What You Need to Know About Alabama Withholding Taxes for Nonresidents When Buying or Selling on Ono Island and Orange Beach
By Meredith Amon, Licensed in Alabama and Florida
"Guided by Integrity. Backed by Experience. Search the Gulf with Meredith Amon."
As a homeowner and real estate advisor specializing in Ono Island and Orange Beach, I often work with buyers and sellers who live out of state. One topic that comes up frequently—and sometimes catches people off guard—is Alabama’s nonresident withholding requirement during a real estate sale.
Whether you’re selling a vacation home, investment property, or even a piece of land, understanding how Alabama handles state income tax withholding for nonresidents is critical to avoiding surprises at closing. In this article, I’ll walk you through what it means, when it applies, and what you can do if you already file income taxes in Alabama.
Who Is Considered a “Nonresident Seller”?
In simple terms, if you’re not a legal resident of the State of Alabama and you’re selling real estate located in Alabama—including property on Ono Island or in Orange Beach—you may be subject to Alabama’s nonresident withholding tax.
This withholding applies to:
-
Individuals who reside in other states
-
Partnerships, LLCs, or corporations formed outside Alabama
-
Trusts or estates with out-of-state fiduciaries or beneficiaries
This applies regardless of whether the property was a vacation home, long-term rental, or inherited real estate.
How Much Is Withheld?
At closing, the title company or attorney handling the transaction is typically required to withhold a portion of the sale proceeds and remit it to the Alabama Department of Revenue (ADOR) as an estimated tax payment on behalf of the seller.
Here are the current withholding rates:
-
Individuals: 3% of the amount realized (typically the sales price, less selling expenses)
-
Entities (LLCs, corporations, etc.): 4% of the amount realized
The withheld amount functions like a prepayment toward any capital gains tax due to the state. You’ll reconcile it when you file your Alabama state income tax return for that year.
Are There Exceptions or Exemptions?
Yes. There are several situations in which you may apply for an exemption or reduced withholding. These include:
-
If you already file Alabama income taxes.
For example, if you own a rental property on Ono Island or in Orange Beach and have been filing an Alabama income tax return annually for your rental income, you may qualify for reduced or waived withholding. You’ll still need to apply, but your history of compliance works in your favor. -
If the gain on the sale is minimal or nonexistent.
If you’re not making a profit, or if capital gains will be excluded, you can submit supporting documentation to reduce or avoid withholding. -
If the sale qualifies for a complete exemption.
This can include certain family transfers or sales through bankruptcy or government entities.
You must file Form NR-AF1 (Nonresident Affidavit) or Form NR-AF2 (Application for Reduced Withholding) in advance of closing, typically through your closing attorney or CPA.
What If You Already File Alabama State Income Tax?
If you’ve been filing Alabama returns—especially for rental income on your property—this is a major advantage. You can provide documentation to support an exemption or request a reduced withholding percentage.
Some sellers on Ono Island have had rental homes for years and already report that income to the state. When they go to sell, their CPA can assist in preparing the exemption paperwork to prevent unnecessary withholding at closing.
Again, I am not a CPA or tax advisor, so please consult with your accountant to ensure proper documentation and planning are in place well ahead of closing.
How I Help My Clients Navigate This
Whether I’m listing a home or assisting a buyer with a 1031 exchange, I help my clients coordinate with qualified tax professionals and closing attorneys who are well-versed in Alabama’s nonresident rules. My goal is to minimize surprises and ensure a seamless transaction from listing to close.
If you’re thinking about selling your home or land on Ono Island or in Orange Beach, let’s talk early so we can evaluate:
-
Whether you qualify for exemption from withholding
-
What documentation may be needed
-
How your residency and tax filing status affect your proceeds
Final Thoughts
If you're a nonresident and plan to sell property in Alabama, including beautiful coastal communities like Ono Island and Orange Beach, it's important to understand the 3–4% withholding rule. But if you've been filing Alabama income tax returns for your rental income—or your circumstances allow for an exemption—you may not need to worry.
The key is to plan ahead, speak with your CPA, and work with a real estate advisor who understands the nuances of our local market.
If you have questions about buying or selling on the coast, I’d be honored to assist you every step of the way.
Explore Homes on Ono Island
Learn More About Selling on the Gulf Coast
#searchthegulf #meredithamon #becausewelivehere
Ono Island Homes & Land for Sale – Luxury Waterfront Real Estate in Orange Beach Alabama
.gif){kind=logo}
Boat-Friendly Homes on the Gulf Coast: Orange Beach and Ono Island Guide
Gulf Coast Boat-Friendly Living: Where I’d Buy, Dock, and Fish in Orange Beach and Ono Island
Why boat-friendly homes matter here
I work the water as much as the streets in Orange Beach — https://www.searchthegulf.com/orange-beach/ — and I’ve learned that not all “waterfront” lives the same. The…
What Makes a True “Gulf Boat”: Durability, Style, Ride & Comfort
Ask A Question or Sign Up To See New Real Estate Listings Before Your Competition
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.