Category: North Carolina
North Carolina Additions to Federal Adjusted Gross Income
Interest Income- Enter your interest income, such as interest from notes, bonds and other obligations of states and political subdivisions (other than North Carolina), that was not included in your Federal Adjusted Gross Income. This includes exempt interest dividends from mutual funds (other than obligations of North Carolina or it's political subdivisions).
Adjustment for Domestic Production Activities - North Carolina does not allow the domestic production activities deduction. If you claimed the deduction on line 35 of your federal form 1040, you must add that amount back to the state return.
Adjustment for Bonus Depreciation
As in the past, North Carolina did not adopt the 50 percent bonus depreciation provisions in IRC sections 168(k) or 168(n) for property placed in service for tax year 2016. An addition is required for 85% of the amount of bonus depreciation deducted on the federal return.
Note: Any amount of the bonus depreciation added to federal adjusted gross income on your 2016 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2017.
Adjustment for Section 179 Expense Deduction
As in the past, North Carolina did not conform to the increased federal expense deduction or increase investment limitations of $500,000 and $2,000,000, respectively, for tax year 2016. NC dollar and investment limitations are $25,000 and $200,000, respectively. An addition is required for 85% of the difference between the schedule 179 expense deduction using federal limitations and the deduction using NC limitations.
Note: Any amount of section 179 expense deduction added to federal adjusted gross income on your 2016 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2017.
Other Federal Adjusted Gross Income Additions -
- The amount your basis of property under federal law exceeds your basis of property for State purposes must be added to your adjusted gross income in the year you dispose of the property.
- An addition to federal adjusted gross income is required for the amount of the taxpayer’s deduction for qualified tuition and related expenses under section 222 of the Code that was claimed on federal Form 1040, Line 34 or
Form 1040A, Line 19.
- North Carolina did not conform to the extension of the federal provision that allowed an exclusion from gross income for the discharge of qualified principal residence indebtedness under section 108 of the Code. An addition to federal adjusted gross income is required for the amount excluded from federal gross income on your federal return.
- Exception: If a taxpayer is insolvent, as defined in section 108(d)(3) of the Code, then the addition to federal adjusted gross income is limited to the amount of discharge of qualified principal residence indebtedness excluded from income that exceeds the amount of discharge of indebtedness that would have been excluded because the taxpayer was insolvent.
- North Carolina did not conform to the extension of the federal provision which allowed an exclusion from gross income for a qualified charitable distribution from an individual retirement plan by a person who has attained age 70 1/2 under section 408(d)(8) of the Code. Therefore, an addition to federal adjusted gross income is required for the amount excluded from gross income on your federal return.
Note: You may deduct the contribution amount added to federal adjusted gross income on Form D-400 Schedule S, Part C, Line 20 if itemizing.
- If you carry over a net operating loss from another year to the 2016 federal return, an addition is required for the amount of net operating loss carried to the 2016 year that is not absorbed and will be carried forward to subsequent years.
Example: You incur a net operating loss of $75,000 in 2015. You carry the net operating loss to the 2016 federal return and deduct the entire loss in arriving at federal adjusted gross income. Only $50,000 of the loss is absorbed and $25,000 is carried forward to subsequent years. To determine North Carolina taxable income, you must make an addition to federal adjusted gross income of $25,000.
- You must add to federal adjusted gross income any amount that was contributed to North Carolina’s National College Savings Program (NC 529 Plan) and deducted in a prior year that was later withdrawn and used for purposes other than qualified higher education expenses of the designated beneficiary unless the withdrawal was due to the death or permanent disability of the designated beneficiary.
- The amount by which a shareholder’s share of S Corporation income is reduced under section 1366(f)(2) of the Code for the taxable year by the amount of built-in gains tax imposed on the S Corporation under section 1374 of the Code.