§ 105-134.6. Adjustments to taxable income. - North Carolina Statutes

§ 105‑134.6. Adjustments to taxable income.

(a)        S Corporations. – Eachshareholder's pro rata share of an S Corporation's income is subject to theadjustments provided in this section.

(b)        Deductions. – Thefollowing deductions from taxable income shall be made in calculating NorthCarolina taxable income, to the extent each item is included in taxable income:

(1)        Interest upon theobligations of any of the following:

a.         The United States orits possessions.

b.         This State, apolitical subdivision of this State, or a commission, an authority, or anotheragency of this State or of a political subdivision of this State.

c.         A nonprofiteducational institution organized or chartered under the laws of this State.

(2)        Gain from thedisposition of obligations issued before July 1, 1995, to the extent the gainis exempt from tax under the laws of this State.

(3)        Benefits receivedunder Title II of the Social Security Act and amounts received from retirementannuities or pensions paid under the provisions of the Railroad Retirement Actof 1937.

(4)        Repealed by SessionLaws 1989 (Reg. Sess., 1990), c. 1002, s. 2.

(5)        Refunds of state,local, and foreign income taxes included in the taxpayer's gross income.

(5a)      Reserved.

(5b)      The amount receivedduring the taxable year from one or more State, local, or federal governmentretirement plans to the extent the amount is exempt from tax under this Partpursuant to a court order in settlement of the following cases: Bailey v.State, 92 CVS 10221, 94 CVS 6904, 95 CVS 6625, 95 CVS 8230; Emory v. State, 98CVS 0738; and Patton v. State, 95 CVS 04346. Amounts deducted under thissubdivision may not also be deducted under subdivision (6) of this subsection.

(6)       a.         Anamount, not to exceed four thousand dollars ($4,000), equal to the sum of theamount calculated in subparagraph b. plus the amount calculated in subparagraphc.

b.         The amountcalculated in this subparagraph is the amount received during the taxable yearfrom one or more state, local, or federal government retirement plans.

c.         The amountcalculated in this subparagraph is the amount received during the taxable yearfrom one or more retirement plans other than state, local, or federalgovernment retirement plans, not to exceed a total of two thousand dollars($2,000) in any taxable year.

d.         In the case of amarried couple filing a joint return where both spouses received retirementbenefits during the taxable year, the maximum dollar amounts provided in thissubdivision for various types of retirement benefits apply separately to eachspouse's benefits.

(7)        Recodified as G.S.105‑134.6(d)(1).

(8)        Recodified as G.S.105‑134.6(d)(2).

(9)        Income that is (i)earned or received by an enrolled member of a federally recognized Indian tribeand (ii) derived from activities on a federally recognized Indian reservationwhile the member resides on the reservation. Income from intangibles having asitus on the reservation and retirement income associated with activities onthe reservation are considered income derived from activities on thereservation.

(10)      The amount by whichthe basis of property under this Article exceeds the basis of the propertyunder the Code, in the year the taxpayer disposes of the property.

(11)      Severance wagesreceived by a taxpayer from an employer as the result of the taxpayer'spermanent, involuntary termination from employment through no fault of theemployee. The amount of severance wages deducted as the result of the sametermination may not exceed thirty‑five thousand dollars ($35,000) for alltaxable years in which the wages are received.

(12)      Repealed by SessionLaws 1998‑171, s. 2, effective October 1, 1998.

(13)      Repealed by SessionLaws 2002‑126, s. 30C.4, effective for taxable years beginning on orafter January 1, 2002.

(14)      The amount paid tothe taxpayer by the State under G.S. 148‑84 as compensation for pecuniaryloss suffered by reason of erroneous conviction and imprisonment.

(15)      Interest, investmentearnings, and gains of a trust, the settlors of which are two or moremanufacturers that signed a settlement agreement with this State to settleexisting and potential claims of the State against the manufacturers fordamages attributable to a product of the manufacturers, if the trust meets allof the following conditions:

a.         The purpose of thetrust is to address adverse economic consequences resulting from a decline indemand of the manufactured product potentially expected to occur because ofmarket restrictions and other provisions in the settlement agreement.

b.         A court of thisState approves and retains jurisdiction over the trust.

c.         Certain portions ofthe distributions from the trust are made in accordance with certificationsthat meet the criteria in the agreement creating the trust and are provided bya nonprofit entity, the governing board of which includes State officials.

