Recent federal tax law changes have affected how taxpayers will determine their North Carolina income tax. The Department of Revenue issued a notice discussing the impact of:
- Tax Cuts and Jobs Act (TCJA);
- Bipartisan Budget Act of 2018 (BBA).
North Carolina IRC Conformity
The starting point for determining North Carolina tax liability is:
- federal taxable income for corporate income taxpayers; and
- federal adjusted gross income for personal income taxpayers.
Both determinations are based on IRC provisions in effect on a specific tie-date. Currently, North Carolina adopts the IRC in effect on January 1, 2017. Other states are planning to change their IRC conformity dates to January 1, 2018.
Possible Update of IRC Conformity Date
The North Carolina General Assembly is scheduled to convene on May 16, 2018. Taxpayers computing North Carolina income taxes will be required to make adjustments for the TCJA and BBA changes, if the general assembly:
- does not update the IRC tie-in date; or
- updates the IRC date, but decouples from certain changes
Federal Changes Affecting Individuals
Examples of federal changes that might impact 2017 individual income tax returns, if the general assembly does not take action, include:
- the 7.5% (previously 10%) adjusted gross income threshold for the medical expense deduction;
- the $4,000 deduction for higher education tuition and fees;
- the mortgage insurance premiums deduction; and
- the exclusion for income from the cancellation of home mortgage debt.
Filing for a 6-Month Extension
Taxpayers who wait for the general assembly’s determination before filing their North Carolina return can receive an automatic 6-month filing extension. The request is filed using:
- Form CD-419 for corporations; or
- Form D-410 for individuals.
Taxpayers who file a return before the general assembly takes action may be required to file an amended North Carolina return.
Important Notice: Impact of the Tax Cuts and Jobs Act and the Bipartisan Budget Act of 2018 on North Carolina’s Corporate and Individual Income Tax Returns, North Carolina Department of Revenue, February 16, 2018