Property Management Income Taxes In Alabama

Updated August 7, 2026

11 min read

This guide covers how rental and management income is taxed in Alabama: what the state takes, what the IRS takes, who has to withhold on an out-of-state owner, and when each return is due. Every figure is tied to the statute, agency rule, or published guidance that sets it, so you can confirm a rate before acting on it.

State Income Tax On Rental And Management Income

Alabama taxes individual income at graduated rates topping out at 5 percent. Net rental income from Alabama property and the management fees a property management company earns are both subject to Alabama income tax, and for partnerships, LLCs and S corporations that income flows through to the owners. Alabama also offers an entity-level election so a pass-through entity can pay the tax itself at 5 percent, and it requires a composite filing for nonresident owners.

For single filers, heads of family, and married persons filing separately, Alabama taxes the first $500 of taxable income at 2 percent, the next $2,500 at 4 percent, and all taxable income over $3,000 at 5 percent. (ALDOR FAQ, What is Alabama's Individual Income Tax Rate?)
For married persons filing a joint return, Alabama taxes the first $1,000 of taxable income at 2 percent, the next $5,000 at 4 percent, and all taxable income over $6,000 at 5 percent. (ALDOR FAQ, What is Alabama's Individual Income Tax Rate?)
A partnership, LLC or S corporation may elect to be taxed as an Electing Pass-Through Entity, in which case the entity itself pays Alabama tax at 5 percent of its Alabama-apportioned income rather than passing the liability to its owners. The election is made on Form EPT. (ALDOR, Electing Pass Through Entities)
A pass-through entity that has not made the electing pass-through entity election must file a composite return, Form PTE-C, on behalf of its nonresident members and remit tax on their Alabama-source distributive share at 5 percent. An Electing Pass-Through Entity is not required to file the PTE-C composite return. (ALDOR, Form PTE-C instructions and Electing Pass-Through Entity FAQs)
Alabama residents and part-year residents report rental and business income on Form 40, and nonresident owners with Alabama-source rental income file Form 40NR. (ALDOR, 2025 Alabama Individual Income Tax Return, Residents and Part-Year Residents)
Partnerships file Form 65 and S corporations file Form 20S; the entity return is due the 15th day of the third month after the close of the tax year, which is March 15 for calendar-year filers. (ALDOR, Pass-Thru Entities: Subchapter K Entities (Partnerships) and S Corporations)

Withholding And Employer Taxes

A property management company with Alabama employees must withhold Alabama income tax from wages, file periodic withholding returns, and pay state unemployment compensation tax. On the owner side, the closest thing to a nonresident-owner withholding obligation is the pass-through composite requirement, which applies when the rental holding entity is a partnership, LLC or S corporation with nonresident members.

Alabama employees complete Form A-4, Employee's Withholding Exemption Certificate, to set their state withholding. (ALDOR, Withholding Tax)
Employers file either Form A-6, Employer's Monthly Return of Income Tax Withheld, or Form A-1, Employer's Quarterly Return of Income Tax Withheld. Form A-1 is due on or before the last day of the month following the end of the quarter, so the quarter ending March 31 is due April 30. (ALDOR, Withholding Tax Tables and Instructions for Employers and Withholding Agents)
Form A-3, Annual Reconciliation of Alabama Income Tax Withheld, is due on or before January 31 of the following year. Employers and filing agents who submit 10 or more Forms W-2, or Forms 1099 with Alabama tax withheld, or who filed and paid electronically during the year, must file Form A-3 electronically through My Alabama Taxes. (ALDOR, Withholding Tax Tables and Instructions for Employers and Withholding Agents)
Alabama unemployment compensation tax rates are set under an experience rating plan and range in 17 steps from 0.59 percent to 6.19 percent. (ALDOR, Unemployment Compensation Tax)
For rental entities with out-of-state owners, the pass-through entity must file Form PTE-C and remit tax at 5 percent on each nonresident member's Alabama-source income, unless the entity has made the Electing Pass-Through Entity election. (ALDOR, Form PTE-C instructions)
Overtime wages paid after June 30, 2025 are again subject to Alabama income tax and withholding, because the Act 2024-437 overtime exemption sunset on that date. Exempt overtime earned on or before June 30, 2025 but paid in July 2025 could be reported on the July 2025 Form A-6 or the September Form A-1 for quarterly filers. (ALDOR Notice, Overtime Exemption Ends June 30, 2025)

Federal Obligations

Federal reporting sits on top of anything Alabama requires. Rental activity goes on Schedule E, the building is depreciated over 27.5 years while the land is not depreciated at all, and payments to vendors and contractors trigger Form 1099 reporting. The 1099 dollar threshold changes between the 2025 and 2026 payment years, which is the single most important compliance date for a management company's accounts payable process.

