Instructions For Form D-407a - Estates And Trusts Income Tax Return

Page 2, D-407A, Web, 11-12

is eligible for 100% expensing if placed in service before January 1, 2013. North

retirement benefits from North Carolina income tax should claim a deduction

Carolina did not adopt the bonus depreciation provisions under IRC sections 168(k)

on Line 14 for the amount of excludable retirement benefits included in federal

and 168(n) of these Acts. Therefore, if you deducted the bonus depreciation under

taxable income. A copy of Form 1099-R received from the payer must be

IRC sections 168(k) or 168(n) on your 2012 federal return, you must add to income

attached to the return to support the deduction.

85% of the amount deducted. This adjustment does not result in a difference in

Generally, estates and trusts are subject to the same deductions and transitional

basis of the affected assets for State and federal income tax purposes. Note: Any

adjustments allowed to individuals. See the North Carolina Individual Income Tax

amount of the bonus depreciation added to income on your 2012 State return may

Instructions for a more detailed explanation of any applicable adjustments.

be deducted in five equal installments over your first five taxable years beginning

with the tax return for taxable year 2013.

Line 15 - Enter the total of Line 6, 7, 11, 12, 13e and 14 on Line 15. The total

deductions on Line 15 should be apportioned between the beneficiaries and the

Line 4 - Enter on Line 4 any other additions required, such as the following:

fiduciary on Schedule B, Line 4.

The amount of federal estate tax that is attributable to income in respect

•

Schedule B - Allocation of Adjustments

of a decedent and that is deducted under Section 691(c) of the Internal

Revenue Code.

In taxing estates and trusts, all income is taxable to the fiduciary or to the

beneficiaries. The conduit rule for taxing estates and trusts is applicable for North

Generally, estates and trusts are subject to the same additions and transitional

Carolina income tax purposes. Under the conduit rules regardless of who is taxed,

adjustments allowed to individuals; therefore, see the North Carolina Individual Income

the income retains its same character as when received by the estate or trust.

Tax Instructions for a more detailed explanation of any applicable adjustments.

The additions and deductions to federal taxable income of an estate or trust must

Line 5 - Enter the total of Lines 1 through 4 on Line 5. The total additions should be

be apportioned between the estate or trust and the beneficiaries based on the

apportioned between the beneficiaries and the fiduciary on Schedule B, Line 3.

distributions of income made during the taxable year. Unless the trust instrument

or will creating the estate or trust specifically provides for the distribution of certain

Deductions from income, to the extent the amounts are included in income:

classes of income to different beneficiaries, the apportionment of additions and

deductions to the beneficiaries is determined on the basis that each beneficiary’s

Line 6 - Enter any interest income which was received from obligations of the

share of the income for regular tax purposes (from Schedule K-1, Federal Form

United States or United States’ possessions.

1041) relates to adjusted total income (from Line 17 of Federal Form 1041). If the

Line 7 - Enter the taxable portion of any Social Security or Railroad Retirement

trust instrument or will specifically provides for the distribution of certain classes

benefits included in income.

of income to different beneficiaries, any addition or deduction directly attributable

to a particular class of income must be apportioned to the beneficiary to which

Line 8 - Important: The following instructions apply if an estate receives retirement

that class of income is distributed. In apportioning the adjustments, the income

benefits on behalf of a decedent because the decedent was a former employee of

for regular tax purposes must be adjusted for distributions to the beneficiary

the State of North Carolina or any of its local governments or if a decedent was a

which are not reflected in the amount on Line 7. The adjusted total income (Line

former employee of the federal government and the decedent did not have five

17 of Federal Form 1041) must be adjusted (1) to exclude classes of income

years of service with the government as of August 12, 1989, or if the decedent’s

that are not part of the distribution to the beneficiary; (2) to include classes of

estate received retirement benefits because the decedent was a former employee

income that are a part of the distribution to the beneficiary but are not included

of another state. (Otherwise, see the line instructions for Line 14.) If the estate

on Line 17; and (3) by any deduction treated differently for State and federal tax

or trust received retirement benefits during the year from one or more federal,

purposes that adjusts federal taxable income (see additions and deductions, Line

state, or local government retirement plans, enter on Line 8 the amount received

1 through 15 of Schedule A). The fiduciary may elect to apportion the federal

or $4,000, whichever is less.

deduction for State income tax to the estate or trust except in cases where the

beneficiary’s total distribution from the estate or trust has not been included in

Line 9 - If the estate or trust received retirement benefits during the year from one

his federal taxable income because it exceeded the estate’s or trust’s federal

or more private retirement plans other than federal, state, or local government

distributable net income. In such cases, the addition for State income tax must

retirement plans, enter on Line 9 the amount received or $2,000, whichever is

be apportioned to the beneficiary to the extent his distribution exceeds the amount

less.

included in federal taxable income because of the State income tax deduction.

After apportioning the additions and deductions to the beneficiaries, the balance

Line 11 - Enter the amount from Line 10 or $4,000, whichever is less. (If retirement

is apportioned to the fiduciary.

benefits were received from both a governmental plan and a private plan, the

maximum deduction on Line 11 is $4,000.)

Enter the full name and social security number of each beneficiary and determine

Line 12 - Enter any state, local, or foreign income tax refund that was included

the additions and deductions to be allowed to each beneficiary and to the fiduciary.