(16)      The amount paid tothe taxpayer during the taxable year from the Hurricane Floyd Reserve Fund inthe Office of State Budget and Management for hurricane relief or assistance,but not including payments for goods or services provided by the taxpayer.

(17)      In each of thetaxpayer's first five taxable years beginning on or after January 1, 2005, anamount equal to twenty percent (20%) of the amount added to taxable income in aprevious year as accelerated depreciation under subdivision (c)(8) of thissection.

(17a)    (Effective fortaxable years beginning before January 1, 2009) In each of the taxpayer'sfirst five taxable years beginning on or after January 1, 2009, an amount equalto twenty percent (20%) of the amount added to taxable income in taxable year2008 as accelerated depreciation under subdivision (c)(8a) of this section.

(17a)    (Effective fortaxable years beginning on or after January 1, 2009) An amount equal totwenty percent (20%) of the amount added to federal taxable income asaccelerated depreciation under subdivision (c)(8a) of this section. For ataxpayer who made the addition for accelerated depreciation in the 2008 taxableyear, the deduction allowed by this subdivision applies to the first fivetaxable years beginning on or after January 1, 2009. For a taxpayer who madethe addition for accelerated depreciation in the 2009 taxable year, thededuction allowed by this subdivision applies to the first five taxable yearsbeginning on or after January 1, 2010.

(18)      The amount paid tothe taxpayer during the taxable year from the Disaster Relief Reserve Fund inthe Office of State Budget and Management for hurricane relief or assistance,but not including payments for goods or services provided by the taxpayer.

(19)      (Effective fortaxable years beginning on or after January 1, 2008, and expiring for taxableyears beginning on or after January 1, 2015) Five percent (5%) of the grosspurchase price of a qualified sale of a manufactured home community. Aqualified sale is a transfer of land comprising a manufactured home communityin a single purchase to a group composed of a majority of the manufactured homecommunity leaseholders or to a nonprofit organization that represents such agroup. To be eligible for this deduction, a taxpayer must give notice of thesale to the North Carolina Housing Finance Agency under G.S. 42‑14.3.

(20)      (Effective fortaxable years beginning on or after January 1, 2009) The amount added tofederal taxable income as deferred income under section 108(i)(1) of the Code.This deduction applies to taxable years beginning on or after January 1, 2014.

(c)        Additions. – Thefollowing additions to taxable income shall be made in calculating NorthCarolina taxable income, to the extent each item is not included in taxableincome:

(1)        Interest upon theobligations of states other than this State, political subdivisions of thosestates, and agencies of those states and their political subdivisions.

(2)        Any amount allowedas a deduction from gross income under the Code that is taxed under the Code bya separate tax other than the tax imposed in section 1 of the Code.

(3)        Any amount deductedfrom gross income under section 164 of the Code as state, local, or foreignincome tax or as state or local general sales tax to the extent that thetaxpayer's total itemized deductions deducted under the Code for the taxableyear exceed the standard deduction allowable to the taxpayer under the Codereduced by the amount the taxpayer is required to add to taxable income undersubdivision (4) of this subsection.

(3a)      The amount by which ashareholder'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 taximposed on the S Corporation under section 1374 of the Code.

(4)        The amount by whichthe taxpayer's additional standard deduction for aged and blind has beenincreased for inflation under section 63(c)(4)(A) of the Code plus the amountby which the taxpayer's basic standard deduction, including adjustments forinflation, under the Code exceeds the appropriate amount in the following chartbased on the taxpayer's filing status:

FilingStatus                                                     StandardDeduction

Marriedfiling jointly/Surviving Spouse                             $6,000

Headof Household                                                          4,400

Single                                                                               3,000

Marriedfiling separately                                                    3,000

(4a)      The amount by whicheach of the taxpayer's personal exemptions has been increased for inflationunder section 151(d)(4)(A) of the Code. This amount is reduced by five hundreddollars ($500.00) for each personal exemption if the taxpayer's adjusted grossincome (AGI), as calculated under the Code, is less than the following amounts:

FilingStatus                                                                  AGI

Married,filing jointly                                                   $100,000

Headof Household                                                        80,000

Single                                                                             60,000

Married,filing separately                                                 50,000.

