Alabama 2025 Regular Session

Alabama House Bill HB389 Compare Versions

Only one version of the bill is available at this time.

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1	1	HB389INTRODUCED
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3	3	HB389
4	4	1BAC3LL-1
5	5	By Representatives Garrett, Stadthagen, Colvin, Brinyark,
6	6	Kirkland, Marques, Rehm, Sorrells, Whorton, Paschal, Smith,
7	7	Butler, Moore (P), Shaw, Estes, Robertson, Wilcox, Lipscomb,
8	8	Harrison, Hammett, Pettus, Easterbrook, Stubbs, Starnes,
9	9	Standridge, Carns, Holk-Jones, Givens, Underwood, Mooney,
10	10	Ingram, Ross, Baker, Sells, Treadaway, Rigsby, Yarbrough,
11	11	Woods, DuBose, Lovvorn, Fidler, Lamb, Shirey, Gidley, Hulsey,
12	12	Lomax, Ledbetter, Hurst, Kiel
13	13	RFD: Ways and Means Education
14	14	First Read: 05-Mar-25
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26	26	12 1BAC3LL-1 02/25/2025 KHF (F)KHF 2025-81
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28	28	First Read: 05-Mar-25
29	29	SYNOPSIS:
30	30	Under current law, the state levies an income
31	31	tax upon all residents of the state and upon all
32	32	nonresidents who receive income from Alabama sources.
33	33	Taxpayers are allowed an optional standard deduction,
34	34	as well as dependent exemptions in computing income
35	35	subject to the tax.
36	36	This bill would increase the optional standard
37	37	deduction and expand the adjusted gross income range
38	38	allowable for the maximum optional standard deduction
39	39	and the dependent exemption to increase the threshold
40	40	at which the state imposes individual income
41	41	taxes.
42	42	A BILL
43	43	TO BE ENTITLED
44	44	AN ACT
45	45	Relating to income taxes; to amend Sections 40-18-15
46	46	and 40-18-19, Code of Alabama 1975, to increase the optional
47	47	standard deduction and expand the adjusted gross income range
48	48	allowable for the maximum optional standard deduction; and to
49	49	expand the adjusted gross income range allowable for the
50	50	maximum dependent exemption.
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80	80	maximum dependent exemption.
81	81	BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
82	82	Section 1. Sections 40-18-15 and 40-18-19, Code of
83	83	Alabama 1975, are hereby amended as follows:
84	84	"§40-18-15
85	85	(a) No deduction shall be allowed for any losses,
86	86	expenses, or interest deferred or disallowed pursuant to 26
87	87	U.S.C. § 267 or for any cost required to be capitalized in
88	88	accordance with 26 U.S.C. § 263A; otherwise, there shall be
89	89	allowed as deductions:
90	90	(1) All ordinary and necessary expenses paid or
91	91	incurred during the taxable year in carrying on any trade or
92	92	business, as determined in accordance with 26 U.S.C. § 162.
93	93	(2) Interest paid or accrued within the taxable year on
94	94	indebtedness, limited to the amount allowable as an interest
95	95	deduction for federal income tax purposes in the corresponding
96	96	tax year or period pursuant to the provisions of 26 U.S.C. §§
97	97	163, 264, and 265.
98	98	(3) The following taxes paid or accrued within the
99	99	taxable year:
100	100	a. Income taxes, Federal Insurance Contribution Act
101	101	taxes, taxes on self-employment income , and estate and gift
102	102	taxes imposed by authority of the United States or any
103	103	possession of the United States.
104	104	b. State and local, and foreign, occupational license
105	105	taxes, and contributions to state unemployment funds.
106	106	c. State and local, and foreign, real property taxes.
107	107	d. State and local personal property taxes.
108	108	e. The generation-skipping transfer (GST) tax imposed
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138	138	e. The generation-skipping transfer (GST) tax imposed
139	139	on income distributions by 26 U.S.C. § 2601.
140	140	f. The taxes described in paragraphs c., d., and e.
141	141	shall be deductible only to the extent that the taxes are
142	142	deductible for federal income tax purposes under 26 U.S.C. §
143	143	164 (relating to taxes).
144	144	g. In addition, there shall be allowed as a deduction,
145	145	state and local, and foreign taxes, except income taxes, and
146	146	taxes imposed by authority of the United States or any
147	147	possession of the United States, which are paid or accrued
148	148	within the taxable year in carrying on a trade or business or
149	149	an activity described in 26 U.S.C. § 212 (relating to expenses
150	150	for the production of income).
151	151	h. Notwithstanding paragraph g., any tax described in
152	152	any paragraph preceding paragraph g. that is paid or accrued
153	153	in connection with an acquisition or disposition of property
154	154	shall be treated as part of the cost of the acquired property
155	155	or, in the case of a disposition, as a reduction in the amount
156	156	realized on the disposition of that property.
157	157	(4) Losses sustained during the taxable year and not
158	158	compensated for by insurance or otherwise if incurred in a
159	159	trade or business, in accordance with 26 U.S.C. § 165(c)(1).
160	160	(5) Losses sustained during the taxable year and not
161	161	compensated for by insurance or otherwise, if incurred in any
162	162	transaction entered into for profit, though not connected with
163	163	the trade or business in accordance with 26 U.S.C. §
164	164	165(c)(2); but, in the case of a taxpayer other than a
165	165	resident of the state, only as to those transactions within
166	166	the state.
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196	196	the state.
