for residential property = $100,000 assessed value. The homestead exemption would reduce this assessed value by $4,000 at the state level and $2,000 at the county level, leaving $94,000 and $98,000 respectively subject to taxation. While the exemption is not nearly as large as Florida’s, the millage rates in Alabama are so low that many luxury homeowners find their property tax bills surprisingly affordable. Additional exemptions are available for seniors (65+), disabled individuals, and veterans, which can sometimes eliminate property taxes altogether.
Tip: Florida’s exemption focuses on shielding long-term homeowners from sharp increases, while Alabama relies on across-the-board low rates, making it very favorable for large-scale or luxury properties.
Second Homes and Vacation Properties
-
Florida: Second homes and vacation properties do not qualify for the Florida homestead exemption. They are assessed at full market value with no cap on increases.
-
Alabama: Second homes in Alabama also do not qualify for the homestead exemption. They are taxed at full market value, though low base rates make carrying costs more predictable.
Personal Note: Many of my clients in Gulf Shores and Orange Beach offset second-home expenses by offering seasonal rentals during peak months.
Investment Properties and Rental Income
-
Rental Income:
-
Florida: Florida does not impose a state income tax, though the IRS still requires you to report rental income.
-
Alabama: Alabama does tax rental income at the state level, in addition to federal obligations.
-
-
Capital Gains: Both states follow federal IRS rules, but Alabama requires state reporting on real estate profits, while Florida does not.
State Withholding Taxes When Selling Property
-
Alabama: Non-residents selling Alabama property must pay state withholding at closing (generally 3–5% of the sales price), applied toward potential state tax liability.
-
Florida: Florida does not require state withholding because there is no state income tax. However, foreign sellers must comply with the federal FIRPTA (Foreign Investment in Real Property Tax Act) requirement.
The IRS and Your Real Estate Portfolio
Whether your property is in Orange Beach, Ono Island, Gulf Shores, or across the line in Florida, the IRS reviews your entire portfolio:
-
Capital gains upon sale.
-
Depreciation recapture from rental deductions.
-
1031 exchange opportunities to defer taxes by reinvesting proceeds.
Example Question I often hear: “If I sell two Alabama condos and reinvest into one luxury Florida property, can I do a 1031 exchange?” Yes, as long as the IRS requirements are met and you work with a qualified intermediary.
Florida vs. Alabama: Homestead Exemption & Property Taxes
| Feature | Florida | Alabama |
|---|---|---|
| State Income Tax | None | Yes (2%–5%) |
| Homestead Exemption (Primary Residence) | Up to $50,000 reduction in assessed value + Save Our Homes 3% cap | $4,000 off state assessed value, $2,000 off county assessed value |
| Protection Against Sharp Increases | Yes, capped at 3% or CPI | No cap (assessed value adjusts with market) |
| Property Tax Rates | Moderate, varies by county | Among the lowest in the nation |
| Luxury Property Example ($1,000,000 Home) | Market value reduced by $50,000 for exemption; assessed with 3% annual increase cap | Assessed at $100,000 (10% of value); exemption reduces $4,000 (state) and $2,000 (county) |
| Creditor Protection | Strong homestead creditor protection | Limited creditor protection |
| Withholding on Sale for Non-Residents | None (except FIRPTA for foreign sellers) | 3–5% withholding at closing |
Professional Advice and Disclaimer
I am not a tax professional, and this article is for informational purposes only. Every situation is unique, especially with luxury homes, multi-state ownership, and investment portfolios. Always consult with a licensed CPA or tax attorney for guidance tailored to your goals.
Owning luxury real estate on the Gulf Coast—whether in Gulf Shores, Orange Beach, Ono Island, or in Florida destinations like Pensacola, Destin, or 30A—comes with unique tax benefits and considerations. Understanding how Florida and Alabama differ in property taxes, homestead exemptions, and income tax laws can give you the financial clarity to make confident decisions.
Orange Beach Luxury STR Performance: What I’m Seeing Right Now (Turquoise Place, Phoenix Orange Beach II & Sister Towers)
When it comes to finding the home of your dreams in a fast-paced market, knowing about new listings as soon as they are available is part of our competitive advantage.Sign up to see new listings in an area or specific community. Contact Meredith with any questions you may have.
#searchthegulf #meredithfolgeramon #becausewelivehere
Search Coastal Alabama Homes and Real Estate For Sale
.gif){kind=logo}
Orange Beach Luxury Condos STR ROI Guide: Turquoise Place & Phoenix Orange Beach II
I often analyze rental ledgers across Gulf-front luxury condos in Orange Beach—think Turquoise Place and the Phoenix family of towers. Below is a plain-English summary of how these…
Ask A Question or Sign Up To See New Real Estate Listings Before Your Competition