Forthe purposes of this subdivision, if the taxpayer's personal exemptions havebeen reduced by the applicable percentage under section 151(d)(3) of the Code,the amount by which the personal exemptions have been increased for inflationis also reduced by the applicable percentage.

(5)        The market price ofthe gleaned crop for which the taxpayer claims a credit for the taxable yearunder G.S. 105‑151.14.

(5a)      (Expires fortaxable years beginning on or after January 1, 2011) The market price ofthe oyster shells for which the taxpayer claims a credit for the taxable yearunder G.S. 105‑151.30.

(5b)      (Effective fortaxable years beginning on or after January 1, 2008) The amount of adonation made to a nonprofit organization or a unit of State or localgovernment for which a credit is claimed under G.S. 105‑129.16H.

(6)        The amount by whichthe basis of property under the Code exceeds the basis of the property underthis Article, in the year the taxpayer disposes of the property.

(7)        The amount offederal estate tax that is attributable to an item of income in respect of adecedent and is deducted from gross income under section 691(c) of the Code.

(8)        (Effective fortaxable years beginning before January 1, 2008)  The applicable percentageof the amount allowed as a special accelerated depreciation deduction undersection 168(k) or section 1400L of the Code, as set out in the table below. Inaddition, a taxpayer who was allowed a special accelerated depreciationdeduction under section 168(k) or section 1400L of the Code in a taxable yearbeginning before January 1, 2002, and whose North Carolina taxable income inthat earlier year reflected that accelerated depreciation deduction must add tofederal taxable income in the taxpayer's first taxable year beginning on orafter January 1, 2002, an amount equal to the amount of the deduction allowedin the earlier taxable year. These adjustments do not result in a difference inbasis of the affected assets for State and federal income tax purposes. Theapplicable percentage is as follows:

TaxableYear                                                Percentage

2002                                                          100%

2003                                                            70%

2004                                                            70%

2005and thereafter                                        0%

(8)        (Effective fortaxable years beginning on or after January 1, 2008) For taxable years 2002‑2005,the applicable percentage of the amount allowed as a special accelerated depreciationdeduction under section 168(k) or section 1400L of the Code, as set out in thetable below. In addition, a taxpayer who was allowed a special accelerateddepreciation deduction under section 168(k) or section 1400L of the Code in ataxable year beginning before January 1, 2002, and whose North Carolina taxableincome in that earlier year reflected that accelerated depreciation deductionmust add to federal taxable income in the taxpayer's first taxable yearbeginning on or after January 1, 2002, an amount equal to the amount of thededuction allowed in the earlier taxable year. These adjustments do not resultin a difference in basis of the affected assets for State and federal incometax purposes. The applicable percentage is as follows:

TaxableYear                                                Percentage

2002                                                          100%

2003                                                            70%

2004                                                            70%

2005                                                              0%

(8a)      (Effective fortaxable years beginning before January 1, 2009) The applicable percentageof the amount allowed as a special accelerated depreciation deduction undersection 168(k) of the Code for property placed in service after December 31,2007, but before January 1, 2009. In addition, a taxpayer who was allowed aspecial accelerated depreciation deduction in taxable year 2007 for propertyplaced in service for that period, and whose North Carolina taxable income forthat year reflected that accelerated depreciation deduction must add to federaltaxable income in the taxpayer's 2008 taxable year an amount equal to theapplicable percentage of the deduction amount allowed in the 2007 taxable year.These adjustments do not result in a difference in basis of the affected assetsfor State and federal income tax purposes. The applicable percentage under thissubdivision is eighty‑five percent (85%).

(8a)      (Effective fortaxable years beginning on or after January 1, 2009) The applicablepercentage of the amount allowed as a special accelerated depreciationdeduction under section 168(k) or 168(n) of the Code for property placed inservice after December 31, 2007, but before January 1, 2010. The applicablepercentage under this subdivision is eighty‑five percent (85%).

