If you’re wondering about inheritance tax in Alabama, there isn’t one. Unlike some states that tax the recipients of an inheritance, this state does not. This makes the state more favorable for those passing on or receiving assets. (The state doesn’t have estate tax either.)
No. Alabama’s history with inheritance tax is straightforward. While some states implemented inheritance taxes in the early 20th century, Alabama chose not to create its own long-term system. Instead, like many states, Alabama relied on a “pick-up” estate tax system that indirectly brought in funds when a federal estate tax return was filed.
However, inheritance tax is different from estate tax. Estate tax is paid out of the estate before distribution; inheritance tax is paid by the person receiving the assets. Alabama has never had a true inheritance tax of its own.
By the early 2000s, any remaining indirect state taxes tied to federal law became obsolete when the IRS eliminated the federal state death tax credit in 2005. Alabama did not adopt new laws to reintroduce either estate or inheritance taxes. And so, inheritance tax in Alabama became (and remains) a non-issue.
What No Inheritance Tax in Alabama Means
If you inherit money or property from someone who lived in the state, you won’t owe any state inheritance tax—no matter the amount. This simplifies the estate process and leaves more of the inheritance in the hands of the beneficiaries.
However, federal taxes, capital gains taxes, or taxes from other states could still apply depending on the type of assets or where they’re located. Many Alabama families use living trusts to streamline the transfer process and avoid the time and expense of probate, which typically costs 2-8% of an estate’s value.
Frequently Asked Questions
- Could Alabama add one in the future?
- It’s possible, but there’s no indication that lawmakers are considering it.
- Do other states have inheritance taxes?
- Yes. States like Iowa, Nebraska, and Pennsylvania still impose inheritance taxes.
- What about probate in Alabama?
- The cost of probate in Alabama generally ranges between 2 and 8 percent.
(Learn More: Read about revocable trusts in Delaware versus Nevada.)