NC Estate Tax: Thresholds, Federal Exemptions, and Planning Strategies

Good News First: North Carolina Has No Estate Tax

If you’re settling an estate in North Carolina and someone tells you there’s a state estate tax to worry about, they’re wrong. North Carolina repealed its estate tax effective January 1, 2013. The state no longer imposes any tax on the transfer of assets at death, regardless of estate size.

This is genuinely good news for most NC families. It removes one layer of complexity and cost from an already difficult process.

But the federal government is a different story. Federal estate tax still applies, and for large estates, it’s a significant financial consideration. Understanding exactly when it applies, what the current thresholds are, and what planning strategies are available can make a meaningful difference for families with substantial assets.

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NC Estate Tax: The Complete History

North Carolina had an estate tax for decades, piggybacked on the federal estate tax system. In 2009, the NC estate tax ranged from 0.8% to 16% on estates over the state exemption amount.

The decision to repeal came as part of broader tax reform. The General Assembly eliminated the estate tax in 2013, joining a growing number of states that removed estate taxes to be more competitive in attracting retirees and wealthy residents.

Since repeal, there has been no NC estate tax filing requirement for any estate regardless of size. You will not file an NC estate tax return, and no NC estate tax will be assessed. Period.

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Federal Estate Tax: What Applies in NC

The federal estate tax is the only estate transfer tax NC residents need to worry about. Here’s the current landscape:

The 2024 Federal Exemption

The federal estate tax exemption for 2024 is $13.61 million per individual. This means that the first $13.61 million of a taxable estate passes to heirs free of federal estate tax.

For married couples, the exemption is effectively doubled through the “portability” provision. If one spouse dies and their exemption isn’t fully used, the surviving spouse can elect to add the unused exemption to their own. This gives married couples a combined federal exemption of up to $27.22 million in 2024.

The exemption amount has been adjusted for inflation annually and sits significantly higher than it did a decade ago.

The 2026 Cliff: What’s Changing

Here’s where estate planning for 2025 and 2026 gets urgent. The current elevated exemption amounts are the product of the Tax Cuts and Jobs Act (TCJA) of 2017. That legislation is set to sunset after December 31, 2025, unless Congress acts to extend it.

If the TCJA provisions expire without renewal, the federal estate tax exemption will revert to pre-2017 levels, adjusted for inflation. That’s estimated to be approximately $7 million per individual, or roughly half the current exemption.

For families whose estates fall between $7 million and $13.61 million, the difference between the TCJA expiring and being extended is the difference between owing substantial federal estate tax and owing nothing.

As of 2026, monitor this situation carefully. Estate planning attorneys and CPAs who work with wealthy clients are actively advising on strategies to take advantage of the current high exemption before it potentially drops.

Federal Estate Tax Rates

Taxable estates (those exceeding the exemption) are taxed at 40% on the amount above the exemption. There’s no progressive rate structure at the federal level; the top rate applies from the first dollar over the threshold.

For a $15 million estate in 2024, the taxable amount is $15 million minus $13.61 million, or $1.39 million. Federal estate tax on that amount would be approximately $556,000.

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Inheritance Tax vs. Estate Tax: Understanding the Difference

These terms are often confused, and the difference matters.

Estate tax is levied on the estate itself, before assets are distributed to heirs. The executor pays estate tax from estate funds before anyone receives their inheritance.

Inheritance tax is levied on the recipient when they receive an inheritance. It’s assessed on the heir, not the estate.

North Carolina has neither. There is no state inheritance tax in NC.

Some states do have inheritance taxes (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania as of 2024). If you’re an NC resident inheriting from someone who died in one of those states, you may owe that state’s inheritance tax even as an out-of-state recipient. Consult a tax professional in that situation.

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NC Income Tax on Inherited Assets

While NC has no estate or inheritance tax, inherited assets can generate income tax in some circumstances. This is a subtler issue that trips up many heirs.

Stepped-Up Basis

Most inherited assets receive a “stepped-up” basis to the fair market value on the date of death. This is one of the most valuable tax benefits in the entire tax code.

Example: Your parent paid $100,000 for a home in 1985. It was worth $400,000 when they died. As an heir, your tax basis is $400,000 (the stepped-up amount), not $100,000. If you sell immediately for $400,000, you owe no capital gains tax on the $300,000 of appreciation that occurred during your parent’s lifetime.

This benefit applies to most inherited assets including real estate, stocks, and investment accounts.

Inherited Retirement Accounts: The Exception

Inherited IRAs, 401(k)s, and other retirement accounts do not receive a stepped-up basis, and they’re subject to income tax when you withdraw the funds. This is because contributions to these accounts were made on a pre-tax basis; the tax has always been deferred, not forgiven.

Under the SECURE Act, most non-spouse beneficiaries must withdraw all funds from inherited retirement accounts within 10 years of the account owner’s death. All withdrawals are taxed as ordinary income.