Inaddition, a taxpayer who was allowed a special accelerated depreciationdeduction in taxable year 2007 or 2008 for property placed in service duringthat year, and whose North Carolina taxable income for that year reflected thataccelerated depreciation deduction must make the adjustments set out below.These adjustments do not result in a difference in basis of the affected assetsfor State and federal income tax purposes.

a.         A taxpayer must addto federal taxable income in the taxpayer's 2008 taxable year an amount equalto the applicable percentage of the accelerated depreciation deductionreflected in the taxpayer's 2007 North Carolina taxable income.

b.         A taxpayer must addto federal taxable income in the taxpayer's 2009 taxable year an amount equalto the applicable percentage of the accelerated depreciation deductionreflected in the taxpayer's 2008 North Carolina taxable income.

(9)        Repealed by SessionLaws 2006‑220, s. 3, effective for taxable years beginning on and afterJanuary 1, 2007.

(10)      The amount excludedfrom gross income under section 199 of the Code.

(11)      (Effective fortaxable years beginning on or after January 1, 2009) The amount of thetaxpayer's real property tax deduction under section 63(c)(1)(C) of the Code.

(12)      (Effective fortaxable years beginning on or after January 1, 2009) The amount of thetaxpayer's deduction for motor vehicle sales taxes under section 164(a)(6) orsection 63(c)(1)(E) of the Code.

(13)      (Effective fortaxable years beginning on or after January 1, 2009) The amount of incomedeferred under section 108(i)(1) of the Code from the discharge of indebtednessin connection with a reacquisition of an applicable debt instrument.

(14)      (Effective fortaxable years beginning on or after January 1, 2009) The amount allowed asa deduction under section 163(e)(5)(F) of the Code for an original issuediscount on an applicable high yield discount obligation.

(d)        Other Adjustments.– The following adjustments to taxable income shall be made in calculatingNorth Carolina taxable income:

(1)        The amount ofinheritance or estate tax attributable to an item of income in respect of adecedent required to be included in gross income under the Code, adjusted asprovided in G.S. 105‑134.5, 105‑134.6, and 105‑134.7, may bededucted in the year the item of income is included. The amount of inheritanceor estate tax attributable to an item of income in respect of a decedent is (i)the amount by which the inheritance or estate tax paid under Article 1 or 1A ofthis Chapter on property transferred to a beneficiary by a decedent exceeds theamount of the tax that would have been payable by the beneficiary if the itemof income in respect of a decedent had not been included in the propertytransferred to the beneficiary by the decedent, (ii) multiplied by a fraction,the numerator of which is the amount required to be included in gross incomefor the taxable year under the Code, adjusted as provided in G.S. 105‑134.5,105‑134.6, and 105‑134.7, and the denominator of which is the totalamount of income in respect of a decedent transferred to the beneficiary by thedecedent. For an estate or trust, the deduction allowed by this subdivisionshall be computed by excluding from the gross income of the estate or trust theportion, if any, of the items of income in respect of a decedent that areproperly paid, credited, or to be distributed to the beneficiaries during thetaxable year.

TheSecretary may provide to a beneficiary of an item of income in respect of adecedent any information contained on an inheritance or estate tax return thatthe beneficiary needs to compute the deduction allowed by this subdivision.

(2)        The taxpayer maydeduct the amount by which the taxpayer's deductions allowed under the Codewere reduced, and the amount of the taxpayer's deductions that were notallowed, because the taxpayer elected a federal tax credit in lieu of adeduction. This deduction is allowed only to the extent that a similar creditis not allowed by this Chapter for the amount.

(3)        The taxpayer shalladd to taxable income the amount of any recovery during the taxable year notincluded in taxable income, to the extent the taxpayer's deduction of therecovered amount in a prior taxable year reduced the taxpayer's tax imposed bythis Part but, due to differences between the Code and this Part, did notreduce the amount of the taxpayer's tax imposed by the Code. The taxpayer maydeduct from taxable income the amount of any recovery during the taxable year includedin taxable income under section 111 of the Code, to the extent the taxpayer'sdeduction of the recovered amount in a prior taxable year reduced thetaxpayer's tax imposed by the Code but, due to differences between the Code andthis Part, did not reduce the amount of the taxpayer's tax imposed by thisPart.

(4)        (Effective fortaxable years before January 1, 2012) A taxpayer may deduct from taxableincome the amount, not to exceed two thousand five hundred dollars ($2,500),contributed to an account in the Parental Savings Trust Fund of the StateEducation Assistance Authority established pursuant to G.S. 116‑209.25.In the case of a married couple filing a joint return, the maximum dollaramount of the deduction is five thousand dollars ($5,000).

