North Carolina Additions

Interest Income from Obligations of StatesOther than North Carolina.

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.

Deferred Gains Reinvested into an Opportunity Fund under IRC Section 1400Z-2.

North Carolina did not conform to the temporary deferral of income for certain gains timely invested in a qualified Opportunity Fund under Internal Revenue Code section 1400Z-2. These gains are not deferred for North Carolina tax purposes and must be included in determining your state tax payable. Therefore, an addition to federal adjusted gross income is required for gains reinvested into a qualified Opportunity Fund under IRC section 1400Z-2. 

Bonus Depreciation.

North Carolina did not adopt the 50% bonus depreciation provisions in IRC sections 168(k) or 168(n) for property placed in service for tax year 2019. Therefore, you must add 85% of the amount of bonus depreciation deducted on your federal return to your state return. Note: If you are required to addback bonus depreciation in tax year 2019, you may deduct 20% of the amount added back in the first five taxable years beginning with tax year 2020.

IRC Section 179 Expense.

North Carolina did not conform to the increased federal expense deduction or increased investment limitations for tax year 2019. N.C. dollar and investment limitations are $25,000 and $200,000, respectively. Therefore, you must add 85% of the difference between the IRC section 179 expense deduction using federal limitations and the deduction using N.C. limitations to your state return. 

Other Additions to Federal Adjusted Gross Income. Enter the total amount of the following other additions. Make sure you attach an explanation or schedule of the item(s) to Form D-400.

S Corporation Shareholder Built-in Gains Tax. Enter the amount by which a shareholder’s share of S Corporation income is reduced under IRC section 1366(f)(2) for the taxable year by the amount of built-in gains tax imposed on the S Corporation under IRC section 1374.

Amount by Which Federal Basis Exceeds State Basis for Property Disposed of in 2021. The amount by which your basis of property under federal law exceeds your basis of property for state purposes in the year that you dispose of the property.

Unabsorbed Net Operating Loss Deduction. If you deduct a net operating loss from another year on your 2021 federal return, an addition is required for the amount of net operating loss deducted and not absorbed during tax year 2021 that will be carried forward to subsequent years. (For more information on net operating losses, refer to the Department’s bulletins for individual income tax available on the Department’s website.)

State, Local, or Foreign Income Tax Deducted by an S Corporation, Partnership, or Estate and Trust. Enter the amount of a shareholder’s, partner’s, or beneficiary’s share of the amount deducted under section 164 of the Code as state, local, or foreign income tax by an S Corporation, Partnership, or Estate & Trust.

Withdrawal of 529 Plan Contributions Not Used for Permissible Purpose. Effective for taxable years beginning on or after January 1, 2006, and repealed effective for taxable years beginning on or after January 1, 2014, certain contributions made to North Carolina’s National College Savings Program (“N.C. 529 Plan”) were deductible for state tax purposes. If you took a state tax deduction for contributions made to the N.C. 529 Plan while the deduction was in effect, and in tax year 2021, you withdrew funds from the plan, enter on Line 9 the amount you deducted in prior tax years to the extent the funds withdrawn were not used for a purpose allowed under IRC section 529.

Discharge of Qualified Principal Residence Indebtedness. North Carolina did not adopt the provision of IRC section 108 that allows an individual to exclude from federal gross income the cancellation of qualified principal residence debt. On Line 10, enter the amount of qualified principal residence debt discharged in 2021 excluded from federal gross income under IRC section 108.

Qualified Education Loan Payments Paid by Employer. North Carolina did not conform to the amendment to IRC section 127(c), which temporarily expanded the definition of “educational assistance” to include employer payments of qualified education loans, as defined in IRC section 221(d)(1). On Line 11, enter the amount of payments made by your employer for qualified education loans, as defined in IRC section 221(d)(1), excluded from federal gross income under IRC section 127(c).

Business Meal Deduction in Excess of 50%. North Carolina did not conform to the temporary federal increase to the 50% limit on the business expense deduction for food or beverages provided by a restaurant. For federal income tax purposes, for tax year 2021, a business is allowed a 100% expense deduction for food or beverages from a restaurant. On Line 12, enter the difference between the business-related expenses for food and beverages provided by a restaurant taken on the federal return and the amount allowed under the provisions of IRC Section 274(n), as enacted as of May 1, 2020.

Discharge of Certain Student Loan Debt. North Carolina did not conform to new IRC section 108(f)(5), which permits a student loan discharged under certain circumstances to be excluded from federal gross income. On Line 13, enter the amount of any student loan discharged and not included in gross income under IRC 108(f)(5).