USA – NORTH CAROLINA Law and Practice Contributed by: John Livingston and Brittani Miller, Kilpatrick
8.2 Mitigation of Tax Liability Structuring the transaction as an entity sale, where ownership of the entity holding the portfo - lio is transferred rather than the properties them - selves, avoids direct real estate transfer taxes. This is not common in North Carolina as transfer fees are relatively low. Utilising a 1031 exchange allows sellers to defer capital gains taxes by rein - vesting proceeds into like-kind properties. 8.3 Municipal Taxes Municipalities do not impose business rates or specific taxes on the occupation of busi - ness premises as seen in some other countries. However, businesses occupying premises are subject to property taxes, which are assessed annually by counties and municipalities based on the value of the real estate and, in some cas - es, the business’s tangible personal property. Some occupations require state-wide licensing permits, which have nominal fees. 8.4 Income Tax Withholding for Foreign Investors Foreign investors in US real estate are subject to federal income tax withholding under the For - eign Investment in Real Property Tax Act (FIRP - TA). North Carolina also requires state income tax withholding on certain real estate transac - tions involving foreign individuals or entities. FIRPTA withholding exemptions may apply if the property is sold for less than USD300,000 and the buyer intends to use it as their primary residence, or if the seller provides a certificate from the IRS showing reduced or no withholding is required. North Carolina withholding exemp - tions may apply for transactions where no tax - able gain is realised, but proper documentation must be provided.
services or materials provided during construc - tion or improvement projects. To remove the lien, property owners can (i) pay the amount claimed, (ii) negotiate a settlement, or (iii) dispute the lien’s validity in court. If the lien is invalid or improperly filed, the owner can seek its removal through legal proceedings. 7.7 Requirements Before Use or Inhabitation A certificate of occupancy must be issued before a project can be inhabited or used for its intend - ed purpose. VAT is not payable on the sale or purchase of corporate real estate. Instead, these transac - tions are subject to other taxes, such as the real estate transfer tax, which is levied at a rate of USD1 per USD500 and typically paid by the seller, although this can be negotiated between the parties. Sellers may also owe income taxes on profits from the sale. Under N.C. Gen. Stat. § 105-228.29, certain real estate transactions are exempt from the real estate excise tax. Exemptions include: • By operation of law. • By lease for a term of years. • By or pursuant to the provisions of a will. • By intestacy. • By gift. • If no consideration in property or money is due or paid by the transferee to the transferor. 8. Tax 8.1 VAT and Sales Tax • By merger, conversion or consolidation. • By an instrument securing indebtedness.
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