As a North Carolinian, we have seen some dramatic tax law changes over the past couple of years. It seems as though our government is attempting to make our state more tax friendly. It was nice to see the recent updates to North Carolina tax law for individuals. There were three main areas of change: restoration of the medical expense deduction, increase in standard deduction, and income tax rate decrease.
1. Restoration of Medical Expense Deduction: Before 2013 legislation, North Carolina's itemized deduction was based on the federal calculation. In 2013, North Carolina limited these deductions to just charitable contributions, real property taxes paid, and mortgage interest (taxes and mortgage interest limited to $20,000 as well as removing medical expenses from this list of allowed itemized deductions.
Starting again in 2015, individuals that itemize on the federal level will be able to deduct medical and dental expenses on the state level as well. This will be very helpful to those who have high out of pocket medical costs.
2. Increase in Standard Deduction: Starting in 2016, the North Carolina standard deduction will increase to $15,500 (from $15,000) for married filing jointly. For single, it will increase to $7,750 (from $7,500).
3. Rate reduction: The North Carolina tax rate has dropped each year and will continue to do so. For 2014, it was 5.8%. For 2015 and 2016, it will be 5.75%. In 2017, it will be 5.499%. This was huge for our state as the top tier used to be as high as 7.75%.
This is a very positive change for North Carolina. Stay tuned for more updates.