Section 40-18-86, Code of Alabama 1975, provides for income tax withholding at a rate of 3 or 4 percent on sales or transfers of real property and associated tangible personal property by nonresidents of Alabama. This Code Section is applicable to any sale or transfer occurring on or after August 1, 2008. For the purposes of this Code Section, nonresidents include individuals, trusts, partnerships, corporations, limited liability companies, limited liability partnerships, and unincorporated organizations. This law does not apply to residents of Alabama so there is no requirement for any of the forms applicable under Section 40-18-86 to be completed on the sale or transfer of property by a resident.
The rate of withholding is 3 or 4 percent of the purchase price. An alternative for calculating the withholding is to use the seller’s gain. In order to apply the withholding to the gain, the seller must complete Form NR-AF2 (Affidavit of Seller’s Gain) attesting to the amount of the taxable gain. The seller is responsible for the calculation of the gain. The completed Form NR-AF2 must be sent to the Alabama Department of Revenue. A copy of this form along with an explanation of the cost basis and expenses should be kept with the closing file. The buyer may rely on the seller’s affidavit with the above mentioned explanation unless the buyer knows or should know, based on the buyer’s knowledge at the time of closing, that statements made on the affidavit are false. The buyer has no duty to investigate the statements made on a seller’s affidavit. If the calculated amount for the withholding is more than the cash received at closing, the buyer must withhold and remit only the net proceeds otherwise payable to the seller.
There are a number of exemptions to the withholding requirement.
|Withholding Requirements for Sales or Transfers of Real Property by Nonresidents Package (includes Act 2008-504, FAQ's and Forms) Updated: 01/13/2010|
|Affidavit and Certificate of Exemption Forms|
|Form NR-AF1 Updated: 09/08/2008||Affidavit of Seller's Residence (fillable form)|
Form NR-AF2 Updated: 01/12/2010
|Affidavit of Seller's Gain (fillable form)|
|Form NR-AF3 Updated: 01/19/2010||Seller's Certificate of Exemption (fillable form)|
|Form WNR Updated: 09/22/2008||Withholding on Sales or Transfers of Real Property and Associated Tangible Personal Property by Nonresidents (fillable form)|
|Form WNR-V Updated: 01/10/2010||Withholding on Sales or Transfers of Real Property and Associated Tangible Personal Property by Nonresidents Payment Voucher (fillable form)|
For questions and additional information, contact the Alabama Department of Revenue at (334) 242-1300.