Alabama fully conforms to federal §168(k) bonus depreciation via rolling IRC adoption under Ala. Code §40-18-1.1. STR investors get 100% of the federal Year-1 deduction plus the full Alabama deduction at up to the 5% top marginal rate — no add-back required. On a $150,000 federal deduction, that's an additional $7,500 in Alabama state tax savings on top of $55,500 federal. See the full 50-state conformity map to compare Alabama's treatment to every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Open the state conformity tool →
How Alabama Adopts §168(k) — The Rolling Conformity Mechanic
Alabama is a rolling conformity state for individual income tax. That means Alabama's income tax code adopts the Internal Revenue Code as it exists at any given moment — not as of a fixed date. When federal law changes, Alabama's tax base changes with it automatically, unless Alabama's legislature affirmatively decouples from a specific provision.
Alabama has never decoupled from §168(k). When the One Big Beautiful Bill Act (OBBBA) restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025, Alabama's rolling conformity flowed the entire deduction through to the state return with no legislative action required.
The mechanic is the simplest of any state: compute federal taxable income with the full §168(k) deduction. Alabama taxable income starts from federal AGI and inherits the deduction unchanged. Depreciation on the Alabama return matches federal exactly. Basis is identical. There is no separate Alabama depreciation schedule to maintain, no addition modification, no subtraction modification, no divergence at disposition. It's clean.
Worked Example — $150,000 Federal Deduction Plus Extra Alabama Savings
Consider an investor buying a $850,000 STR on the Gulf Coast in Gulf Shores or Orange Beach, running a cost seg-style analysis, and identifying $150,000 in 5-year and 15-year bonus-eligible property (kitchen finishes, appliances, FF&E, hot tub, pool deck, landscaping). The federal §168(k) deduction is $150,000 in Year 1 — and Alabama piggybacks the entire amount.
Assumptions: Federal marginal rate 37% · Alabama top marginal rate 5.0% · Bonus depreciation acquired and placed in service after January 19, 2025 · STR loophole (§469) qualification confirmed for federal purposes.
| Line | Federal return | Alabama return |
|---|---|---|
| §168(k) Year-1 deduction | $150,000 | $150,000 (full conformity) |
| Year-1 tax rate | 37% | 5.0% |
| Year-1 tax savings | $55,500 | $7,500 |
| Combined Year-1 savings | $63,000 | |
| Recovery mechanics | Full deduction in Year 1, both returns · basis matches | |
The Alabama $7,500 is the extra state savings you'd miss out on in a decoupled state. On a large cost seg amount, Alabama's conformity delivers real dollars — and simpler tax prep because there's no separate state depreciation schedule.
The Statute Explained
The Alabama Department of Revenue publishes annual instructions confirming rolling IRC conformity. Because there's no fixed conformity date to track and no §168(k)-specific carve-out, Alabama's treatment is stable across federal law changes. Investors can rely on the state benefit tracking whatever the federal government does with bonus depreciation.
How Alabama Compares to Decoupled States
Roughly half of US states plus DC decouple from §168(k) — including South Carolina, Georgia, and Mississippi's neighbors in the deep South (with the exception of Mississippi itself, which fully conforms). In a decoupled state, an STR investor with a $150,000 bonus deduction would add back 100% on the state return and lose the Year-1 state tax savings entirely — that's a $9,000 hit in South Carolina (6.0% top rate) or a $7,785 hit in Georgia (5.19% flat rate).
Alabama's rolling conformity is the mirror opposite. Instead of losing $7,500+ in Year-1 state tax on a $150,000 deduction, an Alabama investor gains the same amount. The gap between Alabama and a decoupled neighbor can be $15,000+ in first-year cash flow on a comparable STR purchase.
Use the state conformity tool to compare Alabama against any other state at any federal deduction amount, or browse the full 50-state hub for a side-by-side view.
What This Means for Your STR Purchase Decision
Alabama's Gulf Coast STR markets — Gulf Shores, Orange Beach, Fort Morgan, and inland markets like Auburn and Lake Martin — combine strong nightly rates with one of the friendliest state tax regimes for bonus depreciation in the Southeast. Three practical implications:
- The federal $55,500 and the Alabama $7,500 stack. On a $150,000 bonus-eligible deduction, your combined Year-1 tax savings hit $63,000 — the state doesn't take back any of the federal acceleration.
- Tax prep is simpler. No separate Alabama depreciation schedule, no addition/subtraction modifications year-over-year, no basis divergence at sale. That saves preparer hours and reduces error risk.
- Rolling conformity gives you predictability. Federal law changes flow through automatically. If OBBBA-style acceleration continues, Alabama continues to benefit. No need to track pending state legislation.
Before you write an offer on a Gulf Shores or Orange Beach STR, run the address on your property — the report models the full federal Year-1 deduction and confirms Alabama's rolling conformity means you keep every dollar on the state return too.
Analyze a specific Alabama property
Run any Alabama STR listing through DepreciMax's $99 property report — line-item finish classification, federal §168(k) modeling, and Alabama full-conformity confirmation included.
Frequently asked questions
Does Alabama conform to federal §168(k) bonus depreciation in 2026?
Yes. Alabama fully conforms via rolling IRC adoption under Ala. Code §40-18-1.1. STR investors get the full federal Year-1 deduction plus the full Alabama deduction at up to 5% — no add-back required.
How much extra state tax savings does Alabama conformity produce for a short-term rental investor?
On a $150,000 federal §168(k) deduction, Alabama's 5% top rate produces an additional $7,500 in Year-1 state savings on top of the federal $55,500. Combined Year-1 tax savings: about $63,000.
What is the Alabama statute for §168(k) conformity?
Ala. Code §40-18-1.1 provides rolling IRC conformity. §168(k) as restored by OBBBA flows through automatically.
Does Alabama conformity help the short-term rental loophole?
Yes. The federal STR loophole (§469) already lets you deduct rental losses against W-2 income at the federal level. Alabama's conformity means the same acceleration reduces Alabama taxable income too — producing an additional 5% state tax savings.
Is any add-back required on the Alabama return?
No. Rolling conformity means federal §168(k) flows through to Alabama with no modifications. Depreciation, basis, and disposition mechanics all match federal.
Did OBBBA affect Alabama's §168(k) treatment?
Yes, favorably. OBBBA (P.L. 119-21) restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025. Alabama's rolling conformity automatically flowed that federal restoration to the Alabama return — no separate state legislation needed.
Every state's §168(k) position, in one place
Interactive map, sortable table, and deep-dive guide for each of the 51 jurisdictions — post-OBBBA verified.
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