2024 Personal Taxes Law Changes

This section was rewritten to add two new definitions to the individual income tax statutes. These definitions are identical to the same definitions found in the corporate income tax statutes and read as follows:

(7a) Income attributable to the State. – Either of the following: 
a. With respect to a partnership, all items of income, loss, deduction, or credit of the partnership apportioned and allocated to this state pursuant to G.S. 105-130.4. 
b. With respect to an S Corporation, as defined in G.S. 105-131(b)(4).

(7b) Income not attributable to the State. – Either of the following: 
a. With respect to a partnership, all items of income, loss, deduction, or credit of the partnership other than income attributable to the state. 
b. With respect to an S Corporation, as defined in G.S. 105-131(b)(5).

These definitions define terms that were included in the 2023 SALT Workaround update enacted by Session Law 2023-12. For taxable years beginning on or after January 1, 2023, an S Corporation or eligible partnership (collectively, a “PTE”) that elects to pay North Carolina income tax at the entity level (a “Taxed PTE”) is only required to include each owner’s distributive share of the Taxed PTE’s income or loss attributable to North Carolina in the Taxed PTE’s computation of North Carolina taxable income.

(Effective for taxable years beginning on or after January 1, 2023; HB 228, s. 1.2(a)., S.L. 2024-28.)

This subsection was amended to modernize the language of the statute that governs the filing of a North Carolina income tax return using the “married filing jointly” filing status.

(Effective July 1, 2024; HB 228, s. 1.3, S.L. 2024-28.)

New subsection (f) was added to this statute to explain an exception to the general rule regarding the filing of joint North Carolina income tax returns by two lawfully married individuals.

As written, subsection (f) provides the following:

“Exception. – If two lawfully married individuals file a joint federal return but only one individual is required to file an income tax return pursuant to subsection (a) of [G.S. 105-153.8], that individual must file the income tax return as either of the following:

(1) Jointly under the provisions of subsection (e) of [G.S.105-153.8] based on the filing status of married, filing jointly/surviving spouse. 
(2) Separately based on the filing status of married, filing separately."

(Effective July 1, 2024; HB 228, s. 1.3, S.L. 2024-28.)

This statute, originally enacted as G.S. 105-151.12 and repealed by the 2013 General Assembly, is reenacted and recodified as G.S. 105-153.11. The statute provides an income tax credit to an individual or a pass-through entity (collectively, a “taxpayer”) that makes a qualified donation of real property in North Carolina for a specific qualifying conservation use. Subject to the limitations set forth by the 2024 General Assembly, the credit is equal to twenty-five percent (25%) of the fair market value of the donated property.

Subsection (a) provides the list of specific qualifying conservation uses for which the credit is based.

Subsection (b) defines the term “qualified donation.”

Subsection (c) outlines the application process for which the taxpayer must follow to be eligible for the credit.

Subsection (d) requires the taxpayer claiming the credit to maintain and make available for inspection any information or records required by the Department.

Subsections (e) and (f) provide the aggregate amount of credit allowed to an individual or a pass-through entity in a taxable year.

Subsection (g) makes it clear that a pass-through entity (PTE) that elects to pay North Carolina income tax at the entity level (a “Taxed PTE”) cannot take the credit at the entity level but must pass through to each of its owners the owner’s allocated share of credit.

Subsections (h) through (j) provides certain limitations for claiming the credit. Under subsections (h) and (i), if the credit exceeds the taxpayer’s tax liability for the year reduced by the sum of all other tax credits allowed, the excess is not refunded but may be carried forward for five years. Under subsection (j) a taxpayer is prohibited from receiving a “double benefit” by not allowing the taxpayer that claims the credit from deducting a charitable contribution under G.S. 105- 153.5(a)(2)(a) for the value of the donated property for which the credit is based.

Subsection (k) creates an aggregate cap on all credits allowed for donations made during a taxable year to individuals, pass-through entities, and corporations (collectively, “taxpayers”) to $5,000,000, of which $3,250,000 is reserved for credits to taxpayers that made a qualified donation for the specific use of forestland or farmland conservation. This subsection also provides the procedure for which the Department may reopen the application period if allocated funds become available.

