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North and South Carolina Taxes: Summary of
Tax Rates & Exemptions
 

North Carolina Taxes

The Tar Heel State is a favorite destination for retirees. Social Security benefits are exempt from state income taxes as are in-state public pensions and military pensions. Up to $4,000 of retirement income from federal, state and local government pensions can be excluded, too.

Out-of-state government pensions also qualify for the $4,000 exemption. You can also exclude up to $2,000 of qualified private pensions, including IRA distributions, from state income taxes.*


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* State income-tax rates range from a low of 6% to a high of 7.75% (on taxable incomes of more than $120,000). North Carolina imposes a 5.75% sales tax. Counties can add their own sales taxes, and the combined rate can reach 8% or more in some jurisdictions. Prescription drugs are exempt; food is subject to a 2% county tax. Real estate and personal property is assessed at 100% of appraised value. Homeowners 65 and older may qualify for a homestead exemption of up to $25,000, subject to income eligibility, and a circuit breaker program that limits property taxes to 5% of income, subject to income-eligibility limits. There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

 

NC STATE SALES TAX

5.75% – but is due to return to 4.5% on July 1, 2011. Prescription drugs and medical equipment are exempt. Food is subject to a 2% county tax.
 


NC INCOME-TAX RANGE

6.0% – 7.75%
 


NC EXEMPTIONS FOR RETIREMENT INCOME

Social Security is exempt, as is at least $4,000 in exclusions for pensions from federal, state and local governments (depending on dates and length of service); an exemption of up to $2,000 for qualified private pensions, including IRAs. Out-of-state government pensions also qualify for the $4,000 exemption. State retirees with at least five years of creditable service as of August 12, 1989, will be permanently exempt from state income tax on their retired/retainer pay.

 


NC PROPERTY TAXES

All property, real and personal, is subject to taxation and is assessed based on 100% of appraised value. Taxes are collected by cities and counties. Under the homestead exemption, the greater of $25,000 or 50% of the appraised value of real property owned by a North Carolina resident and occupied by the owner as his or her permanent residence is excluded from the taxpayer's assessment if the following requirements are met:

(1) The owner is 65 or older or is totally and permanently disabled.

(2) The disposable income of the owner did not exceed $25,000 for calendar year 2008. The 2009 limit is $25,600. The income-eligibility limit is adjusted each year by the Social Security cost-of-living adjustment. The disposable-income limit amount includes all money received plus the disposable income of the applicant's spouse if they reside together. The state also has a "circuit breaker" property-tax-deferment program. Under this program, taxes for each year are limited to a percentage of the qualifying owner's income. The qualifying owner must be at least 65 years old or be totally and permanently disabled. For an owner whose income amount for the previous years does not exceed the income-eligibility limit for the current year, which for the 2009 tax year is $25,600, the owner's taxes will be limited to 4% of the owner's income. For an owner whose income exceeds the income-eligibility limit of $25,600 but does not exceed 150% of the income-eligibility limit (which is $38,400 for the 2009 tax year), taxes will be limited to 5% of the owner's income.
 


NC INHERITANCE AND ESTATE TAXES

There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

 

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South Carolina Taxes

The Palmetto State extends its Southern hospitality to retirees. South Carolina does not tax Social Security benefits and allows residents 65 and older to deduct up to $15,000 per person ($30,000 per couple) of qualified retirement income when calculating their state income tax. Retired military personnel 65 and older can deduct up to $10,000 of military retirement benefits. State income-tax rates range from a low of 3% to a high of 7%. Property taxes are very low.*

*Taxes are based on 4% of the market value of the home, and homeowners 65 and older qualify for a homestead exemption that excludes the first $50,000 of the property's fair market value from property taxes. There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

 

SC STATE SALES TAX

6% (prescription drugs exempt). Twenty-five counties impose an additional 1% local-option sales tax; a number of counties impose a 2% sales tax. Seniors 85 and older pay 4%.

 

SC INCOME-TAX RANGE

3% – 7%

 

SC EXEMPTIONS FOR RETIREMENT INCOME

Retirement income is taxed, but Social Security is exempt. If you're younger than 65, $3,000 in pension income is exempt. You can take this deduction for income received from any qualified retirement plan. If both spouses receive retirement income, each is entitled to an individual deduction. At 65, the deduction is $15,000. The $15,000 deduction must be offset by any other retirement deduction that is claimed. A surviving spouse may continue to take a retirement deduction on behalf of the deceased spouse. Some taxpayers 65 and older may not have to file a tax return if they meet certain conditions.

 

SC PROPERTY TAXES

Property tax is assessed and collected by local governments. Both real and personal property are subject to tax. The market value of a legal residence and up to 5 acres of surrounding land is assessed at 4%. Other property is taxed at 6% of fair market value. Personal property is taxed at 10.5% of income tax depreciated value. For homeowners 65 and older, the state's homestead exemption allows the first $50,000 of their property's fair market value to be exempt from local property taxes. South Carolina imposes a casual excise tax of 5% on the fair market value of all motor vehicles, motorcycles, boats, motors and airplanes transferred between individuals.

Not found on the state's website is a reassessment provision called Point of Sale, introduced during the property-tax reform of 2006 that the General Assembly enacted. According to this provision, when a property is purchased, the assessed value of the property becomes the sale price. The South Carolina Association of Realtors and the state Chamber of Commerce are joining forces to lobby lawmakers for property-tax-assessment modifications in 2010.

 

SC INHERITANCE AND ESTATE TAXES

There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

 

Related Reading

Check Out the Competition

NC Tax Summary

SC Tax Summary

 

Acknowledgements

North Carolina and South Carolina state tax data courtesy Retirement Living Information Center.

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