North Carolina Estate Taxes

The North Carolina estate tax is designed to absorb the federal estate tax credit for state death taxes. However, North Carolina did not adopt the state tax credit phase-out under federal law (25 percent in 2002; 50 percent in 2003; and 75 percent in 2004). Instead, effective for estates of decedents dying before July 1, 2005, the North Carolina estate tax is equal to the state death tax credit for federal purposes before applying the percentage reduction for the federal credit.

No additional estate tax is imposed.

Deductions. The following items can be deducted from a decedent's estate when calculating North Carolina estate tax liability:

• decedent's debts and claims against the estate
• reasonable funeral expenses
• administration expenses
• attorney's fees
• the federal unified credit
• amount of state death taxes imposed on a charitable transfer
• transfers for public, charitable, and religious uses
• losses incurred during settlement of the estate not compensated by insurance or otherwise
• unpaid mortgages (to show actual equity of mortgaged property)

Returns. If a federal return must be filed, a North Carolina estate tax return (Form A-101) must also be filed with the North Carolina Department of Revenue within nine months of the decedent's death. Any North Carolina estate taxes owed must be paid within nine months of the decedent's death.

Generation-skipping transfer tax. North Carolina imposes a generation-skipping transfer tax equal to the federal credit.