Alabama
A 1031 exchange in Alabama, where the exemption depends on the intermediary filing the voucher.
Alabama withholds 3% or 4% from nonresident sellers above $300,000, but a delayed exchange is exempt only if the seller agrees the qualified intermediary will file and pay if money remains after 180 days.
If you do not live in Alabama and you sell Alabama real property for more than $300,000, the buyer must withhold 3% or 4% of the price for Alabama income tax. A 1031 exchange avoids that withholding only to the extent the gain is completely not recognized for Alabama purposes, and for a delayed exchange the Department of Revenue conditions the exemption on your qualified intermediary agreeing to file the payment voucher and remit any withholding if money remains after the 180-day period.
onezero3one acts as qualified intermediary for exchanges of Alabama property, subject to a review of each file before an exchange agreement is signed. We work with your closing agent and tax advisor; we do not give tax or legal advice.
What is specific to this state
The federal rules in IRC §1031 decide whether an exchange qualifies. The items below are state requirements that sit alongside them at closing or on the return. Each links to the official source it was checked against; confirm the current version with your closing agent and tax advisor before relying on it.
| Issue | What applies | Usually handled by | Source |
|---|---|---|---|
| Tax at closing for sellers | Alabama requires income tax withholding of 3% or 4% of the purchase price on sales of Alabama real property by nonresidents. The threshold is a $300,000 purchase price, and withholding cannot exceed net proceeds. The buyer files Form WNR and the WNR-V voucher by the last day of the month after closing; a seller who expects a smaller gain can use Form NR-AF2. Nonresident individuals and entities selling Alabama real property above $300,000. | The buyer withholds and remits; the seller signs any affidavit. | Alabama Department of Revenue, Withholding Requirements for Sales or Transfers of Real Property by Nonresidents (updated 9/22/2025) Checked September 30, 2026 |
| Price threshold | For transfers after December 31, 2008 the purchase price threshold is $300,000; below it no withholding is required. All nonresident sellers, exchange or not. | Closing agent and buyer, using the seller statement on Form NR-AF3. | Alabama Department of Revenue, Withholding Requirements (updated 9/22/2025) Checked September 30, 2026 |
| Delayed exchange condition | Alabama treats a transfer where the gain is completely not recognized, such as a like-kind exchange, as not subject to withholding. For a deferred exchange, the Department says the exemption applies only if the seller agrees to have the qualified intermediary file the payment voucher and remit any withholding due if money remains after the 180-day period. Nonresident sellers in a delayed Section 1031 exchange of Alabama property. | Seller agrees in the exchange documents; the qualified intermediary files the voucher and remits if funds remain after 180 days. | Alabama Department of Revenue, Withholding Requirements, FAQ (updated 9/22/2025) Checked September 30, 2026 |
| Partial recognition (boot) | Where gain is only partly not recognized, such as a Section 1031 exchange where money received exceeds the exchange, withholding applies only to the recognized gain. Exchanges with cash or other boot. | Seller computes the gain on Form NR-AF2; buyer remits. | Alabama Department of Revenue, Withholding Requirements, FAQ (updated 9/22/2025) Checked September 30, 2026 |
| Seller exemption certificate | Form NR-AF3 (rev. 9/25) lets the seller certify a non-recognition transaction such as a like-kind exchange. It is not required and is not submitted to the Department; the buyer keeps it with the closing records. Nonresident sellers claiming an exemption. | Seller signs; buyer retains. | Alabama Department of Revenue, Form NR-AF3, Seller's Certificate of Exemption (9/25) Checked September 30, 2026 |
| Deed (recordation) tax | Alabama's recordation tax on deeds is $0.50 per $500 of value or fraction thereof. The Department's page lists no exchange exemption and does not say who pays. All deeds recorded in Alabama. | Closing agent, under the contract. | Alabama Department of Revenue, Recordation Tax Checked September 30, 2026 |
How Alabama's nonresident withholding works
Section 40-18-86 of the Code of Alabama requires income tax withholding of 3% or 4% of the purchase price on sales of Alabama real property, and the tangible personal property sold with it, by nonresidents. It applies to individuals, trusts, partnerships, corporations, limited liability companies and other organizations. It is income tax withholding, not a transfer tax. The buyer withholds, completes Form WNR, and sends it with the payment voucher (Form WNR-V) and the money to the Department by the last day of the month after closing. The withholding is treated as an estimated payment toward your Alabama return, which you still have to file.
The statute does not apply to Alabama residents, to sales below a $300,000 purchase price, or to a list of other sellers, and a nonresident who meets every condition of a "deemed resident" is also outside it. Withholding cannot exceed your net proceeds. If you expect a gain smaller than the price, you can sign Form NR-AF2, the affidavit of seller's gain, and the withholding is figured on the gain instead.
What the Department says about 1031 exchanges
The Department's published position is that a transfer where the gain is completely not recognized for Alabama income tax purposes, such as a like-kind exchange, is not subject to the withholding. Where the gain is only partly not recognized, withholding applies to the recognized part.
| Situation | Alabama withholding |
|---|---|
| Exchange with no gain recognized | Not required, to the extent the income is not subject to Alabama income tax. |
| Delayed exchange | Exempt only if you agree to have the qualified intermediary file the payment voucher and remit any withholding due if money remains after the 180-day period. |
| Cash or other boot received | Applies to the recognized gain only. |
For a delayed exchange this makes the exchange agreement part of the closing file. The buyer's side may want to see that the intermediary has accepted the voucher obligation, so raise it before the contract is signed rather than at the closing table.
The seller's exemption certificate
Form NR-AF3, the seller's certificate of exemption, has a line for a non-recognition transaction such as a like-kind exchange. The Department says the form is not required and is not submitted to it. It exists so the buyer can document reliance on your statement, and the buyer keeps it with the closing records. The buyer may rely on it unless the buyer knows or should know it is false. Where only part of the gain is deferred, use NR-AF2 to compute the withholding on the recognized gain.
Deed tax
Alabama's recordation tax on deeds is $0.50 per $500 of value or fraction of it. The Department's recordation page does not list an exemption for exchanges, so plan on the tax for each deed in your exchange, and ask your closing agent who pays it under the contract; the Department's page does not say.
State income tax
The Department ties its withholding exemption to what is recognized for Alabama income tax. We found no Alabama-specific clawback or annual-reporting rule for replacement property in another state, so confirm with your tax advisor how Alabama treats a later sale of the replacement property. Nearby: Georgia and Florida.
Questions Alabama sellers ask
I live in Georgia and am selling an Alabama rental for $450,000 in a delayed exchange. Will Alabama withhold?
Not if the gain is completely not recognized and you agree to have your qualified intermediary file the payment voucher and remit any withholding due if money remains after the 180-day period. If you take any cash, withholding applies to the recognized gain. Confirm the details with your closing agent and tax advisor.
Do I have to file Form NR-AF3?
No. The Department says it is not required and is not sent to the Department. It protects the buyer, who keeps it with the closing records.
Is the price threshold different for exchanges?
No. The same $300,000 purchase price threshold applies to every nonresident seller; the exchange exemption is separate from it.
Is the Alabama deed tax waived for an exchange?
The Department's page lists no exemption. Plan on the tax for each deed.
Related
Sources
- ADOR, Withholding Requirements for Sales or Transfers of Real Property by Nonresidents (9/22/2025) (checked September 30, 2026)
- ADOR, Exemptions from Nonresident Withholding Requirement (checked September 30, 2026)
- ADOR, Form NR-AF3 (9/25) (checked September 30, 2026)
- ADOR, Recordation Tax (checked September 30, 2026)
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