NC part-year resident capital gains

[angobar]

I've moved from CA to NC in the middle of 2021. On federal taxes, I have $20000 capital loss carryover from 2020, $500 capital gains during CA residency in 2021 and $1000 capital losses during NC residency in 2021, resulting in a total $3000 loss deductible from federal AGI.

1. What do I put in NC form D-400PN part B line 7 under "Amount of Capital Gain/Loss subject to NC tax"? $1000 loss? $3000 loss? Something in between? Does any portion of 2020 carryover (originating from CA) apply to NC?

2. Assume I have no new gains/losses in 2022. Next year I will have $17500 capital loss carryover from 2021 on 2022 federal taxes resulting in $3000 federal AGI deduction. How would that transfer to my NC full-year resident return for 2022?

[ZoltanB45]

North Carolina would have a capital loss of $1000 in 2021.

North Carolina does not allow a carryover loss deduction. They allow you to take the deduction that year. For example, if in 2022 you have a capital loss of $5000, the Federal Return would show a $3,000 loss. North Carolina would allow the full $5,000 loss.

[angobar]

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@ZoltanB45 wrote:

North Carolina would have a capital loss of $1000 in 2021.

North Carolina does not allow a carryover loss deduction. They allow you to take the deduction that year. For example, if in 2022 you have a capital loss of $5000, the Federal Return would show a $3,000 loss. North Carolina would allow the full $5,000 loss.

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Thanks for the response! Can you elaborate how that would look like in terms of filling out the forms? Let's say in 2022 my hypothetical numbers look like this:

1. wages: $100,000

2. federal capital loss carryover from 2021: $-10,000

3. capital gains in 2022: $1,000

On 1040 I'll have line 1 (wages): $100,000, line 7 (capital gains): $-3,000, line 11 (AGI): $97,000.

On NC return D-400 I'll have line 6 (federal AGI): $97,000. I don't see anything in Schedule S regarding capital gains, so line D-400 lines 7 & 9 (additions/deductions from federal AGI) would be 0 resulting in $97,000 (- NC standard deduction) state taxable income. Where does the adjustment about ignoring carryover and applying only 2022 gains go on NC forms?

[ZoltanB45]

This is indeed a unique situation because it is the first year in North Carolina. North Carolina is seeing the $3000 loss on the federal side as the loss for the year, disregarding what is creating that loss. There is no record of the entire loss which is being carried over, so North Carolina will go with it like $3,000 is the actual loss for the year.

This leads back to your original question. What happens in 2022? North Carolina will follow the Federal guidance on the prior carryback. If the Federal return shows a $3000 deduction, going forward it will flow through to the North Carolina return as well.