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HB527 ENROLLED
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HB527
RBTICNY-3
By Representatives Lomax, Garrett, Rigsby, Crow, Robertson,
Rehm, Blackshear, Whitt, Paramore, Hulsey, Reynolds, Lovvorn,
Marques
RFD: Ways and Means Education
First Read: 26-Feb-26
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First Read: 26-Feb-26
Enrolled, An Act,
Relating to taxes; to amend Section 40-18-15, Code of
Alabama 1975, to establish an individual income tax deduction
for qualified overtime compensation equal to the amount of
qualified overtime compensation received during the taxable
year, not to exceed one thousand dollars ($1,000) per
taxpayer; to suspend the state portion of the sales and use
taxes on food for a two-month period; and to make
nonsubstantive, technical revisions to update existing code
language to current style.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Section 40-18-15, Code of Alabama 1975, is
amended to read as follows:
"§40-18-15
(a) No deduction shall be allowed for any losses,
expenses, or interest deferred or disallowed pursuant to 26
U.S.C. § 267 or for any cost required to be capitalized in
accordance with 26 U.S.C. § 263A; otherwise, there shall be
allowed as deductions:
(1) All ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, as determined in accordance with 26 U.S.C. § 162 .;
(2) Interest paid or accrued within the taxable year on
indebtedness, limited to the amount allowable as an interest
deduction for federal income tax purposes in the corresponding
tax year or period pursuant to the provisions of 26 U.S.C. §§
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tax year or period pursuant to the provisions of 26 U.S.C. §§
163, 264, and 265 .;
(3) The following taxes paid or accrued within the
taxable year:
a. Income taxes, Federal Insurance Contribution Act
taxes, taxes on self-employment income , and estate and gift
taxes imposed by authority of the United States or any
possession of the United States.
b. State and local, and foreign, occupational license
taxes, and contributions to state unemployment funds.
c. State and local, and foreign, real property taxes.
d. State and local personal property taxes.
e. The generation-skipping transfer (GST) tax imposed
on income distributions by 26 U.S.C. § 2601.
f. The taxes described in paragraphs c., d., and e.
shall be deductible only to the extent that the taxes are
deductible for federal income tax purposes under 26 U.S.C. §
164 (relating to taxes ).
g. In addition, there shall be allowed as a deduction,
state and local, and foreign taxes, except income taxes, and
taxes imposed by authority of the United States or any
possession of the United States, which are paid or accrued
within the taxable year in carrying on a trade or business or
an activity described in 26 U.S.C. § 212 (relating to expenses
for the production of income ).
h. Notwithstanding paragraph g., any tax described in
any paragraph preceding paragraph g. that is paid or accrued
in connection with an acquisition or disposition of property
shall be treated as part of the cost of the acquired property
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shall be treated as part of the cost of the acquired property
or, in the case of a disposition, as a reduction in the amount
realized on the disposition of that property .;
(4) Losses sustained during the taxable year and not
compensated for by insurance or otherwise if incurred in a
trade or business, in accordance with 26 U.S.C. § 165(c)(1) .;
(5) Losses sustained during the taxable year and not
compensated for by insurance or otherwise, if incurred in any
transaction entered into for profit, though not connected with
the trade or business in accordance with 26 U.S.C. §
165(c)(2); but, in the case of a taxpayer other than a
resident of the state, only as to those transactions within
the state .;
(6) Casualty and theft losses sustained during the
taxable year of property not connected with the conduct of a
trade or business or a transaction entered into for profit as
determined in accordance with subsections (c)(3) and (h) of 26
U.S.C. § 165 (c)(3) and (h) . In the case of a nonresident, the
deduction shall be allowed only for the losses arising from
property located within the State of Alabama and the
limitations in 26 U.S.C. § 165 shall be applied with regard
only to the taxpayer's Alabama adjusted gross income. No loss
shall be allowed if at the time of filing the return, the loss
has been claimed on a federal estate tax return .;
(7) Losses from debts ascertained to be worthless and
charged off during the taxable year of ascertainment, if
sustained in the conduct of the regular trade or business of
the taxpayer .;
(8) A reasonable allowance for the exhaustion, wear ,
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(8) A reasonable allowance for the exhaustion, wear ,
and tear of property from which any income is derived,
including a reasonable allowance for obsolescence, in
accordance with 26 U.S.C. §§ 167 and 168, and an allowance for
the amortization of intangibles determined in accordance with
26 U.S.C. § 197 .;
(9) In the case of mines, oil, and gas wells, other
natural deposits and timber, a reasonable allowance for
depletion and for depreciation of improvements, according to
the peculiar condition in each case based upon the cost,
including the cost of development not otherwise deducted, such
reasonable allowance in all cases to be made under rules and
regulations to be prescribed by the Department of Revenue;
and, in the case of leasehold interests, the deduction allowed
by this section shall be equitably apportioned between the
lessor and the lessee .;
(10) Charitable contributions to the extent allowed for
federal income tax purposes under 26 U.S.C. § 170 (relating to
charitable contributions and gifts) .;
(11) The deduction allowed to the individual for
federal income tax purposes by 26 U.S.C. § 219 (relating to
retirement savings) .;
(12) The deduction allowed for federal income tax
purposes by 26 U.S.C. § 404 (relating to qualified pension,
profit sharing, stock bonus, and annuity plans).
