Listed below is income that North Carolina will allow you to subtract on your return:
Does North Carolina tax retirement income?
Taxable Retirement Benefits That Qualify For The Bailey Settlement
North Carolina does not tax retirement benefits received by any retirees of the State and its local governments by the U.S. government retires (including Military), under the Supreme Court decision in Bailey v. North Carolina settlement. The exclusion does not apply to retirement benefits that are paid to former teachers or other state employees of another state and political subdivisions.
Retirement Benefits received by a retired member of the US Armed Forces not deducted in other retirement benefits
You may deduct payments received from the United States government if you are a retired member who made Uniformed Service retirement payments and served at least 20 years in the Uniformed Service or were medically retired from the Uniformed Service or a beneficiary of a retired member who served at least 20 years and received payment(s) from the Survivor Benefit Plan.
Important: If you are a Retiree of the United States Uniformed Services who deducted retirement income under "Bailey", you may not use this deduction on the same retirement income.
Additional subtractions
Recognized IRC Section 1400Z-2 gain
You may subtract a 1400-Z-2 gain included in federal AGI to the extent it was included in a prior year when calculating state taxable income.
Bonus Asset Basis
Enter the portion of gain attributable to prior North Carolina bonus depreciation adjustments that may now be recovered through basis differences.
Gain from Disposition of Exempt N.C. Obligations Issued Before July 1, 1995
Enter gain from the sale or disposition of qualifying North Carolina obligations that are exempt from North Carolina income tax.
Exempt Income Earned or Received by a Member of a Federally Recognized Indian Tribe
Enter qualifying income that is exempt from North Carolina taxation under federal law or applicable tribal agreements.
State Basis Exceeds Federal Basis for Property Disposed
Enter the amount by which the North Carolina basis of property exceeds the federal basis when the property is sold or otherwise disposed of.
This adjustment prevents income from being taxed twice due to differences between federal and North Carolina depreciation rules.
Ordinary and Necessary Business Expenses Reduced or Not Allowed Due to Claiming a Federal Tax Credit
Enter otherwise deductible business expenses that were disallowed or reduced on your federal return because a federal tax credit was claimed.
Personal Education Savings Account Deposits
Enter qualifying deposits that are eligible for a North Carolina subtraction.
State Emergency Response and Disaster Relief Fund Payments
Enter qualifying disaster relief fund payments that are deductible under North Carolina law.
Certain Economic Incentives
Enter taxable economic incentive payments that qualify for exclusion from North Carolina income.
Certain NC Grant Payments
Enter qualifying North Carolina grant payments that are not subject to North Carolina income tax.
Certain NOL Carryback
Enter any allowable North Carolina net operating loss carryback deduction. You may deduct an amount equal to 20% of the net operating loss carryback added to federal adjusted gross income
Certain NOL Carryforward
Enter any allowable North Carolina net operating loss carryforward deduction. You may
deduct an amount equal to 20% of the excess net operating loss carryforward deduction added to federal adjusted gross income on your 2019 and 2020 state tax return.
Excess Business Loss
Enter eligible adjustments related to the federal excess business loss limitation. You may deduct an amount
equal to 20% of the excess business loss added to federal adjusted gross income on your 2018, 2019, and 2020 state tax return
Business Interest Limitation
Enter allowable North Carolina adjustments related to the federal limitation on business interest expense deductions. You may deduct an amount equal to 20% of the business interest limitation added to federal
adjusted gross income on your 2019 and 2020 state tax return.
NC Sourced Taxed PTE Income
Enter income from a pass-through entity that has already been taxed at the entity level in North Carolina.
Non-NC Sourced Taxed PTE Income
Enter qualifying pass-through entity income sourced outside North Carolina that qualifies for a subtraction adjustment. In order to be deductible, the income must both be included in the PTE’s taxable income reported to another state or the District of Columbia and subject to an entity-level income tax.
These adjustments are designed to prevent double taxation of income that has already been taxed through a pass-through entity tax election.
Adjustment For Bonus Depreciation Added Back In Prior Years
You deduct an amount equal to 20% of the bonus depreciation deduction that was added to your federal AGI in a prior year each year for 5 years following the original add back.
Section 179 Expense Deduction Added Back In Prior Years
You may subtract an amount equal to 20% of the section 179 expense deduction that was added to your federal AGI in a prior year each year for 5 years following the original add back.
Interest Income From US Obligations
You may enter amounts of interest received from U.S. obligations, such as notes and bonds.
NC Net Operating Loss
North Carolina does not follow the federal net operating loss (NOL) deduction rules. If your allowable deductions for 2024 exceed your income for the year, you may qualify for a North Carolina net operating loss.
Other Subtractions from Income
For more information or a list of the Other Subtractions, please click here.
Program Entry
To enter these subtractions on your North Carolina return, follow the steps below:
- State
- Edit (three dots)
- Subtractions from Income