197	197	(6) Casualty and theft losses sustained during the
198	198	taxable year of property not connected with the conduct of a
199	199	trade or business or a transaction entered into for profit as
200	200	determined in accordance with subsections (c)(3) and (h) of 26
201	201	U.S.C. § 165. In the case of a nonresident, the deduction
202	202	shall be allowed only for the losses arising from property
203	203	located within the State of Alabama and the limitations in 26
204	204	U.S.C. § 165 shall be applied with regard only to the
205	205	taxpayer's Alabama adjusted gross income. No loss shall be
206	206	allowed if at the time of filing the return, the loss has been
207	207	claimed on a federal estate tax return.
208	208	(7) Losses from debts ascertained to be worthless and
209	209	charged off during the taxable year of ascertainment, if
210	210	sustained in the conduct of the regular trade or business of
211	211	the taxpayer.
212	212	(8) A reasonable allowance for the exhaustion, wear and
213	213	tear of property from which any income is derived, including a
214	214	reasonable allowance for obsolescence, in accordance with 26
215	215	U.S.C. §§ 167 and 168, and an allowance for the amortization
216	216	of intangibles determined in accordance with 26 U.S.C. § 197.
217	217	(9) In the case of mines, oil, and gas wells, other
218	218	natural deposits and timber, a reasonable allowance for
219	219	depletion and for depreciation of improvements, according to
220	220	the peculiar condition in each case based upon the cost,
221	221	including the cost of development not otherwise deducted, such
222	222	reasonable allowance in all cases to be made under rules and
223	223	regulations to be prescribed by the Department of Revenue;
224	224	and, in the case of leasehold interests, the deduction allowed
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254	254	and, in the case of leasehold interests, the deduction allowed
255	255	by this section shall be equitably apportioned between the
256	256	lessor and the lessee.
257	257	(10) Charitable contributions to the extent allowed for
258	258	federal income tax purposes under 26 U.S.C. § 170 (relating to
259	259	charitable contributions and gifts).
260	260	(11) The deduction allowed to the individual for
261	261	federal income tax purposes by 26 U.S.C. § 219 (relating to
262	262	retirement savings).
263	263	(12) The deduction allowed for federal income tax
264	264	purposes by 26 U.S.C. § 404 (relating to qualified pension,
265	265	profit sharing, stock bonus, and annuity plans).
266	266	(13) For each individual income taxpayer, medical and
267	267	dental expenses, including amounts paid for medicine and drugs
268	268	and amounts paid for accident and health insurance, as
269	269	determined in accordance with 26 U.S.C. § 213; provided,
270	270	however, that the limitation of the deduction to the excess of
271	271	those expenses over 7.5 percent of adjusted gross income as
272	272	provided in 26 U.S.C. § 213 shall instead be limited to the
273	273	excess of those expenses over 4.0four percent of adjusted
274	274	gross income.
275	275	(14) For each individual income taxpayer, the deduction
276	276	determined in accordance with 26 U.S.C. § 212 for all the
277	277	ordinary and necessary expenses paid or incurred during the
278	278	taxable year for the production or collection of income, or
279	279	for the management, conservation, or maintenance of property
280	280	held for the production of income, or in connection with the
281	281	determination, collection, or refund of any tax.
282	282	(15) Any expense not exceeding $1,000 actually incurred
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312	312	(15) Any expense not exceeding $1,000 actually incurred
313	313	during the taxable year in constructing on his or her property
314	314	a family radioactive fallout shelter, as approved and
315	315	certified by the State Department of Emergency Management, and
316	316	any amount not exceeding $1,000 which he or she contributed
317	317	during the taxable year toward the construction of a community
318	318	radioactive fallout shelter.
319	319	(16) A deduction from the taxpayer's adjusted gross
320	320	income for state income tax purposes of the total cost of
321	321	installation for conversion from gas or electricity to wood as
322	322	the primary energy source for heating their individual
323	323	domestic homes for the taxable year during which a conversion
324	324	was completed.
325	325	(17) Alimony and separate maintenance payments, the
326	326	amount deductible to be the same as the amount deductible for
327	327	federal income tax purposes under 26 U.S.C. § 215 (relating to
328	328	alimony payments).
329	329	(18) Moving expenses paid or incurred during the
330	330	taxable year as allowed under 26 U.S.C. § 217 (relating to
331	331	moving expenses). However, in applying 26 U.S.C. § 217, the
332	332	term "new principal place of work" means only places of work
333	333	located within the State of Alabama.
334	334	(19) Any expense not exceeding $35,000 actually
335	335	incurred during the taxable year in removing from his or her
336	336	property any architectural or transportation barriers to
337	337	handicapped persons with nonambulatory and semiambulatory
338	338	disabilities; provided, however, that any improvements
339	339	resulting from that expense shall not be eligible to be
340	340	capitalized for depreciation.
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370	370	capitalized for depreciation.
371	371	(20) Notwithstanding subdivision (1), the deduction for
372	372	expenses of travel, entertainment, and meals shall be
373	373	determined in accordance with 26 U.S.C. § 274.
374	374	(21) The deduction allowed by 26 U.S.C. § 179 (relating
375	375	to expensing certain depreciable property), provided that no
376	376	deduction shall be allowed under subdivision (8) for any
377	377	amount allowed as a deduction under this subdivision.
378	378	(22) The deduction allowed by 26 U.S.C. § 195 (relating
379	379	to amortization of start-up expenditures), but in the case of
380	380	a nonresident, only if the principal place of business of the
381	381	business investigated, created, or acquired is located in the
382	382	State of Alabama.