For an inherited $400,000 IRA, if you withdraw over 10 years at roughly $40,000 per year, you’ll owe NC income tax at 4.75% (current 2024 rate) and federal income tax at your applicable rate each year. Total tax over 10 years could easily exceed $100,000.

This is an area where early tax planning, ideally before you start taking distributions, makes a major difference.

Interest and Dividends Earned by the Estate

If the estate earns interest, dividends, or rental income after the date of death, that income is taxable. The estate files a federal Form 1041 (Estate Income Tax Return) for each year it remains open and earns income. NC also has an estate income tax return requirement for income attributable to NC sources.

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Federal Estate Tax Planning Strategies

For families whose estates approach or exceed federal exemption thresholds, proactive planning can reduce or eliminate estate tax liability.

Annual Gift Exclusion

Each person can give up to $18,000 per recipient per year (2024 amount, indexed for inflation) without using any of their lifetime exemption or triggering gift tax. Couples can combine to give $36,000 per recipient per year.

For a family with three adult children, parents can transfer $108,000 per year in tax-free gifts. Over 10 years, that’s $1,080,000 removed from the taxable estate with zero tax consequence.

Irrevocable Trusts

Several types of irrevocable trusts can remove assets from the taxable estate while allowing some ongoing benefit. Common strategies include:

• Irrevocable Life Insurance Trust (ILIT): Keeps life insurance death benefits out of the taxable estate
• Spousal Lifetime Access Trust (SLAT): Allows one spouse to benefit from assets transferred to trust while removing them from the taxable estate
• Charitable Remainder Trust (CRT): Provides income during lifetime while passing remainder to charity, with estate tax benefits
• Grantor Retained Annuity Trust (GRAT): Transfers appreciation on assets out of the estate at low gift tax cost

These strategies are complex and require guidance from an experienced estate planning attorney. They’re most valuable for estates approaching or above the federal exemption.

Qualified Opportunity Zone Investments

For estates with significant capital gains embedded in appreciated assets, Qualified Opportunity Zone investments can defer and potentially reduce capital gains tax, and also remove appreciation from the taxable estate.

529 Plans and Education Funding

Superfunding a 529 education savings plan allows five years’ worth of annual gift exclusion to be contributed at once ($90,000 per beneficiary in 2024), removing those funds from the taxable estate.

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What the TCJA Sunset Means for NC Families

The potential halving of the federal estate tax exemption in 2026 is the most significant estate planning issue for high-net-worth NC families right now. If you or your family have assets in the $7 million to $14 million range, the next 12 to 24 months are the most important window for planning.

Strategies like funding irrevocable trusts before the exemption drops can lock in the current high exemption, potentially sheltering assets that would otherwise be subject to the 40% federal rate if the exemption decreases.

This is not a DIY area. If it applies to you, working with an estate planning attorney and a CPA simultaneously is essential.

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How Afterpath Supports Estate Tax Considerations

Afterpath’s platform is designed for estate administration, not pre-death planning. But when you’re administering an estate, Afterpath’s NC compliance engine tracks whether the estate might approach federal estate tax thresholds and surfaces the relevant steps accordingly.

Pathfinder, Afterpath’s AI guide, can help you understand whether a federal estate tax return (Form 706) is required for your specific estate, explain the role of the stepped-up basis for inherited assets, and answer questions about estate income taxes in plain language.

For situations requiring formal tax advice, Afterpath’s professional marketplace connects you with NC-licensed CPAs and estate attorneys who specialize in estate tax matters.

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FAQ: NC Estate Tax

Q: Does NC have an estate tax? No. NC repealed its estate tax in 2013. There is no NC state estate tax.

Q: At what estate value does federal estate tax kick in? For 2024, the federal estate tax exemption is $13.61 million per individual. Estates below this amount owe no federal estate tax.

Q: What is the NC inheritance tax rate? NC has no inheritance tax. There is no tax on receiving an inheritance in North Carolina.

Q: Do I have to file an estate tax return in NC? If the estate is below the federal exemption, no estate tax return is required. Above the federal exemption, Form 706 (federal) must be filed.

Q: Will I owe income tax on assets I inherit in NC? Generally no, due to the stepped-up basis. However, inherited retirement accounts are subject to income tax when you withdraw funds.

Q: Can Afterpath help me figure out if estate tax applies to an estate I’m administering? Yes. Pathfinder can walk you through the relevant thresholds and requirements based on your specific estate details.

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Tax Planning Starts Before Death

The best time to address estate tax concerns is before they become estate administration problems. If you’re planning your own estate and your net worth approaches the federal threshold, consulting an estate planning attorney now can preserve significantly more wealth for the people you care about.

If you’re currently administering an estate and have questions about whether federal estate tax applies, consult a CPA immediately. The Form 706 deadline is 9 months after the date of death, with a possible 6-month extension.

For everything else involved in NC estate administration, from filing the initial inventory to closing the estate with the Clerk, Afterpath guides you through the process step by step. Join the waitlist at /waitlist/.