Selling a business in Alabama: what the state takes (2026)
Alabama’s top individual income tax rate is 5%. Here is what an owner selling company stock pays, with 2026 rules from official sources and worked examples at $10 million, $25 million and $50 million.
- 5%
- Top Alabama income tax rate (2026)
- $952,500
- State tax on a $25M long-term gain
- 27.6%
- Combined federal and state rate on $25M
- 32 of 51
- Rank by total tax on $25M (1 = highest)
How Alabama taxes a business sale
- Income tax
- Top rate 5%: Over $3,000 of taxable income (single).
- Long-term capital gains
- Capital gains are taxed as ordinary income at 5%, with no capital gains exclusion. Alabama lets residents deduct federal income tax actually paid, including the 3.8% net investment income tax, so on a large gain taxed federally at 23.8% the effective state rate falls to about 3.8%. The examples apply that deduction.
- Local taxes
- Tax Foundation puts Alabama's average local income tax at 0.07% of AGI. Local levies are municipal and county occupational license taxes on wages and earnings, not on capital gains (that scope is not confirmed from an official source).
Three worked examples
| Long-term gain | $10,000,000 | $25,000,000 | $50,000,000 |
|---|---|---|---|
| Federal capital gains tax (20%) | $2,000,000 | $5,000,000 | $10,000,000 |
| Net investment income tax (3.8%) | $380,000 | $950,000 | $1,900,000 |
| Alabama tax | $381,000 | $952,500 | $1,905,000 |
| Total tax | $2,761,000 | $6,902,500 | $13,805,000 |
| Effective combined rate | 27.61% | 27.61% | 27.61% |
| Net proceeds after tax | $7,239,000 | $18,097,500 | $36,195,000 |
| Extra tax versus Texas | $381,000 | $952,500 | $1,905,000 |
Seller’s tax calculator
Estimate federal and state tax on a stock sale and what is left before fees and debt.
- Long-term capital gain
- $25,000,000
- Federal capital gains tax (20%)
- $5,000,000
- Net investment income tax (3.8%)
- $950,000
- Alabama tax
- $952,500
- Federal income tax deducted
- $5,950,000
- Taxable gain at 5%
- $952,500
- Total tax
- $6,902,500
- Effective rate on the gain
- 27.61%
- Net proceeds after tax
- $18,097,500
Illustration, not tax advice. Assumes a resident individual, the whole gain long-term, top marginal rates, no state credits, installment terms, QSBS exclusion or other planning, and no local taxes. Net proceeds are before transaction fees, debt repayment, escrows and earn-outs. Rates are for tax year 2026 where published; see the methodology.
Compare with other states
Neighboring states
- Florida23.8% combined, $19.05M net
- Georgia28.8% combined, $17.80M net
- Mississippi27.8% combined, $18.05M net
- Tennessee23.8% combined, $19.05M net
Common comparisons
- California37.1% combined, $15.72M net
- New York34.1% combined, $16.48M net
- Texas23.8% combined, $19.05M net
- Nevada23.8% combined, $19.05M net
- Washington33.5% combined, $16.63M net
Methodology and sources
Alabama figures are for tax year 2026. Alabama's brackets are fixed in statute and not indexed; the rates on the DOR's rate FAQ apply to 2026. Federal-tax-deduction mechanics taken from the 2025 Form 40 booklet (the 2026 booklet is not out yet). The examples assume a resident individual selling privately held stock for a long-term gain equal to the sale price (zero basis), with every dollar taxed at the top marginal rates, the federal 20% capital gains rate and the 3.8% net investment income tax, and no planning, credits or local taxes. Full assumptions are in the report methodology.
All 50 states and DC with source URLs.
- 1Alabama DOR FAQ: individual income tax rates
- 2Alabama DOR 2025 Form 40 booklet (line 12 federal income tax deduction worksheet, incl. NIIT)
- 3Tax Foundation, State Individual Income Tax Rates and Brackets, 2026. Secondary source
Data last updated October 26, 2026.
Cite this research
You may quote and republish figures from this page with attribution and a link to the source.
Citation
Laurent Capital Research, “The Seller’s Tax Map: What Selling a Business Costs in Every State (2026): Alabama,” 2026, https://laurent.capital/research/seller-tax-map/alabamaLink (HTML)
<a href="https://laurent.capital/research/seller-tax-map/alabama">The Seller’s Tax Map: What Selling a Business Costs in Every State (2026): Alabama</a> (Laurent Capital)Planning a sale and weighing the tax cost?
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