383	383	(23) The deduction allowed by subdivision (1), to the
384	384	extent that it consists of unreimbursed employee business
385	385	expenses, and the deduction allowed by subdivision (14) shall
386	386	be allowed only to the extent that the aggregate of the
387	387	deductions exceeds 2two percent of adjusted gross income.
388	388	(24) The reasonable medical and legal expenses paid or
389	389	incurred by the taxpayer in connection with the adoption of a
390	390	minor. For purposes of this subdivision, medical expenses
391	391	shall include any medical and hospital expenses of the adoptee
392	392	and the adoptee's biological mother which are incident to the
393	393	adoptee's birth and subsequent medical care and which, in the
394	394	case of the adoptee, are paid or incurred before the petition
395	395	is granted.
396	396	(25) The amount of any aid or assistance, whether in
397	397	the form of property, services, or monies, provided to the
398	398	State Industrial Development Authority pursuant to Section
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428	428	State Industrial Development Authority pursuant to Section
429	429	41-10-44.8(d) in order to induce an approved company to
430	430	undertake a major project within the state.
431	431	(26) The amount of premiums paid pursuant to a
432	432	qualifying insurance contract for qualified long-term care
433	433	coverage.
434	434	(27) The amount deductible by the taxpayer in
435	435	accordance with 26 U.S.C. § 162(h).
436	436	(28) The amount, up to five thousand dollars ($5,000)
437	437	per annum, contributed subsequent to December 31, 2007, to the
438	438	Alabama Prepaid Affordable College Tuition Program or the
439	439	Alabama College Education Savings Program as defined in
440	440	Chapter 33C of Title 16. If the taxpayer makes a nonqualified
441	441	withdrawal as defined by Section 529 of the Internal Revenue
442	442	Code (26 U.S.C. 529), the amount of the nonqualified
443	443	withdrawal, plus 10 percent of the amount withdrawn, shall be
444	444	added back to the income of the contributing taxpayer in the
445	445	year the nonqualified withdrawal was distributed.
446	446	(b)(1) In lieu of the deductions allowable to
447	447	individual taxpayers, as provided in subdivision (a)(1) of
448	448	subsection (a) to the extent of unreimbursed employee business
449	449	expenses, and as provided in subdivisions (2), (3), (5), (6),
450	450	(10), (13), (14), (15), (16), (19), (22), and (26) of
451	451	subsection (a), the taxpayer may elect to take the optional
452	452	standard deduction of 20 percent of the adjusted gross income
453	453	or $2,000, whichever is the lesser. Taxpayers filing jointly
454	454	as defined in Section 40-18-27 may elect to take the optional
455	455	standard deduction of 20 percent of the adjusted gross income
456	456	or $4,000, whichever is the lesser.
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486	486	or $4,000, whichever is the lesser.
487	487	(2) For tax years beginning after December 31, 2006,
488	488	the optional standard deduction shall be determined as
489	489	follows:
490	490	a. The standard deduction for married taxpayers filing
491	491	jointly with adjusted gross income of $20,000 or less shall be
492	492	$7,500. For married taxpayers filing jointly with adjusted
493	493	gross income of greater than $20,000, the standard deduction
494	494	shall be reduced by $175 for each $500 of adjusted gross
495	495	income in excess of $20,000. Notwithstanding the preceding
496	496	sentence, the standard deduction shall not be less than $4,000
497	497	for married taxpayers filing jointly.
498	498	b. The standard deduction for married taxpayers filing
499	499	separate returns with adjusted gross income of $10,000 or less
500	500	shall be $3,750. For married taxpayers filing separate returns
501	501	with adjusted gross income of greater than $10,000, the
502	502	standard deduction shall be reduced by $88 for each $250 of
503	503	adjusted gross income in excess of $10,000. Notwithstanding
504	504	the preceding sentence, the standard deduction shall not be
505	505	less than $2,000 for married taxpayers filing separate
506	506	returns.
507	507	c. The standard deduction for head of family taxpayers
508	508	with adjusted gross income of $20,000 or less shall be $4,700.
509	509	For head of family taxpayers with adjusted gross income of
510	510	greater than $20,000, the standard deduction shall be reduced
511	511	by $135 for each $500 of adjusted gross income in excess of
512	512	$20,000. Notwithstanding the preceding sentence, the standard
513	513	deduction shall not be less than $2,000 for head of family
514	514	taxpayers.
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544	544	taxpayers.
545	545	d. The standard deduction for single taxpayers with
546	546	adjusted gross income of $20,000 or less shall be $2,500. For
547	547	single taxpayers with adjusted gross income of greater than
548	548	$20,000, the standard deduction shall be reduced by $25 for
549	549	each $500 of adjusted gross income in excess of $20,000.
550	550	Notwithstanding the preceding sentence, the standard deduction
551	551	shall not be less than $2,000 for single taxpayers.
552	552	(3) For tax years beginning after December 31, 2018,
553	553	the optional standard deduction shall be determined as
554	554	follows:
555	555	a. The standard deduction for married taxpayers filing
556	556	jointly with adjusted gross income of less than $23,000 shall
557	557	be $7,500. For married taxpayers filing jointly, the standard
558	558	deduction shall be reduced further by $175 for each $500 of
559	559	adjusted gross income in excess of $23,000. Notwithstanding
560	560	the preceding sentence, the standard deduction shall not be
561	561	less than $4,000 for married taxpayers filing jointly.
