Your State Tax Burden If You Retire in North Carolina

North Carolina offers retirees a wide range of potential destinations, from the beautiful Blue Ridge Mountains to the scenic coast, including small towns, larger cities, and some of the best golf courses in the country. North Carolina has mild winters and warm, humid summers, although the climate is cooler in the mountains.

According to America's best places to retire, the median price of a home in North Carolina is $117,771. Newsweek Showcase reports that several exclusive developments in the mountains are offering building sites starting at $400,000 plus. But towns scattered across the area still offer bargains and you may be able to find a home for under $200,000. In terms of the state and local tax burden, the Tax Foundation ranked North Carolina 20th among the states for 2008.

North Carolina state income tax

North Carolina has a state individual income tax with rates starting at 6% on the first $12,750 of taxable income for single taxpayers ($21,250 for married filing jointly), up to 7.75% on taxable income over $60,000 ($100,000 for a joint return). The standard deduction in North Carolina is $3,000 for single and married filing separately, $4,400 for head of household, and $6,000 for married filing jointly or qualifying widow(er). The standard deduction is higher if you are 65 or older.

Social Security, Railroad Retire¬ment and VA benefits are not subject to North Carolina state income tax. You can exclude from your taxable income up to $4,000 in federal, state and local government pensions, and up to $2,000 for qualified private pensions, including IRAs. The total amount you can exclude cannot be more than $4,000. North Carolina state retirees or military personnel with at least 5 years of creditable service as of August 12, 1989 are permanently exempt from tax on their retirement pay.

You can claim an income tax credit for premiums you pay for long-term care insurance that covers you, your spouse, or a dependent. The credit is 15% of the premium cost, up to a maximum credit of $350.

North Carolina property taxes

Property taxes in North Carolina are collected by the counties on real property such as your land and home, motor vehicles and personal property. Household personal property is exempt. The property tax is based on 100% of the appraised value. Rates vary throughout the state and you can find a link to a report on the rate by county and municipality on the North Carolina Department of Revenue website. The Tax Foundation reports that the median property taxes paid per household in North Carolina for 2006 were $2,044, ranking 40th among the 50 states.

North Carolina residents who are age 65 or older, or permanently disabled can claim a homestead property tax exemption for the greater of $25,000 or 50% of the assessed value of the permanent residence. To qualify for this exemption, you and your spouse must have a combined income of no more than $25,000 for 2008. This limit is adjusted annually based on the cost of living index. Disabled veterans can qualify for a $45,000 exemption.

North Carolina sales tax

North Carolina has a 4.5% state sales tax, which is scheduled to increase to 4.75% after October 1, 2009. The counties and cities can levy local sales taxes, which brings the total rate up to 6.75% in most counties and 7% in a few. You can find a table of the combined sales tax rates by county on the North Carolina Department of Revenue website. Prescription drugs and medical equipment are exempt, and food is subject to the county tax.

North Carolina also has a use tax that applies on purchases you make out-of-state that would be subject to tax if you made the purchase in North Carolina. You report and pay this tax when you file your annual North Carolina state income tax return. If you are not required to file a state income tax return, you would report and pay the use tax by filing Form E-554.

North Carolina estate tax

There is no inheritance tax in North Carolina. The estate tax is tied to the credit allowed on the federal estate tax return for state taxes. This tax applies when the decedent was a resident of North Carolina or owned property in North Carolina. According to the North Carolina Department of Revenue, under federal estate tax law, the state death tax was phased out over three years beginning in 2002 and replaced with a deduction. But North Carolina did not adopt the federal phase-out or the termination of the credit. Therefore, for decedents dying after December 31, 2004, the North Carolina estate tax continues to be equal to the state death tax credit that was allowable under federal law as it existed prior to 2002.

Sources:

Bankrate - State Tax Roundup - North Carolina

North Carolina Individual Income Tax Forms and Instructions - North Carolina Department of Revenue

North Carolina's Property Tax System - North Carolina Department of Revenue

Retirement Living Information Center - Taxes by State - North Carolina

Tax Foundation - North Carolina's State and Local Tax Burden 1977-2008