Alabama has had a tax-deductible storm savings account on the books since 2012. A law taking effect October 1 rewrites it, and the expanded expense list is the easy part to explain. The change to who can open one is the part worth your time.
House Bill 27, sponsored by Representative Brown and referred to the Insurance committee, passed the House on January 22, 2026 and the Senate on February 10, 2026. It is now Act 2026-100. The enrolled bill amends Sections 40-18-310, 40-18-311 and 40-18-312 of the Code of Alabama. Section 3 sets the effective date at October 1, 2026.
The headline change is that the account now pays for more things. The quieter change is who can open one.
The wording swap
Read the amended text closely and you will find the same edit made in five places. Variations of “legal residence” are struck, and “residential property” is written in.
Under the old rules, the Alabama Department of Revenue was blunt about the limit. Its catastrophe savings FAQ states the deduction “only applies to your principal residence which must be your qualified homestead and located in Alabama,” and answers a direct question about covering a second home with a flat no.
The amended statute describes instead an account established to cover “one residential property owned by a taxpayer.” Still one property. Still one account per taxpayer. But the homestead language is gone.
That reads like a door opening for owners of rentals, inherited houses, and properties sitting empty. Be careful how far you walk through it, for two reasons the bill does not resolve:
- Section 40-18-310(1) as amended still describes an account “established by an insurance policyholder who is a state income taxpayer for residential property in this state.”
- Section 40-18-312(d)(2) still refers to residential property “that qualifies pursuant to Chapter 7,” which is the property assessment chapter.
The direction of the change is clear. The precise boundary is not, and the Department has not published updated guidance. If you are counting on this for a non-homestead property, that is a question for a CPA before you open anything.
What the account now pays for
The act defines “Qualified Catastrophe Expenses” as three things:
- An insurance deductible under a policy covering hurricane, rising floodwaters, or other catastrophic windstorm event damage, or self-insured losses from those events.
- The annual cost of a FORTIFIED endorsement to supplement an insurance policy.
- The cost of mitigation actions that reduce the risk of that damage, including, in the statute’s own words, “costs associated with reroofing and obtaining evaluation services to qualify for a FORTIFIED designation.”
Items two and three are new. The old account was essentially a deductible fund. The new one can pay for hardening work before a storm arrives.
The contribution math
Section 40-18-311 as amended sets the caps:
- Deductible of $1,000 or less: $2,000, plus up to $15,000 for other Qualified Catastrophe Expenses.
- Deductible above $1,000: the lesser of $15,000 or twice your deductible, plus up to $15,000 for other Qualified Catastrophe Expenses.
- Self-insured, described in the statute as an individual “who chooses not to obtain insurance” on the property: up to $250,000, capped at the value of the property. Note this sits awkwardly beside the “insurance policyholder” language above. The statute contains both.
The statute allows “a deduction against income earned for state income tax purposes” under Section 40-18-5. That is a deduction against your income, not a credit against your tax bill, which is a much smaller benefit than people assume when they hear “tax-deductible.” Interest earned inside the account is exempt. The account is also shielded from “attachment, levy, garnishment, or legal process” in Alabama, which is worth knowing if you have creditors circling.
The fine print, and there is a lot of it
The tax benefit does not start when the law does. Section 2 of the act says the provisions apply to tax years beginning on or after January 1, 2027. Opening an account in October 2026 produces no 2026 deduction. The law arrives October 1. The money does not.
One account, ever. The statute allows a taxpayer to establish only one catastrophe savings account. The Department’s FAQ adds that married taxpayers filing jointly get one deduction between them.
It may not be refillable. Section 40-18-312(d)(3) says a taxpayer who receives “a nontaxable distribution under this subsection” must not make further contributions to any catastrophe savings account. The Department’s existing FAQ reads this the hard way, stating the account “cannot be replenished once any qualified funds are used.” Whether that survives the amendments is a question for your CPA, but plan on one use.
It must be a separate, labeled account. Per the Department’s guidance, catastrophe savings have to be segregated into a new savings or money market account labeled as a “catastrophe savings” account, either in the bank’s records or in your own documentation recorded at the time you open it. You cannot designate an existing account that has other money in it.
Pulling money out for anything else costs extra. A distribution not spent on Qualified Catastrophe Expenses goes into your income, and the tax on it is increased by “two and one-half percent of the amount which is includable in income.”
But that 2.5% has two carve-outs. Section 40-18-312(d)(2) says the additional tax does not apply if the taxpayer no longer owns residential property that qualifies pursuant to Chapter 7, or if the distribution comes from a self-insured account under Section 40-18-311(c)(3) and is made on or after the taxpayer turns 70.
Inheriting one is a taxable event, but not a penalized one. If the account owner dies, the account is included in the income of whoever receives it, unless that person is the surviving spouse. When the surviving spouse dies, it is included in the income of whoever receives it then. The statute does add that the additional tax “does not apply to distribution on death of the taxpayer or the surviving spouse.”
What this means if you are weighing a sale
The first carve-out above is the one sellers will ask about: no additional tax if you no longer own qualifying residential property.
Do not treat that as a clean rule. The same amendment that broadened “legal residence” to “residential property” makes it harder to say when a taxpayer has stopped owning qualifying property, and the Chapter 7 qualifier is doing work the bill does not explain. Selling your house may unwind the penalty. It may not, if you own other residential property. Nobody should act on that without running it past a CPA, and anything you read online stating it flatly in either direction is guessing.
The larger point does not depend on resolving it.
This account is a commitment device. It is built for an owner who is keeping a property and hardening it over several years. It makes much less sense if the honest answer is that the house is getting sold inside eighteen months.
We see the version that goes wrong often enough to name it. An owner starts spending on a roof, a FORTIFIED evaluation, an insurance deductible, all on a house they have already half-decided to let go. Two years later they have put real money into a property they sell anyway. Improvements rarely come back dollar for dollar, and in the meantime they carried taxes, insurance and maintenance on a house they did not want.
The decision to make first is not which savings account to open. It is whether you are keeping the house.
If the answer is no
Birmingham Homebuyers buys houses as-is, for cash, anywhere in the Birmingham metro. That includes houses with storm damage, houses with roofs at the end of their life, inherited houses, and rentals you are tired of carrying. No repairs, no cleanout, no agent commission, no financing contingency, and no waiting to find out whether a buyer’s insurance underwriter will approve the property.
If you want to know what the house is worth without putting another dollar into it first, you can get a cash offer today. It is free and there is no obligation.
If you are keeping the property, this account is worth a conversation with your CPA, and it pairs with two things we have covered recently: the Strengthen Alabama Homes roof grant and the new limits on when an insurer can drop you.
Related reading: how to sell your house in Alabama, selling a rental fast in Birmingham, and no house is too damaged to sell. We buy throughout the metro, including Bessemer, Hueytown, Gardendale, and Trussville.
This article summarizes the text of Alabama Act 2026-100 and Alabama Department of Revenue guidance published in 2022, which predates these amendments. It is general information, not tax or legal advice. Consult a CPA about your own situation.