(13) For each individual income taxpayer, medical and
dental expenses, including amounts paid for medicine and drugs
and amounts paid for accident and health insurance, as
determined in accordance with 26 U.S.C. § 213 ;, provided ,
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determined in accordance with 26 U.S.C. § 213 ;, provided ,
however, that the limitation of the deduction to the excess of
those expenses over 7.5 percent of adjusted gross income as
provided in 26 U.S.C. § 213 shall instead be limited to the
excess of those expenses over 4.0 percent of adjusted gross
income .;
(14) For each individual income taxpayer, the deduction
determined in accordance with 26 U.S.C. § 212 for all the
ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income, or
for the management, conservation, or maintenance of property
held for the production of income, or in connection with the
determination, collection, or refund of any tax .;
(15) Any expense not exceeding one thousand dollars
($1,000 ) actually incurred during the taxable year in
constructing on his or her property a family radioactive
fallout shelter, as approved and certified by the State
Department of Emergency Management, and any amount not
exceeding one thousand dollars ( $1,000 ) which he or she
contributed during the taxable year toward the construction of
a community radioactive fallout shelter .;
(16) A deduction from the taxpayer's adjusted gross
income for state income tax purposes of the total cost of
installation for conversion from gas or electricity to wood as
the primary energy source for heating their individual
domestic homes for the taxable year during which a conversion
was completed .;
(17) Alimony and separate maintenance payments, the
amount deductible to be the same as the amount deductible for
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amount deductible to be the same as the amount deductible for
federal income tax purposes under 26 U.S.C. § 215 (relating to
alimony payments ).;
(18) Moving expenses paid or incurred during the
taxable year as allowed under 26 U.S.C. § 217 (relating to
moving expenses). However, in applying 26 U.S.C. § 217, the
term "new principal place of work" means only places of work
located within the State of Alabama .;
(19) Any expense not exceeding thirty-five thousand
dollars ( $35,000 ) actually incurred during the taxable year in
removing from his or her property any architectural or
transportation barriers to handicapped persons with
nonambulatory and semiambulatory disabilities ;, provided ,
however, that any improvements resulting from that expense
shall not be eligible to be capitalized for depreciation .;
(20) Notwithstanding subdivision (1), the deduction for
expenses of travel, entertainment, and meals shall be
determined in accordance with 26 U.S.C. § 274 .;
(21) The deduction allowed by 26 U.S.C. § 179 (relating
to expensing certain depreciable property ), provided that no
deduction shall be allowed under subdivision (8) for any
amount allowed as a deduction under this subdivision .;
(22) The deduction allowed by 26 U.S.C. § 195 (relating
to amortization of start-up expenditures ), but in the case of
a nonresident, only if the principal place of business of the
business investigated, created, or acquired is located in the
State of Alabama .;
(23) The deduction allowed by subdivision (1), to the
extent that it consists of unreimbursed employee business
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extent that it consists of unreimbursed employee business
expenses, and the deduction allowed by subdivision (14) shall
be allowed only to the extent that the aggregate of the
deductions exceeds 2 percent of adjusted gross income .;
(24) The reasonable medical and legal expenses paid or
incurred by the taxpayer in connection with the adoption of a
minor. For purposes of this subdivision, medical expenses
shall include any medical and hospital expenses of the adoptee
and the adoptee's biological mother which are incident to the
adoptee's birth and subsequent medical care and which, in the
case of the adoptee, are paid or incurred before the petition
is granted .;
(25) The amount of any aid or assistance, whether in
the form of property, services, or monies, provided to the
State Industrial Development Authority pursuant to Section
41-10-44.8(d) in order to induce an approved company to
undertake a major project within the state .;
