1999 Tax Law Changes - Individual Income Tax
XII. INDIVIDUAL INCOME TAX
G.S. 105-134.6(b)(15) - Deduction for Income of Tobacco Settlement Trust: National tobacco companies have proposed to create a National Tobacco Growers Settlement Trust into which the companies will pay funds to provide payments to tobacco growers and allotment holders to offset the potential adverse economic consequences of likely changes in the tobacco market on the grower states such as North Carolina. This new subdivision provides a deduction from federal taxable income for any interest, investment earnings, and gains of a trust established by two or more manufacturers that signed a settlement agreement with the State to settle claims for damages attributable to a product of the manufacturers. The tax exemption will result in more funds being available to the beneficiaries.
The exemption was added to both the individual income tax laws and the corporate income tax laws, in G.S. 105-130.5(b)(18), because it was uncertain when this exemption was enacted whether the trust would be established as a qualified settlement trust fund or as a regular trust. A qualified settlement trust fund is taxed as a corporation and a regular trust is taxed under the individual income tax laws. The exemption was added to both the corporate and individual income tax laws to cover both possibilities.
(Effective for taxable years beginning on or after January 1, 1999; HB 74, s. 3, S.L. 99-333.)
G.S. 105-134.6(c)(5) - No Addition for Donated Real Property: This subdivision was rewritten in 1998 to repeal the requirement to add the fair market value of donated real property to federal taxable income if the taxpayer is claiming a tax credit under G.S. 105-151.12 for donating conservation property. The change first takes effect for tax year 1999. The addition for the fair market value of donated gleaned crops is retained.
(Effective for taxable years beginning on or after January 1, 1999; SB 1366, s. 29A.13, S.L. 98-212.)
G.S. 105-134.6(d)(1) - Deduction for Tax Paid on Income in Respect of a Decedent: This subdivision was rewritten in 1998 to clarify that the deduction applies to both inheritance tax and estate tax paid to this State on an item of income in respect of a decedent. The change took effect January 1, 1999.
(Effective January 1, 1999 for estates of decedents dying on or after that date; SB 1366, s. 29A.2, S.L. 98-212.)
G.S. 105-151.2 - Recodified: The credit for solar energy equipment was repealed and its provisions were incorporated in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.5 - Repealed: The credit for conversion of an industrial boiler to wood fuel was repealed because it was not used. Research established that it had never been claimed.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.7 - Recodified: The credit for installation of a hydroelectric generator was repealed and its provisions were incorporated in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.8 -- Recodified: The credit for installation of solar energy equipment for the production of heat or electricity in certain processes was repealed and its provisions were incorporated in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.9 -- Recodified: The credit for installation of a wind energy device was repealed and its provisions were incorporated in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.10 -- Recodified: The credit for construction of a methane gas facility was repealed and its provisions were incorporated in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)
G.S. 105-151.12 - Conservation Credit Changes: This statute was amended in 1998, and the changes first take effect for tax year 1999. Subsection (a) was rewritten to increase the maximum credit allowable to individuals for making a qualified donation of an interest in real property from $100,000 to $250,000. Subsection (c), which required an addition to federal taxable income for the fair market value of donated property for the taxpayer to claim the credit, was repealed.
(Effective for taxable years beginning on or after January 1, 1999; SB 1366, s. 29A.13, S.L. 98-212.)
G.S. 105-151.23 - Recodified: The credit for rehabilitating an historic structure statute was repealed and its provisions were incorporated in new Article 3D.
(Effective for taxable years beginning on or after January 1, 1999; SB 251, s. 6, S.L. 99-389.)
G.S. 105-151.26 - Nonitemizer Credit Increased: This statute was amended in 1998 to increase the credit from 2.75% to 7% of the taxpayer's excess charitable contributions. The change first takes effect for tax year 1999.
(Effective for taxable years beginning on or after January 1, 1999; HB 20, s. 1, S.L. 98-183.)
G.S. 105-151.27 - Credit for Child Health Insurance: This statute was enacted in 1998 to provide an individual income tax credit to a taxpayer who paid health insurance premiums during the taxable year that provided insurance coverage for the taxpayer's dependent children. The credit first takes effect for tax year 1999. The credit varies based on income and family size.
