Organization Memberships

American Organization of CPAs
NC Assoc of CPAs

TAX CONSIDERATIONS OF MOVING TO NORTH CAROLINA

We are pleased that you have decided to make North Carolina your place of residence.To make your transition easier, we have prepared this analysis which highlights the pertinent tax laws.We hope this will be of benefit in familiarizing yourself with North Carolina income tax laws for individual taxpayers.

NORTH CAROLINA TAXABLE INCOME

North Carolina taxable income starts with taxable income as calculated for federal income tax purposes and makes certain adjustments.These adjustments are summarized below:

Additions:

The following items are some of the additions necessary to compute North Carolina taxable income, to the extent they are excluded or deducted from federal taxable income:

• Interest income from obligations of other states and their political subdivisions.
• Lump-sum distributions from a pension or profit-sharing plan.
• Any state, local, or foreign income taxes deducted on the federal return.
• The amount by which the taxpayer's standard deduction and personal exemption have been increased for inflation for federal income tax purposes.
• The amount of federal estate tax attributable to income in respect of a decedent that is deducted from federal taxable income.
• The amount by which the basis of property for federal income tax purposes exceeds its basis for state income tax purposes in the year of disposition.

Deductions:

The following amounts are some of the deductions necessary to compute North Carolina taxable income to the extent they are included in federal taxable income:

• Interest received from obligations of the United States or its possessions.
• Interest received from obligations of the state of North Carolina or its political subdivisions.
• Up to $35,000 of any severance wages received as a result of permanent involuntary termination from employment.
• Social Security benefits and Railroad Retirement Act benefits.
• Refunds of state, local and foreign income taxes.
• Up to $4,000 in state, local and federal government retirement plan benefits, and up to $2,000 in private retirement plan benefits.(No more than $4,000 in total retirement plan benefits can be deducted per taxpayer.Unless received by NC government retirees with five or more years of service as of August 12, 1998.)
• The amount of North Carolina inheritance tax paid attributable to income in respect of a decedent which is included in federal taxable income.
• The amount by which a taxpayer's mortgage interest deduction was reduced for federal income tax purposes because of the federal mortgage interest tax credit.
• Adjustment for bonus depreciation deducted from FTI in 2002,2003 and/or 2004.
• A deduction of up to $4000 for higher education expenses claimed as a credit on the federal return.

Also, North Carolina began using federal taxable income in determining State income tax effective January 1, 1989.To provide for the transition to the new tax law, several additions and deductions are necessary.For the majority of taxpayers, these transitional adjustments will not be necessary.

Tax Credits:

North Carolina allows a North Carolina resident taxpayer to claim a credit against North Carolina income taxes for the following items:

• Income taxes paid to another state or country on income that is also taxed by North Carolina.
• Child care and dependent care expenses.
• Dependent children for whom you are allowed to deduct a personal exemption on your federal return (note that your federal adjusted gross income must be less than $100,000 for married taxpayers filing jointly or less than $60,000 for single taxpayers).
• Premiums paid during the tax year on a qualified long-term care insurance contract that offers coverage to you, your spouse, or your dependent.
• Payments made by parents for private or employer-sponsored health insurance for their dependent children. The credit is either $100 or $300 depending on the amount of income.
• Credit for charitable contributions of nonitemizers.

Various other income tax credits are available to North Carolina residents, including credits for the disabled, for certain real property donations, and for installation of qualified solar heating and cooling systems.

Tax Rates:

• You are required to report on your return the amount of use tax you owe on out of state purchases.

Part Year Residents:

An individual who moves his legal residence into or out of North Carolina during the tax year is a part-year resident.  Part-year residents are required to prorate their federal taxable income to determine the portion that is subject to North Carolina tax.

Moving Expenses

North Carolina law allows the same moving expense deduction as federal, provided the entire income derived form your new place of employment is included in your North Carolina gross income.  If the entire income derived from the new place of employment is not includable in North Carolina gross income, the reimbursement and the deduction should be prorated accordingly.

Changing job locations involves a significant amount of moving expenses.  Beginning in 1994, qualified unreimbursed moving expenses are deductible "above the line" provided required time and distance tests are met.  The specific types of deductible expenses are as follows:

1. Traveling expenses (including lodging, but excluding meals) incurred during the move from the old residence to the new residence.
2. Moving household goods and personal items.

Employer reimbursements of qualified (i.e., otherwise deductible) moving expenses are excluded from gross income as a qualified fringe benefit.  However, reimbursements of "unqualified" moving expenses are includable in gross income as compensation.

Property Tax Listings

All residents are required to list personal property owned and located in North Carolina with the county where the property is located.  The property listing details property owned as of January 1 and must be filed by January 31 of that same year.

However, motor vehicles registered with the North Carolina Department of Motor Vehicles (DMV) represent a special class of property.  These vehicles are automatically listed on the date registration is renewed or initially requested.  Property taxes for these vehicles are due four months from the last day of the month the vehicle was registered.  Motor vehicles not registered with the DMV must be listed similar to other personal property items.