(26) The amount of premiums paid pursuant to a
qualifying insurance contract for qualified long-term care
coverage .;
(27) The amount deductible by the taxpayer in
accordance with 26 U.S.C. § 162(h) .;
(28) The amount, up to five thousand dollars ($5,000)
per annum, contributed subsequent to December 31, 2007, to the
Alabama Prepaid Affordable College Tuition Program or the
Alabama College Education Savings Program as defined in
Chapter 33C of Title 16. If the taxpayer makes a nonqualified
withdrawal as defined by Section 529 of the Internal Revenue
Code ( 26 U.S.C. § 529), the amount of the nonqualified
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Code ( 26 U.S.C. § 529), the amount of the nonqualified
withdrawal, plus 10 percent of the amount withdrawn, shall be
added back to the income of the contributing taxpayer in the
year the nonqualified withdrawal was distributed .; and
(29) For tax years beginning on and after January 1,
2026, and ending December 31, 2028, qualified overtime
compensation received during the taxable year, not to exceed
one thousand dollars ($1,000) per taxpayer. For purposes of
this deduction, qualified overtime compensation shall be
defined and calculated pursuant to the provisions of 26 U.S.C.
§ 225. An individual taxpayer shall be allowed the deduction
for qualified overtime compensation, regardless of whether the
taxpayer itemizes income tax deductions in calculating the
income tax imposed pursuant to Section 40-18-5.
(b)(1) In lieu of the deductions allowable to
individual taxpayers, as provided in subdivision (a)(1) of
subsection (a) to the extent of unreimbursed employee business
expenses, and as provided in subdivisions (a)(2), (3), (5),
(6), (10), (13), (14), (15), (16), (19), (22), and (26) of
subsection (a) , the taxpayer may elect to take the optional
standard deduction of 20 percent of the adjusted gross income
or two thousand dollars ( $2,000 ), whichever is the lesser.
Taxpayers filing jointly as defined in Section 40-18-27 may
elect to take the optional standard deduction of 20 percent of
the adjusted gross income or four thousand dollars ( $4,000 ),
whichever is the lesser.
(2) For tax years beginning after December 31, 2006,
the optional standard deduction shall be determined as
follows:
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follows:
a. The standard deduction for married taxpayers filing
jointly with adjusted gross income of twenty thousand dollars
($20,000 ) or less shall be seven thousand five hundred dollars
($7,500 ). For married taxpayers filing jointly with adjusted
gross income of greater than twenty thousand dollars
($20,000 ), the standard deduction shall be reduced by one
hundred seventy-five dollars ( $175) for each five hundred
dollars ( $500) of adjusted gross income in excess of twenty
thousand dollars ( $20,000 ). Notwithstanding the preceding
sentence, the standard deduction shall not be less than four
thousand dollars ( $4,000 ) for married taxpayers filing
jointly.
b. The standard deduction for married taxpayers filing
separate returns with adjusted gross income of ten thousand
dollars ( $10,000 ) or less shall be three thousand seven
hundred fifty dollars ( $3,750 ). For married taxpayers filing
separate returns with adjusted gross income of greater than
ten thousand dollars ( $10,000 ), the standard deduction shall
be reduced by eighty-eight dollars ( $88) for each two hundred
fifty dollars ( $250) of adjusted gross income in excess of ten
thousand dollars ( $10,000 ). Notwithstanding the preceding
sentence, the standard deduction shall not be less than two
thousand dollars ( $2,000 ) for married taxpayers filing
separate returns.
c. The standard deduction for head of family taxpayers
with adjusted gross income of twenty thousand dollars
($20,000 ) or less shall be four thousand seven hundred dollars
($4,700 ). For head of family taxpayers with adjusted gross
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($4,700 ). For head of family taxpayers with adjusted gross
income of greater than twenty thousand dollars ( $20,000 ), the
standard deduction shall be reduced by one hundred thirty-five
dollars ( $135) for each five hundred dollars ( $500) of
adjusted gross income in excess of twenty thousand dollars
($20,000 ). Notwithstanding the preceding sentence, the
standard deduction shall not be less than two thousand dollars
($2,000 ) for head of family taxpayers.
