Executive Summary
- Until the General Assembly updates North Carolina’s conformity statute, taxpayers should anticipate additional adjustments, added compliance complexity, and potential filing delays. Proactive planning now can help you avoid missteps and identify opportunities that may otherwise be missed.
- At DMJPS, our tax team is actively monitoring every development and evaluating how each change may impact your business or personal return. If you have questions or want to discuss how North Carolina’s current IRC conformity status affects your specific situation, please reach out to your DMJPS advisor.
North Carolina has not yet aligned its tax laws with the most recent updates to the Internal Revenue Code (IRC), and this delay may create meaningful challenges for both individuals and businesses preparing 2025 state income tax filings. Because North Carolina uses a “fixed date” conformity model, legislative approval is required before any new federal tax changes take effect at the state level. As of today, that update may not occur until after April 15, 2026, leaving many taxpayers navigating a temporary—and sometimes confusing—disconnect.
Where North Carolina Conformity Stands Today
Currently, North Carolina conforms to the IRC as of January 1, 2023. This means major federal tax changes enacted after that date, including those included in the One Big Beautiful Bill (OB3)—are not yet recognized for North Carolina tax purposes.
The North Carolina Department of Revenue has clarified that taxpayers filing before legislative action must remove the impact of any non-conforming federal provisions when calculating their state taxable income.
Key Areas Most Affected by the Lack of Conformity
While several federal updates fall outside the state’s current conformity date, two areas are expected to create the most significant adjustments for 2025 returns:
1. Bonus Depreciation
Federal law (via OB3) now permits 100% bonus depreciation for eligible property placed in service after January 19, 2025. North Carolina, however, still requires adherence to prior depreciation limitations.
This mismatch may lead to:
- Additional state adjustments
- More complex depreciation schedules
- Potential timing differences affecting cash flow and planning
Planning tip: Consider leveraging Section 179 expensing where appropriate or extending your North Carolina return until the General Assembly completes conformity updates.
2. Research & Experimental (R&E) Expenditures
Another significant disconnect involves the treatment of R&E costs:
- Federal law now allows immediate expensing for domestic R&E.
- North Carolina still requires capitalization and amortization under pre-2023 rules.
Because this creates substantial differences, if you have R&E expenditures, we recommend extending your state returns until clarity is available.
Impact on Individual Taxpayers
Although OB3 introduced several new federal deductions—including those related to seniors, tips, overtime, and vehicle interest—most will not affect North Carolina taxable income. This is because state income begins with federal adjusted gross income and applies its own deduction.
OB3 also increased the federal state and local tax (SALT) deduction cap and created new rules for certain charitable contributions. These provisions likewise are not currently addressed in North Carolina law. If adopted in the future, North Carolina would likely apply them on a prospective basis only.
What This Means for North Carolina Taxpayers
Until conformity legislation is enacted, taxpayers should be prepared for:
- Additional state adjustments
- More complex compliance requirements
- Possible filing delays
- Increased need for proactive planning
At DMJPS, our tax team is closely monitoring every development, tracking proposed legislation, and evaluating how each potential change may impact our clients. We understand that clarity and predictability are essential for making informed business and financial decisions. That’s why we remain committed to delivering guidance that is timely, practical, and tailored to your specific circumstances.
If you’re uncertain how these rules may affect your business or personal tax situation, we’re here to help—simply reach out to DMJPS.