Question

North Carolina deduction error

Forum|Forum|5 years ago
February 9, 2021
2 replies
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I have loaded most of the income and deductions into 2020 turbotax, for a deceased tax return for my uncle. The North Carolina refund shows him getting back all of his NC taxes paid, but it shows a deduction from income well beyond what his reported income is. I think there must be an update to NC forms, what say you?

J

JohnW152

There are no known issues with North Carolina forms. This is a tax scenario that's out of the norm, but certainly possible. Taxpayers report deductions from their federal Adjusted Gross Income (AGI) on Part B of Form D-400 Schedule S. You can look at the Schedule S and see what deductions seem out of place, comparing them to Part B, Deductions from Federal Adjusted Gross Income on page 19 of the Form D-401 North Carolina Individual Income Tax Instructions.

See the TurboTax Help article How do I view and delete forms in TurboTax Online? for guidance on viewing state returns.

R

RVG7Author

Okay, here is what I found. It appears there is no error due to a large charitable contribution carryover from 2019. There is a big difference in the 2019 and the 2020 NC deduction worksheet. The 2019 shows either a standard or itemized deduction amount at the top, with no information specifically related to “Gifts to Charity”. The 2020 NC Deduction worksheet now shows a “Gifts to Charity” section, line 1 for gifts by cash and line 3, “carryover from year”. In this line, my uncle has a $144,877 carryover consistent with his 2019 federal return. It is a legislative carryover number, he has been audited three times in the past for outside the norm charitable giving, and received a clean audit all 3 years.

So it appears that for 2020 NC return he is able to get credit for this large carryover and it results in no taxes due, and an entire refund of $3,342 for the NC taxes paid on his 83,106 pension.

So this charitable contribution carryover for 2020 to reduce NC taxes, seems to be new and different than 2019, as he has consistently had charitable contribution carryovers in the past.

R

RVG7Author

The NCDOR.gov website (https://www.ncdor.gov/taxes-forms/individual-income-tax/north-carolina-standard-deduction-or-north-c...), states that Charitable contributions are allowed as an itemized deduction, however, for 2020, NC decoupled from the temporary increase allowed under the CARES Act that allows and individual to increase charitable deductions from 60% to 100% of AGI. NC adopted the Code as of Jan 1, 2020, which excludes the CARES Act, and NC individuals may only deduct qualified contributions up to 60% of AGI.

In preparing my uncle's tax return, for 2020 there is a new section on the NC Standard/Itemized Deduction Worksheet, "Gifts to Charity", (this section was not in 2019 Turbotax worksheet). This section allows him to list a "Carryover from prior year" of 144,877 (which is the correct figure from his 2019 federal return). This results in him having a deduction greater than both 60% of his AGI and even 100% of his AGI, and results in a negative 91,149 of NC taxable income on line 14 of D-400.

If itemized charitable deductions for NC residents are limited to 60% of AGI, for 2020, my uncle's AGI is 111,546, which would result in his total charitable contributions for 2020, to be limited to 66,928. For 2020, his charitable giving amounted to $26,743, so his charitable contribution carryover would then be limited to $40,184. If this is a correct understanding, is Turbotax going to correct this in the 2020 NC state return?