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Individual & Corporate Income Tax

ADOR - Exemptions from Nonresident Withholding Requirement on Sales of Real Property

 

Exemptions from the Requirement for Withholding on Sales/Transfers of Real Property and Associated Tangible Personal Property by Nonresidents (Act 2008-504)?

  • Principal Residence under IRC 121 - If the property qualifies as a principal residence within the meaning of Internal Revenue Code Section 121, the sale of a principal residence is exempt from the withholding requirement.
  • Residents of Alabama - The withholding requirements under this law do not apply to residents of Alabama. Alabama residents include both individuals and business entities domiciled in Alabama. Business entities will be considered domiciled in Alabama if they are organized under Alabama law or they have their principal place of business in Alabama.
  • Purchase Price Threshold – Beginning August 1, 2008, withholding is not required on transactions prior to January 1, 2009, where the purchase price is less than $800,000. For transactions after December 31, 2008, the purchase price threshold drops to $300,000.
  • Foreclosures - The buyer is not subject to the withholding requirements if the seller is a mortgagor conveying the mortgaged property to a mortgagee in a foreclosure or in a transfer in lieu of foreclosure with no additional consideration.
  • Federal and State Agencies - The transaction is not subject to the withholding requirements if the seller or buyer is an agency or authority of the United States or the State of Alabama, or a private mortgage insurance company.
  • Composite Returns - If the seller is an entity which files a composite return with Alabama and remits the tax on the gain on behalf of its members, partners, or shareholders, then the buyer is not required to withhold.
  • FNMA, GNMA, or FHLMC  -  The seller or buyer is the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation.
  • Tax Exempt Organization - The seller is a tax exempt organization, and the income from the sale is not subject to Alabama income tax.
  • Insurance Company - The seller is an insurance company which pays tax on its premium income to Alabama.
  • Financial Institution - The seller is a financial institution, as defined under Alabama Code Section 40-16-1, and is subject to Alabama’s Financial Institution Excise Tax (FIET).
  • Non-Recognition Transactions - Transfers of real property where gain is realized by the seller, but completely not recognized by the seller for Alabama income tax purposes, such as a like kind exchange, are not subject to the withholding provisions of Alabama Code Section 40-18-86. Transfers of real property where gain is realized by the seller, but partially not recognized by the seller for Alabama income tax purposes, are subject to the withholding provisions of Alabama Code Section 40-18-86 only to the extent of the recognized gain.
  • Transfers of Certain Limited Interests in Real Property - Certain transfers of limited interests in real property, including easements, rights of way, mortgages or other instruments that secure indebtedness, or leases (not including capital leases), are not subject to the withholding provisions of Alabama Code Section 40-18-86.