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 for a top-bracket seller. 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 due now (deferred, not eliminated) |
In Alabama's top bracket, roughly the combined rate above goes to tax if you sell outright. With a qualifying 1031 exchange, that's $0 now, though the deferred tax may come due on a later taxable sale or if the exchange fails to qualify. 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%.
Baker 1031 in Alabama
Realized (acquired, held, sold) programs on Alabama assets. Performance data as of June 2026. "Avg annual" is the simple annualized return net to investor over the hold period; short holds and leverage can inflate this figure, so shorter-hold deals below are not comparable to longer-hold ones. Sponsor-reported, not independently verified.
Risk: DST and Regulation D investments are illiquid and speculative, carry the risk of loss of principal, offer no assurance of distributions, and depend on tax law that can change. Past performance does not guarantee similar future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Country Inn & Suites – Montgomery, AL — Montgomery | Peachtree Group | 65.70% | 4.26x | 3 yr |
| Hollywood Video — Saraland | AEI | 6.76% | 1.27x | 10.39 yr |
| Aaron's Inc. – Huntsville, AL — Huntsville | Four Springs | 7.20% | 1.19x | 2.59 yr |
| O'Reilly Automotive – Atmore, AL — Atmore | Four Springs | 6.50% | 1.04x | 0.58 yr |
| Hampton Inn – Pell City, AL — Pell City | Peachtree Group | 8.40% | 1.58x | 7.02 yr |
| Holiday Inn Express – Pell City, AL — Pell City | Peachtree Group | 8.60% | 1.58x | 6.9 yr |
| Courtyard – Gulf Shores, AL — Gulf Shores | Peachtree Group | 59.40% | 3.93x | 3.32 yr |
| Carrington Park — Montgomery | Passco | 7.00% | 1.61x | 7 yr |
See every Alabama deal in the Data Center →
Current offerings for Alabama investors
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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.
What are the deadlines for a 1031 exchange in Alabama?
The federal timeline applies statewide: you have 45 days from your sale to identify replacement property and 180 days to close. Investors often turn to a DST late in that window because the property is already packaged and can close quickly. 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.
Risk disclosure. DST interests and other Regulation D private placements are speculative and involve substantial risk, including the possible loss of your entire principal. They are illiquid, with no public or secondary trading market, so you may be unable to sell when you wish. Distributions are not guaranteed and may be reduced or suspended. Investments depend on the performance of the underlying real estate and the sponsor and master tenant, and are subject to changes in tax law that could reduce or eliminate the anticipated tax benefits, including deferral under IRC §1031. A 1031 exchange defers tax; it does not eliminate it, and deferred tax may become due on a later taxable disposition or if the exchange fails to qualify.