Each beneficiary should be furnished a Schedule NC K-1 showing the applicable

in income.

additions, deductions, tax credits, etc., to be reported on his North Carolina

Line 13 - North Carolina law did not adopt the 50 percent bonus depreciation

individual income tax return. A nonresident, in calculating the percentage of taxable

provisions in IRC section 168(k) for the tax year 2008 or in IRC sections 168(k)

income subject to North Carolina tax on Line 16 of Page 2 of the individual income

or 168(n) for tax years 2009 and 2010. Similarly, North Carolina did not adopt

tax return, must adjust his share of the income from North Carolina sources only

the provisions of the Small Business Jobs Act of 2010 which extended the 50

by the additions and deductions attributable to the North Carolina income. The

percent bonus depreciation through 2011 and the Tax Relief Act of 2010 which

fiduciary’s portion of the additions and deductions should be reported on Lines 2

doubled and extended bonus depreciation from 50 percent to 100 percent for

and 4, respectively, on Page 1 of Form D-407.

qualified property acquired and placed in service after September 8, 2010 and

before January 1, 2012. The Tax Relief Act of 2010 also provides 50% bonus

Form D-407TC - Estates and Trusts Tax Credit Summary

depreciation for qualified property placed in service after December 31, 2011

The tax credit for income tax paid to another state or country must be allocated

and before January 1, 2013. Certain long-lived property and transportation

between the fiduciary and the beneficiaries.

Part 5 of Form D-407TC must

property is eligible for 100% expensing if placed in service before January 1,

be completed to determine the tax credit allowable to the fiduciary; however,

2013. Because North Carolina did not adopt the bonus depreciation provisions

before Part 5 can be completed, gross income (from Line 9, Federal Form 1041)

under IRC sections 168(k) and 168(n) of these Acts, an adjustment is required

on which such tax was paid must be allocated between the fiduciary and the

to add to income 85% of the amount deducted. Any amount added to income

beneficiaries.

on the 2008, 2009, 2010, and 2011 State returns may be deducted in five equal

installments beginning with the 2009, 2010, 2011, and 2012 State returns,

The fiduciary’s share and each beneficiary’s share of the gross income on which

respectively. Enter 20 percent of the bonus depreciation added back on the

tax has been paid to another state or country and the amount of tax paid on the

2008 State return on Line 13a, 20 percent of the amount added back on the

income is determined by the governing instrument and such amounts should

2009 State return on Line 13b, 20 percent of the bonus depreciation added back

be entered on Lines 3 and 4 of the fiduciary and beneficiary’s columns in Part

on the 2010 State return on Line 13c, and 20 percent of the bonus depreciation

5, Section A. After allocating to the beneficiaries, enter the fiduciary’s share of

added back on the 2011 State return on Line 13d. Add Lines 13a, 13b, 13c,

gross income taxed in another state or country on Line 1, Part 5, Section B. Enter

and 13d and enter the total on Line 13e.

on Line 2 the fiduciary’s share of gross income from Federal Form 1041, Line 9.

Complete the remaining Lines in Part 5, Section B to determine the fiduciary’s

Line 14 - Enter on Line 14 any other deductions required, such as the following:

share of the tax credit.

As a result of the North Carolina Supreme Court’s decision in Bailey v. State

•

All tax credits allowed to individuals are allowed to estates and trusts with the

of North Carolina, North Carolina may not tax certain retirement benefits

following exceptions:

received by retirees (and their beneficiaries and estates) of the State of North

Carolina and its local governments or by United States government retirees

(1) Tax credits for income taxes paid to other states by individuals

(and their beneficiaries and estates), including military retirees. The exclusion

(2) Credit for child care and certain employment-related expenses

applies to retirement benefits received from certain defined benefit plans, such

(3) Credit for the disabled

as the North Carolina Teachers’ and State Employees’ Retirement System, the

(4) Credit for children

North Carolina Local Governmental Employees’ Retirement System, the North

(5) Credit for charitable contributions of nonitemizers

Carolina Consolidated Judicial Retirement System, the Federal Employees’

(6) Credit for recycling oyster shells

Retirement System, or the United States Civil Service Retirement System,

(7) Credit for long-term care insurance

if the retiree had five or more years of creditable service as of August 12,

(8) Credit for adoption expenses

1989. The exclusion also applies to retirement benefits received from the

(9) Earned Income Tax Credit

State’s §401(k) and §457 plans if the retiree had contributed or contracted

(10) Credit for children with disabilities who require special education

to contribute to the plan prior to August 12, 1989. This exclusion does

Complete Form D-407TC, Estates and Trusts Tax Credit Summary, if the estate

not apply to local government §457 plans or to §403(b) annuity plans.

or trust claims any tax credits. Include the form when filing Form D-407. If

Benefits from other State, local, and federal retirement plans may or may not

additional tax credits are claimed, submit a separate schedule showing how the

be excluded depending on rulings in the Bailey case. The exclusion does

credits were determined and how they are allocated between the beneficiaries

not apply to retirement benefits paid to former teachers and state employees

of other states and their political subdivisions. An estate entitled to exclude

and the fiduciary.

Instructions For Form D-407a - Estates And Trusts Income Tax Return - 2012 Page 2

Related Articles

Related forms

Related Categories