S.L. 2011- 5 Adopts Internal Revenue Code through January 1, 2011 with Exceptions
The calculation of North Carolina taxable income begins with federal taxable income as defined under the Internal Revenue Code ("Code"). State tax law defines the Code as the Code enacted as of a certain date. On an annual basis, the General Assembly passes legislation that updates our State’s reference date to the Code. With the enactment of this legislation, North Carolina income tax law conforms to federal income tax law as of that date, except for any items for which specific adjustments are required under State law.
On March 17, 2011, Governor Perdue signed legislation that updated the State's conformity date from May 1, 2010 to January 1, 2011 for individual and corporate income tax purposes.1 The law includes provisions that require certain adjustments to federal taxable income on individual and corporate income tax returns related to bonus depreciation and section 179 expense deductions.
For taxable years 2010 through 2012, taxpayers are required to add to federal taxable income 85% of the amount allowed as a bonus depreciation deduction under section 168(k) or 168(n) of the Code for property placed in service during the tax year.2 In addition, in each of the first five taxable years beginning with the year after the bonus depreciation was added to federal taxable income, taxpayers may deduct the amount of bonus depreciation added to the State income tax return in five equal installments.3 To calculate the deduction, total the amount of bonus depreciation added back to the State return for each applicable year and multiply the total by twenty percent (20%). For example, if a taxpayer added bonus depreciation to its federal taxable income during tax year 2010, the taxpayer may deduct 20% of the amount added back on the 2011 return and for the succeeding four tax years.
Additional information regarding the adjustments for bonus depreciation can be found at http://www.dornc.com/taxes/individual/bonus_depreciation.html.
Section 179 Expense
For taxable years 2010 and 2011, North Carolina income tax law did not conform to the increased expense deductions or the increased investment limits for section 179 property, but rather maintained the expense deduction and investment limit of $250,000 and $800,000 respectively. North Carolina did however adopt the expanded definition of section 179 property which includes certain qualified section 179 real property for taxable years beginning in 2010 or 2011. Therefore as enacted, the law requires taxpayers to add to federal taxable income 85% of the amount by which the taxpayer’s expense deduction under section 179 of the Code for property placed in service in taxable year 2010 or 2011 exceeds the amount that would have been allowed for the respective taxable year under section 179 of the Code as of May 1, 2010.4 Similarly, the law permits taxpayers to deduct 20% of the amount added back in each of the first five taxable years beginning with the year after the section 179 expense was added to the State income tax return.5
Additional information regarding the adjustments for section 179 can be found at: http://www.dornc.com/taxes/individual/section179_adjustment.html
1Session Law 2011-5
2G.S. 105-130.5(a)(15b) and G.S. 105-134.6(c)(8b)
3G.S. 105-130.5(b)(21b) and G.S. 105-134.6(b)
4G.S. 105-130.5(a)(23) and G.S. 105-134.6(c)(15)
5G.S. 105-130.5(b)(26) and G.S. 105-134.6(b)(21)