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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I am a non resident of North Carolina and sold property in

Customer Question

I am a non resident of North Carolina and sold property in 2006 but deferred the gain by doing a 1031 exchange through a qualified company. I filed the 8824 like kind exchange form for federal and in my resident state. As I had no income I did not file a non resident return. Was this correct to not file a return in North Carolina. Their filing requirement states you need to file if you had any type of income, however, the gain was deferred because of the 1031 exchange. I received a notice from the state that I should have filed a non resident return due to the sale and they assumed I had income from the sale which I did not.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

According to NC instructions - http://www.dornc.com/downloads/D401.pdf

Who is required to file a North Carolina individual income tax return?

Every nonresident who received income for the taxable year from North Carolina sources that was attributable to the ownership of any interest in real or tangible personal property in North Carolina or derived from a business, trade, profession, or occupation carried on in North Carolina, or is derived from gambling activities in North Carolina
and whose total income from all sources both inside and outside of North Carolina equals or exceeds the amount for his filing status shown in Chart A or B below.

 

See threshold amounts on the page 4.

Please note that filing requirements are based on the total income - not taxable income, and not income reduced by any deductions or by the amount which was deferred for federal income tax purposes.

 

Please also take in consideration that NC DOR received an information about the sale price, but has no any information about the basis and will consider the total proceeds as your taxable income unless you file a tax return.

 

Thus:

-- you most likely are required to file a tax return (assuming the sale price is above the threshold)

-- by filing the tax return - you will inform the NC DOR that you do not have any tax liability

-- if you do not file a tax return - the statute of limitation will not applied, but if you do file the tax return - NC DOR has generally only three years to assess any additional taxes.

 

Let me know if you need any help.

 

Customer: replied 4 years ago.

There was no gross income as the property sold was exchanged for two like kind real properties thus deferring the gain. On the federal return form 8824 was filed showing the deferred gain but does not show anywhere on form 1040. Based on the fact that no gross income was received but deferred because of the exchange that is why I did not file a return. Also, would there be a penalty for not filing? Since there was no gross income, I do not believe I am liable for any state income taxes as the gain was deferred.

Is that correct?

Expert:  Lev replied 4 years ago.

The sale price would be your gross income. That amount is reported on the 1099 form.

the fact of deferring the gain - doesn't eliminate filing requirements.

If you have no NC taxable income - that should be stated on your NC tax return and your federal tax return (including the form 8824) should be attached.

 

I understand your reasoning, however please also understand that NC DOR doesn't have the information you provided above.

They only have the amount gross sale reported on the form 1099. They do not know your capital gain and have no information that the capital gain was deferred.

The simplest and formal way to provide that information to NC DOR - is to file a tax return.

 

There will not be any penalty - because penalty is based on the amount of tax you owe. Assuming - you do not owe any NC taxes - there will not be any penalty.

 

Let me know if you need any help.

 

 

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