Unless otherwise noted, the following information applies to individuals for tax year 2022. For information about another tax year, please review the Department’s Instructions and Bulletins for that year.
Income Tax Adjustments for Code Section 179 Expenses
North Carolina does not conform to the same Code section 179 expensing limitations allowed for federal income tax purposes. Instead, North Carolina has separate dollar and investment limitations. For tax year 2022, the North Carolina limitations are as follows:
North Carolina Dollar Limitations
|North Carolina Investment Limitations|
A corporate or individual income taxpayer that places Code section 179 property in service during a taxable year must add to federal taxable income (federal adjusted gross income for individual income tax purposes for taxable years 2012 through 2022) an amount equal to 85% of the difference between the amount deducted on the federal return for Code section 179 expenses, using the federal dollar and federal investment limitations, and the amount that would be deductible for Code section 179 expenses using the North Carolina dollar and North Carolina investment limitations. If the cost of all qualifying Code section 179 property placed in service during the taxable year exceeds the North Carolina investment limitation for a given year, a taxpayer must reduce the North Carolina dollar limitation, but not below zero, by the amount the cost of all qualifying Code section 179 property placed in service during the taxable year exceeds the North Carolina investment limitation. The add-back is calculated as follows:
Code Section 179 Investments and Pass-through Entities
You have been allocated Code section 179 expenses on your federal K-1 based on federal dollar and investment limitations. North Carolina has different dollar and investment limitations and requires an add-back on the North Carolina income tax return for 85% of the difference between the amount deducted on the federal return for Code section 179 expenses and the amount of Code section 179 expenses that would be deductible using the North Carolina dollar and investment limitations. The amount of Code section 179 expenses that would be allocated to you using North Carolina’s dollar and investment limitations is $___. Use this amount in calculating the add-back for Code section 179 expense on your North Carolina return. You are allowed to take a deduction in each of the first five taxable years following the taxable year in which the add-back is reported. The deduction in each of those years is 20% of the add-back.