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NEW LAW REQUIRES ALABAMA Nonresidents
TO WITHHOLD 3% OF SALES PRICE FOR CERTAIN REAL ESTATE
TRANSACTIONS
A new Alabama tax law requires
real estate investors to withhold 3% of the sales price
for the purpose of fulfilling capital gains tax requirements.
The Act applies specifically to the sale of real property
by sellers who are nonresidents of the State of Alabama.
If the following conditions are met, the seller will
be deemed to be a resident of Alabama and the 3% withholding
requirement will not apply:
- the seller must have filed
income tax returns or certain extensions each of the
two years preceding the sale;
- the seller must be in business
in Alabama and continuing “substantially the
same business in Alabama” after the sale, or
have additional real property in the state at the
time of closing that is of “equal or greater
value than the withholding tax liability as measured
by the 100 percent property tax assessment of such
remaining property;” and
- the seller must report the
sale on their current year Alabama income tax return
and file accordingly.
Additional requirements should
receive careful consideration to avoid penalties. For
example, in some instances, failure to withhold and
file the correct amount by the seller causes the buyer
to be held liable.
There are some exemptions to this
act as well. Check with your local Cherry Bekaert &
Holland Real Estate tax specialist for more information
and detailed advice.
FOR MORE INFORMATION,
PLEASE CONTACT:
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