562	562	b. The standard deduction for married taxpayers filing
563	563	separate returns with adjusted gross income of less than
564	564	$10,500 shall be $3,750. For married taxpayers filing separate
565	565	returns, the standard deduction shall be reduced further by
566	566	$88 for each $250 of adjusted gross income in excess of
567	567	$10,500. Notwithstanding the preceding sentence, the standard
568	568	deduction shall not be less than $2,000 for married taxpayers
569	569	filing separate returns.
570	570	c. The standard deduction for head of family taxpayers
571	571	with adjusted gross income of less than $23,000 shall be
572	572	$4,700. For head of family taxpayers, the standard deduction
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602	602	$4,700. For head of family taxpayers, the standard deduction
603	603	shall be reduced further by $135 for each $500 of adjusted
604	604	gross income in excess of $23,000. Notwithstanding the
605	605	preceding sentence, the standard deduction shall not be less
606	606	than $2,000 for head of family taxpayers.
607	607	d. The standard deduction for single taxpayers with
608	608	adjusted gross income of less than $23,000 shall be $2,500.
609	609	For single taxpayers, the standard deduction shall be reduced
610	610	further by $25 for each $500 of adjusted gross income in
611	611	excess of $23,000. Notwithstanding the preceding sentence, the
612	612	standard deduction shall not be less than $2,000 for single
613	613	taxpayers.
614	614	(4) For tax years beginning after December 31, 2021,
615	615	the optional standard deduction shall be determined as
616	616	follows:
617	617	a. The standard deduction for married taxpayers filing
618	618	jointly with adjusted gross income of less than twenty-five
619	619	thousand five hundred dollars ($25,500) shall be eight
620	620	thousand five hundred dollars ($8,500). For married taxpayers
621	621	filing jointly, the standard deduction shall be reduced
622	622	further by one hundred seventy-five dollars ($175) for each
623	623	five hundred dollars ($500) of adjusted gross income in excess
624	624	of twenty-five thousand five hundred dollars ($25,500).
625	625	Notwithstanding the preceding sentence, the standard deduction
626	626	shall not be less than five thousand dollars ($5,000) for
627	627	married taxpayers filing jointly.
628	628	b. The standard deduction for married taxpayers filing
629	629	separate returns with adjusted gross income of less than
630	630	twelve thousand seven hundred fifty dollars ($12,750) shall be
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656	656	306
657	657	307
658	658	308 HB389 INTRODUCED
659	659	Page 12
660	660	twelve thousand seven hundred fifty dollars ($12,750) shall be
661	661	four thousand two hundred fifty dollars ($4,250). For married
662	662	taxpayers filing separate returns, the standard deduction
663	663	shall be reduced further by eighty-eight dollars ($88) for
664	664	each two hundred fifty dollars ($250) of adjusted gross income
665	665	in excess of twelve thousand seven hundred fifty dollars
666	666	($12,750). Notwithstanding the preceding sentence, the
667	667	standard deduction shall not be less than two thousand five
668	668	hundred dollars ($2,500) for married taxpayers filing separate
669	669	returns.
670	670	c. The standard deduction for head of family taxpayers
671	671	with adjusted gross income of less than twenty-five thousand
672	672	five hundred dollars ($25,500) shall be five thousand two
673	673	hundred dollars ($5,200). For head of family taxpayers, the
674	674	standard deduction shall be reduced further by one hundred
675	675	thirty-five dollars ($135) for each five hundred dollars
676	676	($500) of adjusted gross income in excess of twenty-five
677	677	thousand five hundred dollars ($25,500). Notwithstanding the
678	678	preceding sentence, the standard deduction shall not be less
679	679	than two thousand five hundred dollars ($2,500) for head of
680	680	family taxpayers.
681	681	d. The standard deduction for single taxpayers with
682	682	adjusted gross income of less than twenty-five thousand five
683	683	hundred dollars ($25,500) shall be three thousand dollars
684	684	($3,000). For single taxpayers, the standard deduction shall
685	685	be reduced further by twenty-five dollars ($25) for each five
686	686	hundred dollars ($500) of adjusted gross income in excess of
687	687	twenty-five thousand five hundred dollars ($25,500).
688	688	Notwithstanding the preceding sentence, the standard deduction
689	689	309
690	690	310
691	691	311
692	692	312
693	693	313
694	694	314
695	695	315
696	696	316
697	697	317
698	698	318
699	699	319
700	700	320
701	701	321
702	702	322
703	703	323
704	704	324
705	705	325
706	706	326
707	707	327
708	708	328
709	709	329
710	710	330
711	711	331
712	712	332
713	713	333
714	714	334
715	715	335
716	716	336 HB389 INTRODUCED
717	717	Page 13
718	718	Notwithstanding the preceding sentence, the standard deduction
719	719	shall not be less than two thousand five hundred dollars
720	720	($2,500) for single taxpayers.
721	721	(5) For tax years beginning after December 31, 2025,
722	722	the optional standard deduction shall be determined as
723	723	follows:
724	724	a. The standard deduction for married taxpayers filing
725	725	jointly with adjusted gross income of less than twenty-eight
726	726	thousand dollars ($28,000) shall be nine thousand five hundred
727	727	dollars ($9,500). For married taxpayers filing jointly, the
728	728	standard deduction shall be reduced further by one hundred
729	729	seventy-five dollars ($175) for each five hundred dollars
730	730	($500) of adjusted gross income in excess of twenty-eight
731	731	thousand dollars ($28,000). Notwithstanding the preceding
732	732	sentence, the standard deduction shall not be less than six
733	733	thousand dollars ($6,000) for married taxpayers filing
734	734	jointly.
