Alabama taxes capital gains as ordinary income — up to 5% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~28.8% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Alabama investors defer that combined bill and trade active landlording for passive institutional real estate.
The Alabama tax math
Here's the tax stack on a long-held rental sold for a $1.5M gain (excludes depreciation recapture, taxed separately at up to 25%):
| On a $1.5M gain | Tax |
|---|---|
| Federal long-term capital gains (20%) | $300,000 |
| Net investment income tax (3.8%) | $57,000 |
| Alabama income tax (5%) | $75,000 |
| Total if you simply sell | $432,000 |
| Tax if you 1031 into a DST | $0 deferred |
In Alabama's top bracket, roughly the combined rate above goes to tax if you sell outright — versus $0 now with a qualifying 1031 exchange. Run your Alabama numbers →
Alabama 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Alabama conforms to IRC §1031, so a qualifying exchange defers Alabama tax as well as federal tax.
Withholding at sale
Alabama may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
How gains are taxed
Taxed as ordinary income — up to 5%.
Alabama market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Alabama
Realized (acquired, held, sold) programs on Alabama assets. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance ≠ future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Hollywood Video — Saraland | AEI Capital Corporation | 6.76% | 1.27x | 10.39 yr |
| Arby's — Homewood | AEI Capital Corporation | 6.65% | 1.61x | 17.86 yr |
| Aaron's — Muscle Shoals | AEI Capital Corporation | 2.96% | 0.79x | 17.56 yr |
| Outlook at Greystone — Birmingham | Bluerock | 21.97% | 1.21x | 5.0 yr |
| Chace Lake Villas — Birmingham | Bluerock | 8.1% | 1.4x | 5.5 yr |
| Aaron's Inc. – Huntsville, AL — Huntsville | Four Springs Capital | 7.2% | 1.19x | 2.59 yr |
| O'Reilly Automotive – Atmore, AL — Atmore | Four Springs Capital | 6.5% | 1.04x | 0.58 yr |
| GSA SSA Birmingham DST — Birmingham | Net Lease Capital Advisors | 8.29% | 2.64x | 12.21 yr |
See every Alabama deal in the Data Center →
Current offerings for Alabama investors
| Offering | Sponsor | Type | Status |
|---|---|---|---|
| BR Diversified Industrial Portfolio 7, DST | Bluerock | Industrial | Limited Availability |
| ExchangeRight Net-Leased All-Cash 19 DST | ExchangeRight | Net Lease | Closed |
| ExchangeRight Net-Leased All-Cash 20 DST | ExchangeRight | Net Lease | Closed |
| NexPoint Outlook DST | NexPoint | Multifamily | Available |
Learn more
Alabama FAQ
What is the capital gains tax rate in Alabama?
Alabama taxes capital gains as ordinary income, up to 5%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Alabama seller can face roughly ~28.8% on a real estate gain.
Does Alabama recognize 1031 exchanges?
Yes. Alabama conforms to IRC §1031, so a properly structured exchange defers Alabama tax as well as federal tax.
Why use a 1031 exchange in Alabama?
To defer the tax on a large gain (up to about ~28.8% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.
Disclosures
This page is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. State tax and 1031 rules summarized here are general, current as of 2026, and not tax advice — verify with your CPA and attorney. For accredited investors only. Representatives may transact business only in states where registered or exempt. Securities offered through Aurora Securities, Inc., member FINRA/SIPC; Baker 1031 Investments, LLC is independent of Aurora. Performance shown is sponsor-reported, realized programs only, net of fees, not independently verified, and not indicative of future results.