North Carolina's Reference to the Internal Revenue Code Updated-Impact on 2014 N.C. Corporate and Individual Income Tax Returns
Issued By: Income Tax Division
Date: April 1, 2015
Governor McCrory signed into law Session Law 2015-2 (Senate Bill 20) on March 31, 2015. The legislation updated North Carolina’s reference to the Internal Revenue Code to the Code as enacted as of January 1, 2015. As a result, North Carolina corporate and individual income tax law generally follows the Tax Increase Prevention Act of 2014 (“TIPA”), which extended several provisions in federal law that had sunset at the end of 2013. The law does not follow (decouples from) TIPA in six instances. The table below identifies those instances and describes each difference and which lines on the tax returns are impacted.
| Federal Provision | State Provision | NC C Corporate Return | NC Individual Return |
|---|---|---|---|
| Bonus depreciation is extended to property placed in service in 2014. | Addition required for 85% of bonus depreciation deducted on federal return. | Include addition on Form CD-405, Schedule H, Line 1.g. | Include addition on Form D-400 Schedule S, Part A, Line 3. |
| Code section 179 dollar and investment limitations are increased to $500,000 and $2,000,000, respectively, for 2014. | Dollar and investment limitations set at $25,000 and $200,000, respectively. Addition required for 85% of the difference between the deduction using federal limitations and the deduction using NC limitations. | Include addition on Form CD-405, Schedule H, Line 1.g. | Include addition on Form D-400 Schedule S, Part A, Line 3. |
| Mortgage insurance premiums are treated as qualified residence interest for 2014. | Mortgage insurance premiums are not treated as qualified residence interest. | Not applicable. | Do no include mortgage insurance premiums in the amount of mortgage interest deducted on Form D-400 Schedule S, Part C, Line 13. |
| Cancellation of qualified principal residence debt is excluded from gross income. | Addition required for amount of cancellation of qualified principal residence debt excluded from gross income on the federal return. | Not applicable. | Include addition on Form D-400 Schedule S, Part A, Line 3. |
| Qualified tuition and related expenses are deductible for 2014. | Addition required for qualified tuition and related expenses deducted on the federal return. | Not applicable | Include addition on Form D-400 Schedule S, Part A, Line 3. |
| Qualified charitable distributions from an IRA by a person who has attained age 70 1/2 are excluded from gross income. | Addition required for qualified charitable distributions from an IRA by a person who has attained age 70 1/2 that are excluded from gross income on the federal return. The distributions are allowable as charitable contributions. | Not applicable | Include additions on Form D-400 Schedule S, Part A, Line 3. Deduct contributions on Form D-400 Schedule S, Part C, Line 18 if itemizing. |
Any person who has already filed a 2014 North Carolina income tax return and whose federal taxable income (C corporation) or federal adjusted gross income (individual) is impacted by the amendments to federal law included in TIPA or by the provisions of TIPA from which North Carolina has decoupled must file an amended North Carolina return. If the amended return reflects additional tax due, the taxpayer will avoid interest if the additional tax is paid by the original due date of the return (April 15 for calendar-year taxpayers). The taxpayer will also avoid a late-payment penalty if the additional tax reflected on the amended return is paid when the amended return is filed or April 15, whichever is later.