If the taxpayer's federal adjusted gross income does not exceed two hundred twenty-five percent (225%) of the federal poverty level based on the taxpayer's family size, the allowable credit is $300; otherwise, the allowable credit is $100. To be eligible for the credit, the taxpayer's federal adjusted gross income must be less than the amount listed in the following table:
| Filing Status | AGI |
| Married, filing jointly | $100,000 |
| Head of Household | 80,000 |
| Single | 60,000 |
| Married, filing separately | 50,000 |
The credit may not exceed the amount of health insurance premiums the taxpayer paid during the taxable year that provided insurance coverage for the taxpayer's dependent children. A nonresident or part-year resident is allowed a prorated credit based on the percentage of the taxpayer's total income that is taxable for North Carolina income tax purposes. A credit is not allowed for any premiums paid with income that is excluded from gross income or that was deducted in arriving at federal taxable income.
If the credit exceeds the taxpayer's tax for the taxable year, the excess is refundable to the taxpayer. In computing the amount of tax against which multiple credits are allowed, nonrefundable credits are subtracted before refundable credits.
(Effective for taxable years beginning on or after January 1, 1999, and expires on the effective date of an act repealing the Health Insurance Program for Children established under this act; SB 2, s. 5, S.L. 98-1.)
G.S. 105-151.28 - Credit for Premiums Paid on Long-Term Care Insurance: This statute was enacted in 1998 to provide an individual income tax credit to a taxpayer who pays premiums during the taxable year on a qualified long-term care insurance contract that offers coverage to either the individual, the individual's spouse, or a dependent for whom the individual was allowed to deduct a personal exemption on the individual's federal tax return for the taxable year. The credit first takes effect for tax year 1999.
The credit is equal to 15% of the premium costs but may not exceed $350 for each contract for which the credit is claimed. The credit may not exceed the taxpayer's tax for the year reduced by the sum of all other credits allowed. Any unused portion of the credit may not be carried over to subsequent years. A nonresident or part-year resident is allowed a prorated credit based on the percentage of the taxpayer's total income that is taxable for North Carolina income tax purposes. A credit is not allowed for any premiums paid with income that is excluded from gross income or that was deducted in arriving at federal taxable income.
(Effective for taxable years beginning on or after January 1, 1999, and expires for taxable years beginning on or after January 1, 2004; SB 1366, s. 29A.6, S.L. 98-212.)
G.S. 105-152(e) - Innocent Spouse Reference: This subsection was amended to correct an erroneous reference to the Internal Revenue Code with respect to a spouse who has been granted "innocent spouse" relief for federal purposes.
(Effective July 22, 1999; SB 55, s. 25, S.L. 99-337.)
G.S. 105-154(c) - Technical Change: This subsection was amended to remove an obsolete reference to the specific wording of the affirmation on a partnership return. Before its revision in 1998, G.S. 105-155 set out the wording of the affirmation.
(Effective July 22, 1999; SB 55, s. 26, S.L. 99-337.)
G.S. 105-159.1(d) - N. C. Political Parties Financing Fund: This subsection was amended to repeal the requirement that the political parties designation be color contrasted to the rest of the income tax return.
(Effective August 10, 1999; SB 1112, s. 3, S.L. 99-438.)
G.S. 105-160.3(b) - Tax Credit Clarification: This subsection was amended in 1998 to clarify that the following tax credits may not be claimed on the income tax return for trusts and estates:
- the tax credit for child health insurance
- the tax credit for premiums paid on long-term care insurance.
Both of these tax credits first take effect in tax year 1999.
(Clarification for child health insurance credit effective for taxable years beginning on or after January 1, 1999, and expires on the effective date of an act repealing the Health Insurance Program for Children; SB 2, s. 5, S.L. 98-1; clarification for long-term care insurance credit effective October 30, 1998, and expires for taxable years beginning on or after January 1, 2004; SB 1366, s. 29A.6, S.L. 98-212.)