d. The standard deduction for single taxpayers with
adjusted gross income of twenty thousand dollars ( $20,000 ) or
less shall be two thousand five hundred dollars ( $2,500 ). For
single taxpayers with adjusted gross income of greater than
twenty thousand dollars ( $20,000 ), the standard deduction
shall be reduced by twenty-five dollars ( $25) for each five
hundred dollars ( $500) of adjusted gross income in excess of
twenty thousand dollars ( $20,000 ). Notwithstanding the
preceding sentence, the standard deduction shall not be less
than two thousand dollars ( $2,000 ) for single taxpayers.
(3) For tax years beginning after December 31, 2018,
the optional standard deduction shall be determined as
follows:
a. The standard deduction for married taxpayers filing
jointly with adjusted gross income of less than twenty-three
thousand dollars ( $23,000 ) shall be seven thousand five
hundred dollars ( $7,500 ). For married taxpayers filing
jointly, the standard deduction shall be reduced further by
one hundred seventy-five dollars ( $175) for each five hundred
dollars ( $500) of adjusted gross income in excess of
twenty-three thousand dollars ( $23,000 ). Notwithstanding the
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twenty-three thousand dollars ( $23,000 ). Notwithstanding the
preceding sentence, the standard deduction shall not be less
than four thousand dollars ( $4,000 ) for married taxpayers
filing jointly.
b. The standard deduction for married taxpayers filing
separate returns with adjusted gross income of less than ten
thousand five hundred dollars ( $10,500 ) shall be three
thousand seven hundred fifty dollars ( $3,750 ). For married
taxpayers filing separate returns, the standard deduction
shall be reduced further by eighty-eight dollars ( $88) for
each two hundred fifty dollars ( $250) of adjusted gross income
in excess of ten thousand five hundred dollars ( $10,500 ).
Notwithstanding the preceding sentence, the standard deduction
shall not be less than two thousand dollars ( $2,000 ) for
married taxpayers filing separate returns.
c. The standard deduction for head of family taxpayers
with adjusted gross income of less than twenty-three thousand
dollars ( $23,000 ) shall be four thousand seven hundred dollars
($4,700 ). For head of family taxpayers, the standard deduction
shall be reduced further by one hundred thirty-five dollars
($135) for each five hundred dollars ( $500) of adjusted gross
income in excess of twenty-three thousand dollars ( $23,000 ).
Notwithstanding the preceding sentence, the standard deduction
shall not be less than two thousand dollars ( $2,000 ) for head
of family taxpayers.
d. The standard deduction for single taxpayers with
adjusted gross income of less than twenty-three thousand
dollars ( $23,000 ) shall be two thousand five hundred dollars
($2,500 ). For single taxpayers, the standard deduction shall
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($2,500 ). For single taxpayers, the standard deduction shall
be reduced further by twenty-five dollars ( $25) for each five
hundred dollars ( $500) of adjusted gross income in excess of
twenty-three thousand dollars ( $23,000 ). Notwithstanding the
preceding sentence, the standard deduction shall not be less
than two thousand dollars ( $2,000 ) for single taxpayers.
(4) For tax years beginning after December 31, 2021,
the optional standard deduction shall be determined as
follows:
a. The standard deduction for married taxpayers filing
jointly with adjusted gross income of less than twenty-five
thousand five hundred dollars ($25,500) shall be eight
thousand five hundred dollars ($8,500). For married taxpayers
filing jointly, the standard deduction shall be reduced
further by one hundred seventy-five dollars ($175) for each
five hundred dollars ($500) of adjusted gross income in excess
of twenty-five thousand five hundred dollars ($25,500).
Notwithstanding the preceding sentence, the standard deduction
shall not be less than five thousand dollars ($5,000) for
married taxpayers filing jointly.
b. The standard deduction for married taxpayers filing
separate returns with adjusted gross income of less than
twelve thousand seven hundred fifty dollars ($12,750) shall be
four thousand two hundred fifty dollars ($4,250). For married
taxpayers filing separate returns, the standard deduction
shall be reduced further by eighty-eight dollars ($88) for
each two hundred fifty dollars ($250) of adjusted gross income
in excess of twelve thousand seven hundred fifty dollars
($12,750). Notwithstanding the preceding sentence, the
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($12,750). Notwithstanding the preceding sentence, the
standard deduction shall not be less than two thousand five
hundred dollars ($2,500) for married taxpayers filing separate
returns.