Income and expenses from real estate rentals are reported on Schedule E (Form 1040), Supplemental Income and Loss. If the owner provides substantial services to tenants beyond ordinary rental services, the activity is reported instead on Schedule C (Form 1040), Profit or Loss From Business. (IRS Topic No. 414, Rental Income and Expenses)
Advance rent is included in income in the year it is received regardless of the accounting method used. Tenant-paid expenses that cover the owner's costs are also rental income, and a security deposit becomes income when it is kept because the tenant broke the lease or caused damage for which repair costs are deducted. (IRS Topic No. 414, Rental Income and Expenses)
Residential rental property is depreciated over 27.5 years under the General Depreciation System, or 30 years under the Alternative Depreciation System, using the mid-month convention. Land cannot be depreciated because it does not wear out, become obsolete, or get used up. (IRS Publication 527, Residential Rental Property)
Depreciation is claimed on Form 4562, Depreciation and Amortization, in the year the property is placed in service and in any later year an improvement is made. (IRS Topic No. 414, Rental Income and Expenses)
The information return threshold is $600 for payments made during 2025 and rises to $2,000 for payments made after December 31, 2025, with inflation adjustment in calendar years after 2026. This change was made by the One, Big, Beautiful Bill Act and applies to rents and other payments reported on Form 1099-MISC and to nonemployee compensation reported on Form 1099-NEC. (IRS, Instructions for Forms 1099-MISC and 1099-NEC)
Form 1099-MISC is used to report rents paid in the course of a business, while Form 1099-NEC is used to report payments for services to a person who is not an employee, such as a plumber, landscaper or turnover contractor. (IRS, Instructions for Forms 1099-MISC and 1099-NEC)

Filing Deadlines

Alabama's calendar for a property management company clusters around four dates: January 31 for wage and withholding reconciliation, March 15 for pass-through entity returns, April 15 for individual returns, and the October 1 through December 31 window for property tax. Rental and lodgings tax returns run monthly on the 20th.

The Alabama individual income tax return, Form 40, is due April 15. If the 15th falls on a weekend or holiday, the return is due the next business day. (ALDOR FAQ, When should I file my Alabama Individual Income Tax Return?)
Form 65 for partnerships and Form 20S for S corporations are due the 15th day of the third month after the close of the tax year, which is March 15 for calendar-year filers. (ALDOR, Pass-Thru Entities: Subchapter K Entities (Partnerships) and S Corporations)
The composite return, Form PTE-C, is due on or before March 15 for calendar-year taxpayers, or the 15th day of the third month following the close of a fiscal or short year. Form EPT for an Electing Pass-Through Entity follows the same 15th day of the third month schedule. (ALDOR, Form PTE-C instructions; ALDOR Electing Pass-Through Entity FAQs)
Form A-3 annual reconciliation and the accompanying Forms W-2 are due on or before January 31 of the following year. (ALDOR, Withholding Tax Tables and Instructions for Employers and Withholding Agents)
Rental or leasing tax and lodgings tax returns are due by the 20th of the month following the reporting period for monthly filers. (ALDOR, Rental or Leasing Tax)
Property taxes are due October 1 and delinquent January 1, and business personal property returns must reach the local assessing official between October 1 and December 31. (ALDOR FAQ, What is the timetable for property taxes?; ALDOR, Personal Property)

Recent Changes Worth Tracking

Effective September 1, 2025: The Alabama state sales and use tax rate on food was reduced from 3 percent to 2 percent. Food uses the federal SNAP definition and generally covers food or food products for home consumption, excluding alcoholic beverages, tobacco, and hot foods ready for immediate consumption. (Act 2025-305; ALDOR Notice, State Sales and Use Tax Rate Reduced on Food Beginning September 1, 2025)
Effective June 30, 2025: Alabama's income tax exemption for overtime wages, enacted by Act 2024-437, sunset. Amounts paid as overtime compensation after the sunset date are again subject to Alabama income tax and to employer withholding. (ALDOR Notice, Overtime Exemption Ends June 30, 2025)
Effective Calendar years 2026 through 2028: A new overtime premium deduction replaces the expired exemption. Eligible workers may deduct the premium portion of overtime wages, meaning earnings above the base hourly rate, capped at $1,000 per taxpayer per year, for calendar years 2026 through 2028. Employers report total overtime wages in Box 16 of Form W-2 and the premium portion separately in Box 12 using IRS code TT, which does not change W-2 taxes or withholding. (Act 2026-604; ALDOR, Overtime Premium Deduction (Act 2026-604))
Effective Base year October 1, 2024; collections beginning October 1, 2025: A 7 percent cap now limits the annual increase in taxable assessed value for Class II property, which includes tenant-occupied rentals and commercial property, and Class III property. The base year commenced October 1, 2024 and capped collections began October 1, 2025, continuing through the fiscal year beginning October 1, 2027. The cap does not apply when ownership changes (with exceptions for spouse, family transfers and inheritance), when classification changes, when new or significant improvements are added, when the property is in a Tax Increment District, or when the property was never previously assessed. (Act 2024-344 (HB73); ALDOR, 7% Cap Information)

Tax is one half of Alabama compliance. See our guide to Alabama property management laws and regulations for licensing, trust account, and disclosure rules.

This page is one half of the picture. See our guide to the Alabama taxes a management company pays directly for the rest.

Keeping This Straight

Tax rates and thresholds move more often than most operators expect, and the figures circulating in older articles go stale quickly. Check any rate against its citation before you quote it to an owner, and re-check them at the start of each tax year.

This guide is a starting point for professional managers, not tax or legal advice. For a specific filing, work with a CPA familiar with Alabama rental property, and confirm current figures with the Alabama Department of Revenue or the IRS.