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North Carolina Credits

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North Carolina Credits

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Credit for Tax Paid to Another State or Country

When income is taxed by North Carolina for a period during which you were a legal resident of North Carolina and the same income is also taxed by another state or country because it was earned in or derived from sources within that state or country, a tax credit may be claimed, but not on the basis of a withholding statement alone. Attach a copy of the return filed with the other state or country and a copy of the check or receipt if a balance of tax was paid with the return.

Complete the North Carolina return and include all income both within and outside the State. Compute the tax as though no credit is to be claimed. Complete Part 1 of Form D-400TC to determine the allowable tax credit. The amount entered on Line 1, Part 1 of Form D–400TC is total income from all sources received while a resident of North Carolina, adjusted by the applicable additions and/or deductions to federal adjusted gross income that relate to gross income that you listed on Form D–400, Page 3. The amount of net tax paid on Line 6 is any prepayment of tax (tax withheld, estimated tax payments, amount paid with extension, etc.) plus any additional tax paid or less any refunds received or expected to be received. Attach a copy of the tax return filed with the other state and proof of the payment.

Include on Line 2, Part 1 of Form D–400TC your share of any S Corporation income that is attributable to and taxed by another state, whether or not the other state taxed the income at the individual or corporate level. Include on Line 6, Part 1, Form D–400TC the net tax you paid another state on your share of S Corporation income or your pro rata share of the net corporate tax paid by the S Corporation to another state that taxes the corporation rather than the shareholder. Attach a schedule to your return showing the total amount of tax paid to the other state by the S Corporation, and how your pro rata share of the tax was determined.

If you claim credit for tax paid to more than one state or country, use the Out-of-State Tax Credit Worksheet to determine the tax credit allowable for each state or country. Determine the total credits for all states by adding the amount on Line 7 of each worksheet and enter the total on Form D-400TC, Line 7a. Be sure to use separate worksheets to determine the separate credits for each state or country.

Nonresidents are not entitled to this tax credit.

Earned Income Tax Credit (Refundable)

The State credit is 4.5% (.045) of the federal earned income tax credit allowed under Section 32 of the Code. If you are eligible for the federal earned income tax credit, complete Part 5 of Form D-400TC to determine your State credit.

A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax.

Credit for Child and Dependent Care Expenses

If you are entitled to claim an income tax credit for child and dependent care expenses on your federal return, you may claim a tax credit for such expenses on your North Carolina return. For dependents who were age seven or older and not physically or mentally incapable of caring for themselves, the credit is from 7% to 9% of the federal employment–related expenses, depending on your filing status and federal adjusted gross income. For dependents who were under the age of seven and dependents who were physically or mentally incapable of caring for themselves, the tax credit is from 10% to 13% of the qualified federal employment–related expenses, depending on your filing status and your federal adjusted gross income. The federal employment–related expense is shown on Line 3 of Federal Form 2441. The total amount shown on Line 8, Part 2 of Form D-400TC cannot exceed $3,000 for one dependent or $6,000 for two or more dependents.

A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax.

For a dependent who reaches age seven during the taxable year and who is not physically or mentally incapable of caring for himself, the tax credit for employment-related expenses incurred prior to the dependent’s 7th birthday will be calculated using the applicable percentage in Column A, and the tax credit for employment related expenses incurred after the dependent becomes age seven will be calculated by using the applicable percentage in Column B. You must use the table below to determine the amounts to enter on Lines 10 and 12 of Form D-400TC.

Credit for Children

You may claim a child tax credit of $100 on your State return for each dependent child for whom you are entitled to claim a child tax credit on your federal return if your federal adjusted gross income (Form D-400, Line 6) is less than the following amount shown for your filing status: Married filing jointly/qualifying widow(er) - $100,000; Head of household - $80,000; Single - $60,000; or Married filing separately - $50,000.

The credit for children can be claimed only for a child who was under 17 years of age on the last day of the year. A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax. Complete Form D–400TC, Part 3 to determine the allowable credit.