(4)        (Effective fortaxable years beginning on or after January 1, 2012) A taxpayer whoseadjusted gross income (AGI), as calculated under the Code, is less than theamount listed in this subdivision may deduct from taxable income the amount,not to exceed two thousand five hundred dollars ($2,500), contributed to anaccount in the Parental Savings Trust Fund of the State Education AssistanceAuthority established pursuant to G.S. 116‑209.25. In the case of amarried couple filing a joint return, the maximum dollar amount of thededuction is five thousand dollars ($5,000).

FilingStatus                                                                  AGI

Married,filing jointly                                                   $100,000

Headof Household                                                        80,000

Single                                                                             60,000

Married,filing separately                                                 50,000

(5)        The taxpayer shalladd to taxable income the amount deducted from taxable income in a priortaxable year under subdivision (4) of this subsection to the extent this amountwas withdrawn from the Parental Savings Trust Fund of the State EducationAssistance Authority established pursuant to G.S. 116‑209.25 and not usedto pay for the qualified higher education expenses of the designatedbeneficiary, unless the withdrawal was made without penalty under section 529of the Code due to the death or permanent disability of the designatedbeneficiary.

(6)        A taxpayer who is aneligible firefighter or an eligible rescue squad worker may deduct from taxableincome the sum of two hundred fifty dollars ($250.00). In the case of a marriedcouple filing a joint return, each spouse may qualify separately for thededuction allowed under this subdivision. In order to claim the deductionallowed under this subdivision, the taxpayer must submit with the tax returnany documentation required by the Secretary. An individual may not claim adeduction as both an eligible firefighter and as an eligible rescue squadworker in a single taxable year. The following definitions apply in thissubdivision:

a.         Eligiblefirefighter. – An unpaid member of a volunteer fire department who attended atleast 36 hours of fire department drills and meetings during the taxable year.

b.         Eligible rescuesquad worker. – An unpaid member of a volunteer rescue or emergency medicalservices squad who attended at least 36 hours of rescue squad training andmeetings during the taxable year.  (1989, c. 718, s. 2; c. 728, s. 1.4; c. 770, ss.41.2, 41.3; c. 792, s. 1.1; 1989 (Reg. Sess., 1990), c. 984, s. 4; c. 1002, s.2; 1991, c. 45, s. 9; c. 453, s. 1; c. 689, ss. 253, 254; 1991 (Reg. Sess.,1992), c. 1007, s. 3; 1993, c. 12, s. 8; c. 443, s. 8; c. 485, s. 9; 1993 (Reg.Sess., 1994), c. 745, s. 7; 1995, c. 17, s. 5; c. 42, ss. 1, 2(a), (b); c. 46,s. 3; c. 370, s. 3; 1996, 2nd Ex. Sess., c. 13, s. 8.1; c. 14, s. 9; 1997‑226,s. 3; 1997‑328, s. 1; 1997‑388, s. 4; 1997‑525, s. 1; 1998‑98,s. 69; 1998‑171, ss. 2, 3; 1998‑212, ss. 29A.2(c), 29A.13(a); 1999‑333,s. 3; 1999‑463, Ex Sess., s. 4.6 (a); 2000‑140, ss. 65, 93.1(a);2001‑424, ss. 12.2(b), 34.19(a), (b); 2002‑126, ss. 30B.1(a),30B.1(b), 30C.2(b), 30C.2(d), 30C.4; 2003‑284, s. 37A.2; 2005‑1, s.5.7(a); 2005‑276, ss. 35.1(e), 39.1(f); 2005‑435, s. 55; 2006‑17,ss. 2, 3; 2006‑66, ss. 24.12(a), 24.18(e); 2006‑220, s. 3; 2006‑221,s. 27(a); 2007‑323, ss. 31.19(a)‑(d), 31.24(a); 2007‑397, s.13(c); 2008‑107, ss. 28.1(e),  (f),(h), 28.25(c), 28.27(b), (c); 2008‑134, s. 2(c); 2009‑445, s. 43;2009‑451, s. 27A.6(e), (f).)