735	735	b. The standard deduction for married taxpayers filing
736	736	separate returns with adjusted gross income of less than
737	737	fourteen thousand dollars ($14,000) shall be four thousand
738	738	seven hundred fifty dollars ($4,750). For married taxpayers
739	739	filing separate returns, the standard deduction shall be
740	740	reduced further by eighty-eight dollars ($88) for each two
741	741	hundred fifty dollars ($250) of adjusted gross income in
742	742	excess of fourteen thousand dollars ($14,000). Notwithstanding
743	743	the preceding sentence, the standard deduction shall not be
744	744	less than three thousand dollars ($3,000) for married
745	745	taxpayers filing separate returns.
746	746	c. The standard deduction for head of family taxpayers
747	747	337
748	748	338
749	749	339
750	750	340
751	751	341
752	752	342
753	753	343
754	754	344
755	755	345
756	756	346
757	757	347
758	758	348
759	759	349
760	760	350
761	761	351
762	762	352
763	763	353
764	764	354
765	765	355
766	766	356
767	767	357
768	768	358
769	769	359
770	770	360
771	771	361
772	772	362
773	773	363
774	774	364 HB389 INTRODUCED
775	775	Page 14
776	776	c. The standard deduction for head of family taxpayers
777	777	with adjusted gross income of less than twenty-eight thousand
778	778	dollars ($28,000) shall be five thousand seven hundred dollars
779	779	($5,700). For head of family taxpayers, the standard deduction
780	780	shall be reduced further by one hundred thirty-five dollars
781	781	($135) for each five hundred dollars ($500) of adjusted gross
782	782	income in excess of twenty-eight thousand dollars ($28,000).
783	783	Notwithstanding the preceding sentence, the standard deduction
784	784	shall not be less than three thousand dollars ($3,000) for
785	785	head of family taxpayers.
786	786	d. The standard deduction for single taxpayers with
787	787	adjusted gross income of less than twenty-eight thousand
788	788	hundred dollars ($28,000) shall be three thousand five hundred
789	789	dollars ($3,500). For single taxpayers, the standard deduction
790	790	shall be reduced further by twenty-five dollars ($25) for each
791	791	five hundred dollars ($500) of adjusted gross income in excess
792	792	of twenty-eight thousand dollars ($28,000). Notwithstanding
793	793	the preceding sentence, the standard deduction shall not be
794	794	less than three thousand dollars ($3,000) for single
795	795	taxpayers.
796	796	(c) A deduction is allowable for the amount of federal
797	797	income tax paid or accrued within the taxable year. In the
798	798	case of a nonresident taxpayer, the amount of federal income
799	799	tax deductible to Alabama shall be determined by the ratio
800	800	that the amount of adjusted gross income received from sources
801	801	within the State of Alabama bears to the amount of adjusted
802	802	gross income received from sources within and outside the
803	803	State of Alabama.
804	804	(d) If separate returns are filed by husband and wife
805	805	365
806	806	366
807	807	367
808	808	368
809	809	369
810	810	370
811	811	371
812	812	372
813	813	373
814	814	374
815	815	375
816	816	376
817	817	377
818	818	378
819	819	379
820	820	380
821	821	381
822	822	382
823	823	383
824	824	384
825	825	385
826	826	386
827	827	387
828	828	388
829	829	389
830	830	390
831	831	391
832	832	392 HB389 INTRODUCED
833	833	Page 15
834	834	(d) If separate returns are filed by husband and wife
835	835	and one spouse elects to claim the optional standard
836	836	deduction, the other spouse must also claim the optional
837	837	standard deduction, unless, for the tax returns filed for the
838	838	2014 and subsequent tax years, the spouses have lived apart
839	839	for the entire year. In this case, each spouse may claim
840	840	either the optional standard deduction or itemized deductions.
841	841	Neither spouse may claim a deduction for expenses paid by the
842	842	other spouse.
843	843	(e) In the case of a nonresident individual:
844	844	(1) The deductions allowed in subdivisions (1), (2),
845	845	(3), (4), (5), (7), (8), (9), (11), (12), (19), (21), (23),
846	846	and (25) of subsection (a) shall be allowed only to the extent
847	847	that they are paid or incurred in carrying on a trade or
848	848	business within the State of Alabama and the deduction allowed
849	849	by Section 40-18-15.2 shall be allowed only to the extent it
850	850	arose from a trade or business carried on in Alabama.
851	851	(2) The deductions allowed by subdivisions (2), (3),
852	852	(5), (8), (9), (14), and (19) of subsection (a) shall be
853	853	allowed only to the extent arising from property located in
854	854	Alabama or transactions producing income that is subject to
855	855	tax in the State of Alabama.
856	856	(3) The amount of the deductions allowed by
857	857	subdivisions (2), (3), (6), (10), (13), (15), (16), (17),
858	858	(19), (24), and (26) of subsection (a) ,(and not allowed by
859	859	subdivisions (1) or (2) of this subsection ), or by subsection
860	860	(b) if the taxpayer elects the standard deduction, shall be
861	861	limited to the amount determined by multiplying the total of
862	862	such deductions by a fraction, the numerator of which is the
863	863	393
864	864	394
865	865	395
866	866	396
867	867	397
868	868	398
869	869	399
870	870	400
871	871	401
872	872	402
873	873	403
874	874	404
875	875	405
876	876	406
877	877	407
878	878	408
879	879	409
880	880	410
881	881	411
882	882	412
883	883	413
884	884	414
885	885	415
886	886	416
887	887	417
888	888	418
889	889	419
890	890	420 HB389 INTRODUCED
891	891	Page 16
892	892	such deductions by a fraction, the numerator of which is the
893	893	taxpayer's adjusted gross income determined using the rules
894	894	provided in subdivisions (1) and (2) of this subsection and
895	895	the denominator of which is the taxpayer's adjusted gross
896	896	income determined under Section 40-18-14.2. The deduction
897	897	allowed in subdivision (a)(17) of subsection (a) shall not be
898	898	subtracted in calculating either the numerator or denominator
899	899	in the previous sentence.
