Retiring in North Carolina? Here’s Which Taxes Will Affect You Most

By Dan Akers, CPA, CFP®

They say that the only things certain in life are death and taxes, and North Carolina residents are no strangers to taxes. In fact, North Carolina ranks 22nd in the nation as far as its state and local tax burden goes. [1]  If you’re planning to retire here, be sure you’re up to date on the taxes you could face in retirement.

Income Tax

The current state income tax rate for North Carolina residents is a flat rate of 5.25%, and it is scheduled to decrease incrementally every year, landing at 3.99% by 2027. [2]  As a retiree, this tax affects any ordinary income you may receive throughout the year including:

  • Income from part-time work
  • Distributions of earnings and pre-tax contributions to qualified retirement accounts (traditional IRA, 401(k), 403(b), etc.)
  • Investment income received from taxable brokerage accounts
  • Rental income from investment properties

The good news is North Carolina does not tax Social Security benefits, no matter how much retirement income you receive from other sources.

Estate Tax

Even better news for retirees in North Carolina is that there are no state taxes on the value of your estate or inheritance. [3]  With the federal estate tax exemption at $11.7 million, [4] this means North Carolina is a favorable retirement state for high net worth individuals.

Sales Tax

North Carolina has sales tax at both the state and local level. The state sales tax is a flat 4.75% and the local counties are given the option to collect an additional 2.75%, for a combined rate of 7.5%. [5] This is a bit higher than the national average of 6.35%, [6]  but it is offset by a reduced tax rate for essential items like qualified groceries. [7]

Property Tax

The median property tax rate in North Carolina is $773 per $100,000 of home value, [8]  meaning a home valued at the national average of $293,000 would have an estimated property tax of $2,265. Homeowners over the age of 65, however, are eligible for two tax relief programs: [9] 

  • Elderly or Disabled Exclusion – must be at least 65 years old or permanently disabled, with income no greater than $31,500 for 2021. This program excludes the greater of the first $25,000 or 50% of the home’s value from taxation.
  • Circuit Breaker Tax Deferment Program – this program limits the amount of property tax that can be charged per year for homeowners who are 65 and older. Those who make less than $31,500 a year will have their property taxes capped at 4% of their income, and those making between $31,501 and $47,250 will be capped at 5% of their income. Taxes over the capped amount will be deferred as a lien on the property. 

Incorporating property tax projections into your overall financial plan is important if you own a home and plan to retire in North Carolina. Homeowners must choose between the two tax-relief programs, so you want to be sure you are getting the most bang for your buck as opposed to just picking one randomly.

Create a Plan to Minimize Taxes

Understanding tax laws is an important part of wise money management. Like all resources, money is limited, so it is prudent to make the most of what you have. Another way to ensure that you are making the most of your money is to work with an experienced financial professional, someone who can help you make a plan for your money and avoid unnecessary taxes. At Altavista Wealth Management this is our specialty. Reach out to us at 866-684-2600 or [email protected] to schedule an introductory meeting today.