Credit for Charitable Contributions by Nonitemizers

If you claimed the North Carolina standard deduction on your return, you may claim a tax credit for charitable contributions. You may not claim the credit if you claimed North Carolina itemized deductions on your return. The allowable credit equals 7% of the amount by which your charitable contributions for the taxable year exceed 2% of your federal adjusted gross income. The credit may not be claimed for contributions for which credits for certain real property donations, gleaned crops, or recycling oyster shells are claimed. A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax. The credit may not exceed the tax liability for the tax year, reduced by other tax credits. Complete the Worksheet for Determining Tax Credit for Charitable Contributions to determine the allowable credit.

Credit for Premiums Paid on Long-Term Care Insurance Contracts

If your federal adjusted gross income (Form D-400, Line 6) is less than the following amounts for your filing status (Married filing jointly/qualifying widow(er) - $100,000; Head of household - $80,000; Single - $60,000; or Married filing separately - $50,000), a tax credit is allowed for the qualifyingpremiums you paid during the taxable year on a qualified long-term care insurance contract(s) (as defined in section 7702B of the Internal Revenue Code)that provides insurance coverage for yourself, your spouse, or a dependent for whom you are allowed to claim a personal exemption on your federal return. Medical insurance premiums that you pay for general health care, hospitalization, or disability insurance do not qualify as premiums paid for a long-term care insurance contract. A long-term care insurance contract is any insurance contract under which the only insurance protection provided isfor coverage of qualified long-term care services as defined in section 7702B of the Internal Revenue Code. Qualified long-term care services are thoseservices required by a chronically ill individual and provided under a plan of care prescribed by a licensed health care practitioner.

The credit is 15% of the premiums paid but may not exceed $350 for each qualified long-term care insurance contract for which a credit is claimed. No credit is allowed for payments that are deducted from, or not included in, your federal gross income for the taxable year. For example, payments that are not included in federal gross income are premiums paid through an employer-sponsored plan in which the payments are excluded from taxable wages (pre-taxed dollars). If you claimed a deduction for medical expenses on Federal Schedule A, Line 4, or if you claimed a deduction for self-employed health insurance premiums on Federal Form 1040, Line 29, you are not entitled to claim this credit. However, you may claim this credit for any premiums paid for long-term care insurance that are not deductible on your federal return because of the age limitations contained in section 213(d)(10) of the Internal Revenue Code.

A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax.

Complete the Worksheet for Determining Tax Credit for Premiums Paid on Long-Term Care Insurance Contracts to determine the allowable credit.

Credit for Adoption Expenses

You may claim an adoption tax credit on your State return of 30% of the allowable adoption tax credit claimed on your federal return. A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax. Any unused portion of this credit may be carried forward for the next succeeding five years. Complete the Adoption Tax Credit Worksheet to determine the allowable credit.

Credit for Children With Disabilities Who Require Special Education

Certain taxpayers are allowed a tax credit of up to $3,000 per semester for tuition paid for an eligible dependent child. To determine eligibility for the credit, please refer to our website: http://www.dornc.com/practitioner/individual/directives/pd-12-1.pdf.

Credit for Qualified Business Investments

A tax credit is allowed for qualifying investments in the equity securities or subordinated debt of a qualified business venture, qualified grantee business, or a qualified licensee business. The credit is 25% of the amount invested or $50,000, whichever is less. The tax credit is not allowed for the year in which the investment is made but is allowed for the taxable year beginning during the calendar year following the calendar year in which the investment was made. Any unused credit may be carried forward for the next succeeding five years. Your basis in the equity securities or subordinated debt acquired as a result of your investment must be reduced by the amount of allowable credit.

To be eligible for the credit, you must file Form D-499, Application for Tax Credit for Qualified Business Investments, with the Secretary of Revenue. The application should be filed on or before April 15 and no later than October 15 of the year following the calendar year in which the investment was made. An application filed after October 15 will not be accepted. See Page 2 of Form D–499 for additional rules and regulations for claiming the credit. The allowable credit should be shown on Form D-400TC, Line 24. You must attach a copy of the qualified business tax credit approval letter from the Department of Revenue to verify the credit claimed on the return.

Credit for Disabled Taxpayer, Dependent, or Spouse

If you claimed an income tax credit on your federal tax return for being permanently and totally disabled, you are entitled to a tax credit on your North Carolina return equal to one-third (1/3) of the amount of the federal tax credit. Although the federal tax credit is also allowed for being age 65 or older, no portion of the tax credit is allowed on the North Carolina return for being age 65 or older.

