Alabama Eliminated the State Capital Gains Tax on Gold and Silver. Here's What That Means for Investors.

If you've been holding off on building a precious metals position because of tax concerns, Alabama's recent legislative changes deserve your attention. The state has now removed the two main tax barriers that used to make buying and selling gold and silver more complicated than it needed to be.

What Changed in 2025

Senate Bill 297, sponsored by Sen. Tim Melson, took effect January 1, 2025. Under the law, Alabama investors who sell gold or silver bullion can deduct any net capital gain from that sale from their state taxable income. Profits from precious metals sales — as reported on your federal return — are excluded from your Alabama adjusted gross income entirely.

In plain terms: whatever you made when you sold, Alabama no longer taxes that gain.

The Full Tax Picture — State vs. Federal

It's important to be clear about what this law does and doesn't cover.

The IRS still classifies physical precious metals as collectibles. That means federal capital gains rates up to 28% can apply on long-term gains when you sell — higher than the standard long-term rate for stocks. Short-term gains (held less than one year) are taxed at ordinary income rates federally, regardless of what your state does.

What Alabama removed is its own layer on top of that. Previously, any gain you reported federally would also flow into your Alabama adjusted gross income and get taxed again at the state level. That no longer happens.

Why This Makes Physical Metals More Competitive

Consider how other investment vehicles are treated. You don't pay sales tax when you buy a stock. You pay capital gains on the profit when you sell — but not twice. Advocates for SB297 made exactly this argument: taxing precious metals as consumer goods made no sense when they function as a savings vehicle and are held for resale, not consumption.

Alabama's legislature agreed — by a wide margin.

The Sales Tax Side of the Equation

The capital gains change works alongside Alabama's existing sales tax exemption. Under Rule 810-6-2-.27, qualifying bullion — gold, silver, platinum, and palladium — has been exempt from state sales and use tax since 2018, with the exemption extended through May 31, 2028.

→ Full Alabama tax exemption guide — what qualifies and what doesn't

What This Means If You're Buying Now

Alabama's current framework is about as favorable as it gets at the state level. If you've been on the fence about starting or expanding a precious metals position, the combination of no sales tax at purchase and no state capital gains tax at sale removes two friction points that still exist in many other states.

McFarland Metals can walk you through which products qualify for both exemptions and help you think through how physical metals fit into your broader strategy.