900	900	(f) Nothing in this section shall allow any item to be
901	901	deducted more than once."
902	902	"§40-18-19
903	903	(a) The following exemptions from income taxation shall
904	904	be allowed to every individual resident taxpayer:
905	905	(1) Retirement allowances, pensions and annuities, or
906	906	optional allowances, approved by the Board of Control of the
907	907	Teachers' Retirement System of Alabama, which exempt status is
908	908	set out in Section 16-25-23.
909	909	(2) Retirement allowances, pensions and annuities, or
910	910	optional allowances, approved by the Board of Control of the
911	911	Employees' Retirement System of Alabama, which exempt status
912	912	is set out in Section 36-27-28.
913	913	(3) The first eight thousand dollars ($8,000) of any
914	914	retirement compensation, retirement allowances, pensions and
915	915	annuities, or optional allowances, received by any eligible
916	916	firefighter, as defined in Sections 36-32-1 and 36-32-2, or
917	917	his or her designated beneficiary, from any firefighting
918	918	agency established in the State of Alabama, but only if such
919	919	retirement compensation, retirement allowances, pensions and
920	920	annuities, or optional allowances as are awarded as a result
921	921	421
922	922	422
923	923	423
924	924	424
925	925	425
926	926	426
927	927	427
928	928	428
929	929	429
930	930	430
931	931	431
932	932	432
933	933	433
934	934	434
935	935	435
936	936	436
937	937	437
938	938	438
939	939	439
940	940	440
941	941	441
942	942	442
943	943	443
944	944	444
945	945	445
946	946	446
947	947	447
948	948	448 HB389 INTRODUCED
949	949	Page 17
950	950	annuities, or optional allowances as are awarded as a result
951	951	of fire protection services rendered. This subdivision shall
952	952	become effective for the taxable years beginning January 1,
953	953	1987, and thereafter following its passage and approval by the
954	954	Governor, or upon its otherwise becoming a law; provided, that
955	955	for the taxable years beginning on or after January 1, 1991,
956	956	all of the pension and retirement payments shall be exempt
957	957	from taxation.
958	958	(4) The first eight thousand dollars ($8,000) of any
959	959	retirement compensation, retirement allowances, pensions and
960	960	annuities, or optional allowances received by any eligible
961	961	peace officer, as defined in subdivision (11) of Section
962	962	36-21-60 (11), or his or her designated beneficiary, from any
963	963	police retirement system established in the State of Alabama,
964	964	but only if the retirement compensation, retirement
965	965	allowances, pensions and annuities, or optional allowances are
966	966	awarded as a result of police services rendered. This
967	967	subdivision shall become effective for taxable years beginning
968	968	January 1, 1984, and thereafter; provided, that for the
969	969	taxable years beginning on or after January 1, 1991, all of
970	970	the pension and retirement payments shall be exempt from
971	971	taxation.
972	972	(5) Income received as annuities under the United
973	973	States Retirement System from the United States Government
974	974	Civil Service Retirement and Disability Fund, including income
975	975	received from the Tennessee Valley Authority's pension system,
976	976	income received as annuities under the United States Foreign
977	977	Service Retirement and Disability Fund, or income received
978	978	from any other United States government retirement and
979	979	449
980	980	450
981	981	451
982	982	452
983	983	453
984	984	454
985	985	455
986	986	456
987	987	457
988	988	458
989	989	459
990	990	460
991	991	461
992	992	462
993	993	463
994	994	464
995	995	465
996	996	466
997	997	467
998	998	468
999	999	469
1000	1000	470
1001	1001	471
1002	1002	472
1003	1003	473
1004	1004	474
1005	1005	475
1006	1006	476 HB389 INTRODUCED
1007	1007	Page 18
1008	1008	from any other United States government retirement and
1009	1009	disability fund.
1010	1010	(6) Beginning January 1, 1991, all payments made on or
1011	1011	after such date to a retiree or his designated beneficiary
1012	1012	under a "defined benefit plan," as defined under 26 U.S.C. §
1013	1013	414(j), to the extent such payment would be taxable for
1014	1014	federal income tax purposes.
1015	1015	(7) Net income realized by individuals and partnerships
1016	1016	from time to time in the business of conducting a financial
1017	1017	business employing monied capital coming into competition with
1018	1018	the business of national banks, but only if such individuals
1019	1019	and partnerships are subject to an excise tax imposed by this
1020	1020	state on or with respect to such income.
1021	1021	(8) In the case of a single person or a married person
1022	1022	not living with husband or wife, a personal exemption of one
1023	1023	thousand five hundred dollars ($1,500) or, in the case of a
1024	1024	head of a family or a married person living with husband or
1025	1025	wife, a personal exemption of three thousand dollars ($3,000),
1026	1026	but a husband and wife living together shall receive only one
1027	1027	personal exemption of three thousand dollars ($3,000) against
1028	1028	their aggregate income, and in case they make separate returns
1029	1029	each must claim a personal exemption of one thousand five
1030	1030	hundred dollars ($1,500).