You may also be entitled to a tax credit if a dependent or spouse for whom you are allowed an exemption on your federal return is permanently and totally disabled. To qualify for the credit, a statement from a physician or local health department must be attached to your return certifying that the dependent was unable to engage in any substantial gainful activity by reason of a physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.

A part-year resident or nonresident may claim a prorated credit based on the percentage of income that is subject to North Carolina tax. The allowable credit is determined by completing Form D-429, Worksheet for Determining the Credit for the Disabled Taxpayer, Dependent or Spouse. The credit should be shown on Form D-400TC, Line 25. You may contact the Department for Form D-429 or you may download it from our website at www.dornc.com.

Credit for Certain Real Property Donations

A tax credit is allowed for a qualified donation of an interest in real property located in North Carolina that is useful for public beach access or use, public access to public waters or trails, fish and wildlife conservation, forestland or farmland conservation, watershed protection, conservation of natural areas, conservation of natural or scenic river areas, conservation of predominately natural parkland, or historic landscape conservation. An individual is allowed a credit of 25% of the fair market value of the donated property, but may not exceed $250,000. In the case of property owned by a married couple filing a joint return, the maximum credit for real property donations is increased to $500,000. Previously, the maximum joint tax credit was $250,000. To be eligible for the credit, the interest in the property must be donated in perpetuity to and accepted by the State, a local government, or a body that is both organized to receive and administer lands for conservation purposes and qualified to receive charitable contributions under the Internal Revenue Code. To support the credit, a certification by the Department of Environment and Natural Resources that the donated property is suitable for one or more of the valid public benefits described above and a self-contained or summary appraisal report must be attached to your return.

The credit may not exceed the tax liability for the tax year, reduced by other tax credits. Any unused portion of the credit may be carried forward for the next succeeding five years.

Credit for Rehabilitating Historic Structure

Income-producing – Generally, a taxpayer who is allowed a federal income tax credit under section 47 of the Internal Revenue Code for making rehabilitation expenditures for a certified historic structure located in North Carolina is allowed a credit equal to 20% of the expenditures that qualify for the federal credit (40% of expenditures if the facility at one time served as a State training school for juvenile offenders).

Nonincome-producing – Generally, a taxpayer who is not allowed a federal income tax credit under section 47 of the Internal Revenue Code and who makes rehabilitation expenses for a State-certified historic structure located in North Carolina is allowed a credit equal to 30% of the rehabilitation expenses (40% of expenditures if the facility at one time served as a State training school for juvenile offenders). To qualify for the credit, the rehabilitation expenses must exceed $25,000 within a 24-month period. You must attach to the return a copy of the certification obtained from the State Historic Preservation Officer verifying that the historic structure has been rehabilitated in accordance with the Secretary of the Interior’s Standards for Rehabilitation.

Important: The credit for rehabilitating a historic structure must be claimed in five equal installments beginning with the taxable year in which the property is placed in service. Any unused portion of the credit may be carried forward for the succeeding five years.

Credit for Rehabilitating Historic Mill Facility

A tax credit is also allowed for rehabilitating a historic mill facility. The amount of credit depends on the location of the facility and whether it was renovated as income producing or nonincome producing property. Contact the Department of Revenue for additional information about the credit.

Credit for Property Taxes Paid by a Farmer on Farm Machinery

An individual engaged in the business of farming is allowed a credit of up to $1,000 for the amount of property taxes paid on farm machinery or attachments and repair parts for farm machinery. Farm machinery is defined as machinery that is exempt from State sales tax under G.S. 105-164.13(1)b. The credit may not exceed the tax liability for the year, reduced by other tax credits. To support the credit, you must attach a copy of the tax receipt for the property taxes for which the credit is claimed.

Credit for Gleaned Crops

You are allowed a credit for unharvested crops which are donated to a qualified charitable organization. The credit is 10% of the season average price of the crop as determined by the North Carolina Crop and Livestock Reporting Service of the North Carolina Department of Agriculture and Consumer Services or the average price of the crop in the nearest local market for the month in which the crop is gleaned if the Crop and Livestock Reporting Service does not determine the season average price. Any unused portion of the credit can be carried forward to the next succeeding five years.

