Tax Credits

All tax credits allowed to individuals are allowed to estates and trusts except for the tax credit for individual income taxes paid to other state by individuals and the tax credit for children.

Sunset for Tax Credits – Effect on Future Installments and Carryforwards – Several tax credits have been repealed in recent years. Taxpayers that qualified for these credits may continue to take any remaining installments and carryforwards of those tax credits after the sunset date if the taxpayer continues to meet the statutory eligibility requirements for each particular tax credit.

Form D-407TC is used to report any tax credits claimed on an estate or trust return. The amounts reflected on Form D-407TC are the portions of the tax credits allocated to the trust or estate. A fiduciary required to pay an income tax to North Carolina for a trust for which he acts may claim a credit for tax imposed and paid to another state or country on income from sources within that state or country under the provisions of G.S. 105-160.4(a).

A resident beneficiary of an estate or trust, the fiduciary of which pays an income tax to another state or country on distributable income reportable to North Carolina which is derived from sources in the other state or country may claim a credit against his North Carolina tax for his share of tax paid the other state or country under the provisions of G.S. 105-160.4(e).

Part 5 of Form D-407TC is to be used in computing the tax credit allowable to the estate or trust. Before this schedule may be completed, however, there must be an allocation between the estate or trust and its beneficiaries of the tax paid and the gross income on which such tax was paid to the other state or country.

The fiduciary's share and each beneficiary's share of the gross income on which tax has been paid to another state or country is determined by the governing instrument and should be entered in the appropriate schedule on the return. The fiduciary's share of total gross income to be used in the tax credit computation schedule is the total gross income from Federal Form 1041.