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The North Carolina 529 Plan Deduction for NC Residents

Rules for Claiming an Income Tax Deduction for Funding a North Carolina 529 Plan

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Overview of the North Carolina 529 Plan Tax Deduction:

North Carolina residents who contribute to a North Carolina 529 Plan receive a state income tax deduction of up to $2,500 per contributor. This means that even if a North Carolina resident contributes more than $2,500 on behalf of multiple beneficiaries (children), they are still only allowed to deduct a maximum of $2,500 on their return.

However, married couples filing jointly may combine their $2,500 limits for a maximum deduction of $5,000 ($2,500 per taxpayer). In this case, total contributions across all beneficiaries above $5,000 would not be deductible.

The North Carolina 529 Plan tax deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). There is no income phaseout or maximum on the North Carolina 529 Plan tax deduction.

Value of the North Carolina 529 Plan Tax Deduction:

North Carolina residents trying to decide whether to use one of their state's 529 plans or another state's Section 529 plan, need to account for the potential tax savings of contributing to their in-state plan. North Carolina does not currently offer a tax deduction to residents contributing to out-of-state plans.

Considering that the top income tax rate in North Carolina is 7.75%, a full $2,500 contribution can save a taxpayer up to $193.75 at tax time. Currently, North Carolina does not offer a tax deduction for contributing to any other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Claiming the North Carolina 529 Plan Tax Deduction:

Residents can claim the North Carolina 529 plan tax deduction on line 48 of their North Carolina Form D-400.

Reference and Documentation:

Additional information on the North Carolina 529 plan tax deduction can be found on the NC Department of the Revenue's website and on the official site for the College Foundation of North Carolina.

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