Subsection (l) provides the procedures for the Department to follow when the aggregate amount of credits claimed by taxpayers exceed the ceiling provided in subsection (k).

Subsection (m) requires the Department to include specific information about the credit in the economic incentives report required to be published by May 1 of each year pursuant to G.S. 105-256(a)(2a).

(Effective for taxable years beginning on or after January 1, 2025, for donations made on or after January 1, 2025, and expires for taxable years beginning on or after January 1, 2027, for donations made on or after January 1, 2027; SB 355, s. 15(b), S.L. 2024-32.)

The 2021 General Assembly enacted legislation that created North Carolina’s SALT Workaround (“SALT Workaround”) for Pass-Through Entities. This legislation allows eligible partnerships to elect to pay North Carolina income tax at the partnership level (“Taxed Partnership”). The eligible partnership must make the election to pay the tax at the partnership level (the “Taxed Partnership Election”) on its timely filed tax return.

As part of an update to the SALT Workaround (“SALT Workaround Update”), the 2023 General Assembly revised this statute to expand the list of permissible partners of a partnership allowed to make the Taxed Partnership Election. In addition, the 2023 General Assembly added subsection (a1) to this statute to allow a partnership that could not make the Taxed Partnership Election for tax year 2022 to make the election by filing an amended return on or before October 15, 2023.

Because the SALT Workaround Update did not become law until October 3, 2023, the 2024 General Assembly extended the time for eligible partnerships to make the Taxed Partnership Election for tax year 2022 from October 15, 2023, to July 1, 2024.

(Effective for taxable years beginning on or after January 1, 2022; SB 508, s. 11.3(a)., S.L. 2024-1.)

Subsection (a) of this statute was rewritten to clarify that a taxpayer can receive an extension of time to file an income tax return under the provisions of G.S. 105-263 without asking the Secretary for the extension.

Under prior law, subsection (a) allowed a taxpayer to ask the Secretary for an extension of time to file an income tax return under the provisions of G.S. 105-263. Because the 2018 General Assembly amended G.S. 105-263 to provide taxpayers who are granted an automatic federal extension with an automatic state extension to file their corresponding North Carolina income tax return, subsection (a) of this statute was amended by the 2024 General Assembly to conform the statute to the other changes made to Article 9 of Chapter 105.

(Effective July 1, 2024; HB 228, s. 1.4(a), S.L. 2024-28.)

Subsections (f) and (g) of this statute were repealed.

As part of the legislation that created North Carolina’s SALT Workaround (“SALT Workaround”) for Pass-Through Entities (“PTEs”), the 2021 General Assembly added subsections (f) and (g) to this statute to prohibit a fiduciary and a beneficiary of an estate or trust who were shareholders of a Taxed S Corporation or who were partners in a Taxed Partnership (collectively, “owners in a Taxed PTE”) from claiming a credit for income taxes paid to other states and countries by the estate or trust or by the Taxed PTE to another state or country on income that was taxed to the Taxed PTE.

As part of an update to the SALT Workaround (“SALT Workaround Update”), the 2023 General Assembly rewrote a portion of the SALT Workaround to require Taxed PTEs to only include each owner’s share of the Taxed PTE’s income or loss attributable to North Carolina in its computation of North Carolina taxable income. Consequently, these subsections are no longer needed.

Note: The corresponding individual income tax credits were repealed by Session Law 2023-12.

(Effective for taxable years beginning on or after January 1, 2023; HB 228, s. 1.1(a)., S.L. 2024-28.)

This statute was rewritten to clarify that a taxpayer can receive an extension of time to file an income tax return under the provisions of G.S. 105-263 without asking the Secretary for the extension.

Under prior law, the statute allowed a taxpayer to ask the Secretary for an extension of time to file an income tax return under the provisions of G.S. 105-263. Because the 2018 General Assembly amended G.S. 105-263 to provide taxpayers that are granted an automatic federal extension with an automatic state extension to file the corresponding North Carolina income tax return, the statute was amended by the 2024 General Assembly to conform the statute to the other changes made to Article 9 of Chapter 105.

(Effective July 1, 2024; HB 228, s. 1.4(b), S.L. 2024-28.)