If the credit is claimed, the amount of the market price of the donated crops must be added to federal adjusted gross income in determining North Carolina taxable income.

Credit for Construction of Handicapped Dwelling Units

You are allowed a tax credit for constructing multi-family rental units located in North Carolina which conform to Volume I-C of the North Carolina Building Code. The credit is $550 for each dwelling unit completed during the taxable year. To support the credit, you must attach to your return a copy of the occupancy permit on which the building inspector has recorded the number of units completed during the year. If the credit exceeds the tax liability for the year reduced by all other credits, the excess may be carried over only to the succeeding tax year.

Credit for Construction of Poultry Composting Facility

You are allowed a credit for constructing a poultry composting facility in North Carolina for the composting of poultry carcasses from commercial poultry operations. The credit is 25% of the installation, materials, and equipment costs of construction paid during the taxable year, not to exceed $1,000 for any single installation. The portion of construction costs represented by State or federal agency provided funds cannot be used in determining the credit. The credit may not exceed the tax liability for the year, reduced by other tax credits and any unused credit may not be carried over to another tax year.

In the case of property owned by the entirety, if both spouses are required to file North Carolina income tax returns, the credit may be claimed only if the spouses file a joint return.

Credit for Conservation Tillage Equipment

A credit is allowed for the purchase of certain conservation tillage equipment for use in a farming business, including tree farming. The credit is 25% of the cost of the equipment, not to exceed $2,500 for any taxable year. Qualifying conservation tillage equipment is (1) a planter designed to minimize disturbance of the soil in planting crops or trees, including equipment that may be attached to equipment that you already own or (2) equipment designed to minimize disturbance of the soil in reforestation site preparation, including equipment that may be attached to equipment that you already own; provided, however this shall include only those items of equipment generally known as a “KGBlade”, and “drumchopper”, or a “V-Blade”.

The credit may be claimed only if you are the first purchaser of the equipment and may not be claimed if you purchased the equipment for use outside of North Carolina. Any excess credit may be carried forward for the next succeeding five years. The basis in any equipment for which a credit is allowed must be reduced by the amount of the credit.

Credit for Recycling Oyster Shells

A tax credit is allowed to a taxpayer who donates oyster shells for recycling to the Division of Marine Fisheries of the Department of Environment and Natural Resources. The credit is $1.00 per bushel of oyster shells donated. The credit is limited to the tax liability and any unused portion of the credit can be carried forward for the succeeding five years.

To support the credit, a taxpayer must obtain a certification by the Department of Environment and Natural Resources stating the number of bushels of oyster shells that were donated. A taxpayer who claims the credit must include in other additions any amount deducted for the donation of the oyster shells.

Business Incentive and Energy Tax Credits (Limited to 50% of Tax Liability)

The following tax credits are available as incentives to new and expanding businesses or for investing in renewable energy property or low-income housing. If you believe you are entitled to one or more of the tax credits, contact the Department for Form NC-478 Series or you may download the forms from our website at www.dornc.com. Form NC-478 Series is used to calculate and report tax credits that are limited to 50% of your tax less the sum of all other tax credits that you claim. Complete the form and attach it to the front of your income tax return.

Do not enter a qualified business investment tax credit on Line 36. Tax credits for qualified business investments are claimed on Line 24. If you are entitled to one of the following tax credits, enter the amount of the credit on Form D-400TC, Line 36.

* • Credit for investing in machinery and equipment

• Credit for creating jobs

• Credit for business property

• Credit for real property

• Credit for technology development

• Credit for interactive digital media

* • Credit for investing in central office or aircraft facility property

* • Credit for technology commercialization

* • Credit for development zone projects

• Credit for renewable fuel facility

*• Credit for investing in low-income housing

• Credit for use of North Carolina ports

• Credit for investing in renewable energy property

• Credit for work opportunity

• Credit for constructing a railroad intermodal facility

*•Credit for small business employee health benefits

• Credit for biodiesel producers

• Credit for donating funds to a nonprofit organization to enable the nonprofit to acquire renewable energy property.

• Credit for renewable energy property facility

* These credits have expired and are only available for future installments and unused carryforwards.


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Views: 1400 Created on: Jun 15, 2013
Date updated: Aug 12, 2015

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