North Carolina Standard Deduction or North Carolina Itemized Deductions

In calculating North Carolina taxable income, an individual may deduct from adjusted gross income either the North Carolina standard deduction or North Carolina itemized deductions, whichever is applicable.  Beginning with the 2018 tax year, an individual may claim North Carolina itemized deductions even if the individual does not claim federal itemized deductions.  In previous tax years, individuals claiming the federal standard deduction were required to take the North Carolina standard deduction.  This requirement was changed after Congress enacted the Tax Cuts and Jobs Act ("TCJA") in December 2017.  The TCJA increased the federal standard deduction to an amount greater than the North Carolina standard deduction.

The standard deduction for most individuals for tax year 2018 can be found in the chart located below.  However, the standard deduction is zero for persons who are not eligible for the federal standard deduction under section 63 of the Code.  You are not eligible for the federal standard deduction if: (1) you are married filing a separate return for federal income tax purposes and your spouse itemizes deductions, (2) you are a nonresident alien, or (3) you are filing a short-year tax return because of a change in your accounting period.  In general, a nonresident alien is an alien (Not a U.S. citizen) who has not passed the green card test or the substantial presence test. 

N.C. Standard Deduction

If your filing status is: Your standard deduction is:
Single $8,750
Married Filing Jointly/Qualifying Widow(er)/Surviving Spouse $17,500
Married Filing Separately  
  • Spouse does not claim itemized deductions
$8,750
  • Spouse claims itemized deductions
$0
Head of Household $14,000

To claim the N.C. standard deduction, enter the standard deduction amount on Form D-400, line 11.  Important: Do not complete Form D-400 Schedule S, Part C - N.C. Standard Deduction or N.C. Itemized Deductions if you claim the N.C. Standard deduction shown in the chart above.

N.C. Itemized Deductions

If you itemized deductions on your federal return, you may claim either the North Carolina standard deduction or North Carolina itemized deductions.  North Carolina itemized deductions are not identical to federal itemized deductions and are  subject to certain limitations.  Specifically, no itemized deductions included on federal Form 1040, Schedule A are allowed as North Carolina itemized deductions except qualified home mortgage interest, real estate property taxes, charitable contributions, medical and dental expenses, and repayment of claim of right income. 

Important: Individuals must complete Part C of Form D-400 Schedule S, Part C, N.C. Standard Deduction or N.C. Itemized Deductions, and attach the schedule to Form D-400 if N.C. itemized deductions are claimed.  In addition, North Carolina itemized deductions are not subject to the overall limitation on itemized deductions under section 68 of the Code.

The North Carolina itemized deductions are as follows:

  • Qualified Mortgage Interest and Real Estate Property Taxes. 
    • The sum of qualified home mortgage interest and real estate property taxes claimed under sections 163(h) and 164 of the Code, respectively, may not exceed $20,000.  For spouses filing as married filing separately or married filing jointly, the total home mortgage interest and real estate taxes claimed by both spouses combined may not exceed $20,000.  For spouses filing as married filing separately with a joint obligation for home mortgage interest and real estate taxes, the deduction for these items is allowable to the spouse who actually paid them.  If the amount of the home mortgage interest and real estate taxes paid by both spouses exceeds $20,000, these deductions must be prorated based on the percentage paid by each spouse.  For joint obligations paid from joint accounts, the proration is based on the income reported by each spouse for that taxable year.
    • For purposes of real estate property taxes, the amount allowed as a deduction equals the amount allowed as a deduction for real estate property taxes paid or accrued on real estate under section 164 of the Internal Revenue Code for the year.  For taxable years 2018 through 2025, Code section 164 limits the amount of the deduction for state and local tax (SALT) payments, including real estate property taxes, to $10,000 ($5,000 in the case of a married individual filing a separate return).  Thus, an individual who files a North Carolina joint return with a spouse may not deduct more than $10,000 of real estate taxes paid or accrued for the taxable year as a North Carolina itemized deduction.  Importantly, if the taxpayer deducts the maximum $10,000 for real estate property taxes paid or accrued during the taxable year on the State return, the taxpayer can also deduct up to $10,000 for mortgage expenses paid or accrued if the mortgage expenses meets statutory requirements.
    • Of note, if the aggregate amount of the SALT deduction exceeds $10,000 such that the taxpayer cannot deduct the full amount of SALT payments on the federal tax return, and the amount of real estate property tax paid during the year exceeds $10,000 ($5,000 in the case of a married individual filing a separate return), the taxpayer can deduct $10,000 in real estate property tax paid for State tax purposes.
  • Charitable Contributions.  Charitable contributions allowed as a deduction under section 170 of the Code are allowed.  A taxpayer who is required to make an addition to federal adjusted gross income under "G.S. §105-153.5(c2)(3)" for the amount of a qualified charitable distribution from an individual retirement plan is allowed under "G.S. §105-153.5(a)(2)a" to include the amount of distribution as part of the taxpayer's charitable contribution deduction when claiming North Carolina itemized deductions if the taxpayer itemizes deductions on his or her federal return.
  • Medical and Dental Expenses.  Medical and dental expenses allowed as a deduction under section 213 of the Code are allowed as a North Carolina itemized deduction.
  • Claim of Right Deduction
    • Under the federal "Claim of Right" Doctrine, a taxpayer who receives income under a claim of right and without restriction on the use or disposition of the income is taxed on that income in the year of receipt even though the right to retain the income is not yet fixed or the taxpayer may later be required to return it.
    • Under federal law, if a taxpayer is required to repay an amount previously included in the federal return in an earlier year, the taxpayer may be able to deduct the amount repaid or take a tax credit.  The amount of the repayment determines the options available to the taxpayer.  For further guidance, see federal Publication 525.
    • For North Carolina tax purposes, a taxpayer is allowed a deduction for the repayment to the extent the repayment is not deducted in arriving at the taxpayer's adjusted gross income in the current taxable year.  If the repayment is more than $3,000, the deduction is the amount of the repayment.  If the repayment is $3,000 or less, the deduction is the amount of repayment less 2% of adjusted gross income.
    • For information on how to compute the claim of right deduction, see "Repayment of Claim of Right Income" and "Repayment of Claim of Right Worksheet" located in the North Carolina Individual Income Tax Instructions, Form D-401.
    • No deduction is allowed if the taxpayer calculated the federal income tax in the year of repayment under the provisions of Code section 1341(a)(5).  In that case, a taxpayer will recover the tax previously paid on the repaid income under "G.S. §105-266.2."