Enter the amount of interest received from notes, bonds, and other obligations of states and political subdivisions other than North Carolina if not included in federal adjusted gross income. This includes exempt interest dividends received from regulated investment companies (mutual funds) to the extent such dividends do not represent interest from obligations of North Carolina or its political subdivisions.
Adjustment for Bonus Depreciation
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA). This Act extended the 50% bonus depreciation through 2013. North Carolina did not adopt the bonus depreciation provisions under IRC sections168 (k) and 168(n) of this Act. Therefore, if you deducted the bonus depreciation under IRC sections 168(k) or 168(n) on your 2013 federal return, you must add to federal adjusted gross income 85% of the amount deducted. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.
Note: Any amount of the bonus depreciation added to federal adjusted gross income on your 2013 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2014.
Note: In the event of an actual or deemed transfer of an asset occurring on or after January 1, 2013, wherein the tax basis of the asset carries over from the transferor to the transferee for federal income tax purposes, the transferee must add any remaining deductions allowed to the basis of the transferred asset and depreciate the adjusted basis over any remaining life of the asset. The transferor is not allowed any future bonus depreciation deductions. In addition, in the event of an actual or deemed transfer occurring prior January 1, 2013, the law permits an election to adjust the basis of the asset on the transferee’s 2013 return. The election is only available if the transferor has not taken the bonus depreciation on a prior return and provided the transferor certifies in writing to the transferee that the transferor will not take any remaining bonus depreciation deductions. (For more information on bonus depreciation, see N.C. Gen. Stat. §§105-134.6A(e) and (f), as well as the Department’s website.)
Adjustment for Section 179 Expense Deduction
The federal American Taxpayer Relief Act of 2012 (ATRA) extended through 2013 the dollar limitation for expensing section 179 property to $500,000, and the investment limitation to $2,000,000. North Carolina did not conform to these amounts. If you deducted section 179 expense on your federal return, an addition is required equal to 85% of the difference between the amount claimed on your federal return for section 179 expenses and the $25,000 dollar limitation and $125,000 investment limitation adopted by the North Carolina General Assembly. The definition of section 179 property has the same meaning as under section 179 of the Code as of January 2, 2013. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.
Note: Any amount of section 179 expense deduction added to federal taxable income on your 2013 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2014.
Adjustment for Tuition and Fees Deduction
North Carolina did not conform to the extension of the federal provision allowing the tuition and fees deduction. An addition to federal adjusted gross income is required for the amount of the taxpayer’s deduction for qualified tuition and related expenses under section 222 of the Code that was claimed on federal Form 1040, Line 34 or Form 1040A, Line 19.
Note: There is no longer an allowable deduction available on Line 51 of Form D-400 for taxpayers who elected to claim the American Opportunity, Hope, or Lifetime Learning credit under section 25A of the Code in lieu of the deduction for qualified tuition and related expenses on the federal return.
Other Additions to Federal Adjusted Gross Income
• North Carolina did not conform to the extension of the federal provision that allowed an exclusion from gross income for the discharge of qualified principal residence indebtedness under section 108 of the Code. If you made this election, an addition to federal adjusted gross income is required for the amount excluded from gross income on your federal return.
• North Carolina did not conform to the extension of the federal provision which allowed an exclusion from gross income for a qualified charitable distribution from an individual retirement plan by a person who has attained age 70 1/2 under section 408(d)(8) of the Code. Therefore, an addition to federal adjusted gross income is required for the amount excluded from gross income on your federal return.
• North Carolina does not allow the domestic production activities deduction. Therefore, if you claimed the deduction on Line 35 of federal Form 1040, the amount claimed must be added to federal adjusted gross income on Line 38, Form D-400.
• If you elected to exclude a lump-sum distribution from a retirement plan from your regular federal income tax computation and computed the tax separately, the amount of the lump-sum distribution must be added to federal adjusted gross income.
• If you carry over a net operating loss from another year to the 2013 return, an addition is required for the amount of net operating loss carried to the 2013 year that is not absorbed and will be carried forward to subsequent years. Example: You incur a net operating loss of $75,000 in 2012. You carry the net operating loss to the 2013 federal return and deduct the entire loss in arriving at federal adjusted gross income. Only $50,000 of the loss is absorbed and $25,000 is carried forward to subsequent years. To determine North Carolina taxable income, you must make an addition to federal adjusted gross income of $25,000.
• If you are a shareholder in an S Corporation that paid built-in gains tax for federal income tax purposes, you must add to federal adjusted gross income your share of the built-in gains tax that the S Corporation paid.
• You must add to federal adjusted gross income any amount that was contributed to North Carolina’s National College Savings Program (NC 529 Plan) and deducted in a prior year that was later withdrawn and used for purposes other than the qualified higher education expenses of the designated beneficiary unless the withdrawal was due to the death or permanent disability of the designated beneficiary.
• If you qualified and elected to report your child’s unearned income on your federal return, you included only the child’s unearned income in excess of $1,900 in your federal adjusted gross income. The difference in the child’s standard deduction of $500 and the amount of his income not included in your federal adjusted gross income must be added to your federal adjusted gross income in figuring your North Carolina taxable income.
Susan, age 10, received $2,000 in interest income in 2013. She had no other income. Her parents include $100 ($2,000-$1,900) of her income in their federal adjusted gross income. In figuring their State taxable income, Susan’s parents must add $1,400 to federal adjusted gross income in figuring their North Carolina taxable income.
Susan’s unearned income ........................................................$2,000
Amount included in parents’ federal income ....................................100
Amount not included in Parents’ federal income ..........................$1,900
Susan’s standard deduction ..........................................................500
Addition to federal adjusted gross income on parents’ return ........$1,400