1031	1031	(9) a. Three hundred dollars ($300) for each person,
1032	1032	other than husband or wife, dependent upon the taxpayer, and
1033	1033	over half of whose support, for the calendar year in which the
1034	1034	taxable year for the taxpayer begins, was received from the
1035	1035	taxpayer.
1036	1036	b. For tax years beginning after December 31, 2006, for
1037	1037	477
1038	1038	478
1039	1039	479
1040	1040	480
1041	1041	481
1042	1042	482
1043	1043	483
1044	1044	484
1045	1045	485
1046	1046	486
1047	1047	487
1048	1048	488
1049	1049	489
1050	1050	490
1051	1051	491
1052	1052	492
1053	1053	493
1054	1054	494
1055	1055	495
1056	1056	496
1057	1057	497
1058	1058	498
1059	1059	499
1060	1060	500
1061	1061	501
1062	1062	502
1063	1063	503
1064	1064	504 HB389 INTRODUCED
1065	1065	Page 19
1066	1066	b. For tax years beginning after December 31, 2006, for
1067	1067	taxpayers with adjusted gross income equal to or less than
1068	1068	twenty thousand dollars ($20,000), one thousand dollars
1069	1069	($1,000) for each person other than husband or wife, dependent
1070	1070	upon the taxpayer, and over half of whose support, for the
1071	1071	calendar year in which the taxable year for the taxpayer
1072	1072	begins, was received from the taxpayer.
1073	1073	c. For tax years beginning after December 31, 2006, for
1074	1074	taxpayers with adjusted gross income in excess of twenty
1075	1075	thousand dollars ($20,000) and equal to or less than one
1076	1076	hundred thousand dollars ($100,000), five hundred dollars
1077	1077	($500) for each person other than husband and wife, dependent
1078	1078	upon the taxpayer, and over half of whose support, for the
1079	1079	calendar year in which the taxable year for the taxpayer
1080	1080	begins, was received from the taxpayer.
1081	1081	d. For tax years beginning after December 31, 2021, for
1082	1082	taxpayers with adjusted gross income equal to or less than
1083	1083	fifty thousand dollars ($50,000), one thousand dollars
1084	1084	($1,000) for each person other than husband or wife, dependent
1085	1085	upon the taxpayer, and over half of whose support, for the
1086	1086	calendar year in which the taxable year for the taxpayer
1087	1087	begins, was received from the taxpayer.
1088	1088	e. For tax years beginning after December 31, 2021, for
1089	1089	taxpayers with adjusted gross income in excess of fifty
1090	1090	thousand dollars ($50,000) and equal to or less than one
1091	1091	hundred thousand dollars ($100,000), five hundred dollars
1092	1092	($500) for each person other than husband and wife, dependent
1093	1093	upon the taxpayer, and over half of whose support, for the
1094	1094	calendar year in which the taxable year for the taxpayer
1095	1095	505
1096	1096	506
1097	1097	507
1098	1098	508
1099	1099	509
1100	1100	510
1101	1101	511
1102	1102	512
1103	1103	513
1104	1104	514
1105	1105	515
1106	1106	516
1107	1107	517
1108	1108	518
1109	1109	519
1110	1110	520
1111	1111	521
1112	1112	522
1113	1113	523
1114	1114	524
1115	1115	525
1116	1116	526
1117	1117	527
1118	1118	528
1119	1119	529
1120	1120	530
1121	1121	531
1122	1122	532 HB389 INTRODUCED
1123	1123	Page 20
1124	1124	calendar year in which the taxable year for the taxpayer
1125	1125	begins, was received from the taxpayer.
1126	1126	f. For tax years beginning after December 31, 2025, for
1127	1127	taxpayers with adjusted gross income equal to or less than
1128	1128	sixty thousand dollars ($60,000), one thousand dollars
1129	1129	($1,000) for each person other than husband or wife, dependent
1130	1130	upon the taxpayer, and over half of whose support, for the
1131	1131	calendar year in which the taxable year for the taxpayer
1132	1132	begins, was received from the taxpayer.
1133	1133	g. For tax years beginning after December 31, 2025, for
1134	1134	taxpayers with adjusted gross income in excess of sixty
1135	1135	thousand dollars ($60,000) and equal to or less than one
1136	1136	hundred twenty thousand dollars ($120,000), five hundred
1137	1137	dollars ($500) for each person other than husband and wife,
1138	1138	dependent upon the taxpayer, and over half of whose support,
1139	1139	for the calendar year in which the taxable year for the
1140	1140	taxpayer begins, was received from the taxpayer.
1141	1141	For the purposes of this section, "dependent" shall
1142	1142	mean: A son or daughter of the taxpayer or a descendant of
1143	1143	either; a stepson or stepdaughter of the taxpayer; a brother,
1144	1144	sister, stepbrother, or stepsister of the taxpayer; the father
1145	1145	or mother of the taxpayer or an ancestor of either; a
1146	1146	stepfather or stepmother of the taxpayer; a son or daughter of
1147	1147	a brother or sister of the taxpayer; a brother or sister of
1148	1148	the father or mother of the taxpayer; a son-in-law,
1149	1149	daughter-in-law, father-in-law, mother-in-law, brother-in-law,
1150	1150	or sister-in-law of the taxpayer. As used in this paragraph
1151	1151	the terms "brother" and "sister" include a brother or sister
1152	1152	by the half blood. For the purpose of determining whether any
1153	1153	533
1154	1154	534
1155	1155	535
1156	1156	536
1157	1157	537
1158	1158	538
1159	1159	539
1160	1160	540
1161	1161	541
1162	1162	542
1163	1163	543
1164	1164	544
1165	1165	545
1166	1166	546
1167	1167	547
1168	1168	548
1169	1169	549
1170	1170	550
1171	1171	551
1172	1172	552
1173	1173	553
1174	1174	554
1175	1175	555
1176	1176	556
1177	1177	557
1178	1178	558
1179	1179	559
1180	1180	560 HB389 INTRODUCED
1181	1181	Page 21
1182	1182	by the half blood. For the purpose of determining whether any
1183	1183	of the foregoing relationships exist, a legally adopted child
1184	1184	of a person shall be considered a child of such a person by
1185	1185	blood.