c. The standard deduction for head of family taxpayers
with adjusted gross income of less than twenty-five thousand
five hundred dollars ($25,500) shall be five thousand two
hundred dollars ($5,200). For head of family taxpayers, the
standard deduction shall be reduced further by one hundred
thirty-five dollars ($135) for each five hundred dollars
($500) of adjusted gross income in excess of twenty-five
thousand five hundred dollars ($25,500). Notwithstanding the
preceding sentence, the standard deduction shall not be less
than two thousand five hundred dollars ($2,500) for head of
family taxpayers.
d. The standard deduction for single taxpayers with
adjusted gross income of less than twenty-five thousand five
hundred dollars ($25,500) shall be three thousand dollars
($3,000). For single taxpayers, the standard deduction shall
be reduced further by twenty-five dollars ($25) for each five
hundred dollars ($500) of adjusted gross income in excess of
twenty-five thousand five hundred dollars ($25,500).
Notwithstanding the preceding sentence, the standard deduction
shall not be less than two thousand five hundred dollars
($2,500) for single taxpayers.
(c) A deduction is allowable for the amount of federal
income tax paid or accrued within the taxable year. In the
case of a nonresident taxpayer, the amount of federal income
tax deductible to Alabama shall be determined by the ratio
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tax deductible to Alabama shall be determined by the ratio
that the amount of adjusted gross income received from sources
within the State of Alabama bears to the amount of adjusted
gross income received from sources within and outside the
State of Alabama.
(d) If separate returns are filed by husband and wife
and one spouse elects to claim the optional standard
deduction, the other spouse must also claim the optional
standard deduction, unless, for the tax returns filed for the
2014 and subsequent tax years, the spouses have lived apart
for the entire year. In this case, each spouse may claim
either the optional standard deduction or itemized deductions.
Neither spouse may claim a deduction for expenses paid by the
other spouse.
(e) In the case of a nonresident individual:
(1) The deductions allowed in subdivisions (a)(1), (2),
(3), (4), (5), (7), (8), (9), (11), (12), (19), (21), (23),
and (25) of subsection (a) shall be allowed only to the extent
that they are paid or incurred in carrying on a trade or
business within the State of Alabama and the deduction allowed
by Section 40-18-15.2 shall be allowed only to the extent it
arose from a trade or business carried on in Alabama .;
(2) The deductions allowed by subdivisions (a)(2), (3),
(5), (8), (9), (14), and (19) of subsection (a) shall be
allowed only to the extent arising from property located in
Alabama or transactions producing income that is subject to
tax in the State of Alabama .; and
(3) The amount of the deductions allowed by
subdivisions (a)(2), (3), (6), (10), (13), (15), (16), (17),
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subdivisions (a)(2), (3), (6), (10), (13), (15), (16), (17),
(19), (24), and (26) of subsection (a) (and not allowed by
subdivisions (1) or (2) of this subsection ), or by subsection
(b) if the taxpayer elects the standard deduction, shall be
limited to the amount determined by multiplying the total of
such deductions by a fraction, the numerator of which is the
taxpayer's adjusted gross income determined using the rules
provided in subdivisions (1) and (2) of this subsection and
the denominator of which is the taxpayer's adjusted gross
income determined under Section 40-18-14.2. The deduction
allowed in subdivision (a)(17) of subsection (a) shall not be
subtracted in calculating either the numerator or denominator
in the previous sentence.
(f) Nothing in this section shall allow any item to be
deducted more than once."
Section 2. (a) Notwithstanding any other provision of
law to the contrary, for the period beginning May 1, 2026
through June 30, 2026, the state portion of the sales and use
taxes on food levied pursuant to Sections 40-23-2(6) and
40-23-61(d), Code of Alabama 1975, shall be suspended.
(b) The Department of Revenue may adopt rules to
implement this section.
Section 3. Section 1 of this act shall become effective
on October 1, 2026. Section 2 of this act shall become
effective immediately.
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effective immediately.
________________________________________________
Speaker of the House of Representatives
________________________________________________
President and Presiding Officer of the Senate
House of Representatives
I hereby certify that the within Act originated in and
was passed by the House 31-Mar-26, as amended.
John Treadwell
Clerk
Senate 08-Apr-26 Passed
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