North Carolina Gift Tax: The Step-By-Step Guide

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Paul Sundin, CPA

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A gift can be a pretty complex matter from the point of taxation. While some people make taxable gifts regularly without even knowing, others often get confused trying to get into the matter and understand the true nature, purpose, and application of the Gift Tax.

Let`s go over the principles of gift taxation in North Carolina.

What is a gift, and how is it taxable?

Technically, a gift is any kind of transfer that you make, either not expecting any payback or a lower token price than the market value. In these terms, even an interest-free money loan is a gift.

Therefore, a tax gift can be applied for any kind of property, from stocks and bonds to real estate and more. It is a tax on any transfer that goes over the exemption amount. Moreover, the person who makes the gift may not even consider it but can still become responsible for paying the tax due.

Gift Tax in North Carolina

Technically, once you bought a jet ski for your kid`s birthday or loaned money to a friend without any interest rate, you have made a taxable gift.

However, only 12 states happen to have an estate tax, and very few of them impose the gift tax.

Taxes written on hanging tags

North Carolina is among those states that do not have a gift tax. In other words, you can gift away your entire estate avoiding the state-level estate tax.

However, you may still owe a gift tax on a federal level.

Federal Gift Tax Exclusion

An annual federal gift tax exclusion of $15,000 provides for the fact that you can make a gift to anyone and any amount of people for up to this sum without worrying about a tax due.

Moreover, you can split the gift value with your spouse, taking advantage of his-her tax exclusion and sheltering gifts over $15,000.

However, spouses cannot share a gift tax return and file it separately while making taxable gifts.

There won`t be any tax due in this case, and the gift won`t affect the lifetime gift tax exemption or the estate exemption.

Scrabble pieces spelling TAX

If you made a gift that exceeds the annual exclusion, you should file Form 709: U.S. Gift Tax Return.

The fact that North Carolina does not impose the gift tax technically means that you can gift away your entire estate avoiding the state-level estate tax. Moreover, considering the Federal Gift Tax Exclusion and the possibility to split a gift value between two spouses, only about 1% of taxpayers have to deal with the Gift Tax.

At the same time, you can benefit from the practice of making under $15,000 gifts every year. It will reduce your taxable estate, lowering your heirs` tax burden.

How to Avoid the North Carolina Gift Tax

North Carolina does not have a gift tax. But the federal gift tax could still get you. Here are some strategies that you can implement to limit estate and gift tax issues. Consider the following:

  • Crummey Trusts 
  • Grantor Retained Income Trusts 
  • Qualified Personal Residence Trusts (QPRTs) 
  • Grantor Retained Annuity Trusts (GRATs) 
  • Donor Advised Funds
  • Irrevocable Life Insurance Trust (ILIT)
  • Qualified Personal Residence Trusts (QPRTs) 
  • Special Valuation of Farms and Businesses
  • Family Limited Partnerships (FLPs)
  • Charitable Remainder Trusts 
  • Minor Trusts 
  • Grantor Retained Unitrusts (GRUTs) 

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