1186	1186	(10) Beginning January 1, 1998, all income, interest,
1187	1187	dividends, gains, or benefits of any kind received from
1188	1188	savings accounts or prepaid tuition contracts administered
1189	1189	under Title 16, Chapter 33C, are exempt from all income
1190	1190	taxation by the state and by all of its political subdivisions
1191	1191	to the extent that the amounts remain on deposit in the PACT
1192	1192	Trust Fund or the ACES Trust Fund, or are used to pay the
1193	1193	designated beneficiary's qualified higher education expenses
1194	1194	as defined in 26 U.S.C. § 529, or are refunded under such
1195	1195	terms as would not carry a penalty under 26 U.S.C. § 529.
1196	1196	(11) Beginning January 1, 2016, all income, interest,
1197	1197	dividends, gains, or benefits of any kind received from ABLE
1198	1198	savings accounts administered under Title 16, Chapter 33C, are
1199	1199	exempt from all income taxation by the state and by all of its
1200	1200	political subdivisions to the extent that the amounts remain
1201	1201	on deposit in the ABLE Trust Fund, or are used to pay the
1202	1202	designated beneficiary's qualified disability expenses as
1203	1203	defined in 26 U.S.C. § 529A, or are refunded under such terms
1204	1204	as would not carry a penalty under 26 U.S.C. § 529A, or other
1205	1205	applicable federal law.
1206	1206	(12) Beginning January 1, 2018, amounts received by an
1207	1207	individual from sources within a foreign country or countries
1208	1208	which constitute a housing allowance, and earned income
1209	1209	attributable to services performed by such individual received
1210	1210	during the tax period are exempt from all income taxation by
1211	1211	561
1212	1212	562
1213	1213	563
1214	1214	564
1215	1215	565
1216	1216	566
1217	1217	567
1218	1218	568
1219	1219	569
1220	1220	570
1221	1221	571
1222	1222	572
1223	1223	573
1224	1224	574
1225	1225	575
1226	1226	576
1227	1227	577
1228	1228	578
1229	1229	579
1230	1230	580
1231	1231	581
1232	1232	582
1233	1233	583
1234	1234	584
1235	1235	585
1236	1236	586
1237	1237	587
1238	1238	588 HB389 INTRODUCED
1239	1239	Page 22
1240	1240	during the tax period are exempt from all income taxation by
1241	1241	the state and by all of its political subdivisions to the
1242	1242	extent such income is exempt from federal income tax pursuant
1243	1243	to 26 U.S.C. § 911.
1244	1244	(13) a. Beginning January 1, 2023, the first six
1245	1245	thousand dollars ($6,000) of taxable retirement income.
1246	1246	b. This exemption may only be claimed by individual
1247	1247	taxpayers who are 65 years of age or older.
1248	1248	(b) Of the following personal exemptions allowed
1249	1249	resident taxpayers, each nonresident individual taxpayer shall
1250	1250	be allowed that proportion thereof that the adjusted gross
1251	1251	income received by said nonresident individual taxpayer from
1252	1252	sources within the State of Alabama bears to his or her
1253	1253	adjusted gross income received from sources within and without
1254	1254	the State of Alabama: In the case of a single person or a
1255	1255	married person not living with husband or wife, a personal
1256	1256	exemption of one thousand five hundred dollars ($1,500) or, in
1257	1257	the case of a head of a family or a married person living with
1258	1258	husband or wife, a personal exemption of three thousand
1259	1259	dollars ($3,000), a husband and wife living together shall
1260	1260	receive but one personal exemption of three thousand dollars
1261	1261	($3,000) against their aggregate income; and, in case they
1262	1262	make separate returns, each must claim a personal exemption of
1263	1263	one thousand five hundred dollars ($1,500); and the amount in
1264	1264	subdivision (a)(9) of subsection (a) for each person, other
1265	1265	than husband or wife, dependent upon and receiving his or her
1266	1266	chief support from the taxpayer.
1267	1267	(c) The Department of Revenue may enact rules as
1268	1268	necessary to implement and administer the provisions of this
1269	1269	589
1270	1270	590
1271	1271	591
1272	1272	592
1273	1273	593
1274	1274	594
1275	1275	595
1276	1276	596
1277	1277	597
1278	1278	598
1279	1279	599
1280	1280	600
1281	1281	601
1282	1282	602
1283	1283	603
1284	1284	604
1285	1285	605
1286	1286	606
1287	1287	607
1288	1288	608
1289	1289	609
1290	1290	610
1291	1291	611
1292	1292	612
1293	1293	613
1294	1294	614
1295	1295	615
1296	1296	616 HB389 INTRODUCED
1297	1297	Page 23
1298	1298	necessary to implement and administer the provisions of this
1299	1299	act."
1300	1300	Section 2. This act shall become effective on October
1301	1301	1, 2025.
1302	1302	617
1303	1303	618
1304	1304	619