North Carolina Form NC-1099NRS and Nonresident Seller Rules in a 1031 Exchange

North Carolina collects information at closing, not tax

Most withholding states take a slice of a nonresident's proceeds and let the seller claim it back on a return. North Carolina skips the slice. The Department's rule, 17 NCAC 06B .3906, requires every individual, fiduciary, partnership, corporation or unit of government buying North Carolina real property from a nonresident individual, partnership, estate or trust to complete Form NC-1099NRS, Report of Sale of Real Property by Nonresidents, and file it within 15 days of the closing date while furnishing a copy to the seller.

The rule rests on G.S. 105-154(b), which lets the Secretary require information returns from anyone who pays or controls the payment of income to a taxpayer, and on the Department's general rulemaking power in G.S. 105-262. Nothing in it authorizes a buyer or closing attorney to hold back funds, and the Department's 2018 notice on the form, which added electronic filing through eNC3, is equally silent on withholding.

The form is short. Part 1 identifies the seller by entity type, name, Social Security or employer identification number and address; Part 2 identifies the buyer; Part 3 records whether the sale was of a personal residence, the gross sales price, the county, the deed book and page, and the closing date; Part 4 is the preparer's signature. The buyer mails or e-files the original, sends the seller a copy with the instructions, and keeps one.

The NC-1099NRS is still filed in an exchange, because it reports price, not gain

An exchanging seller cannot opt out of the report, and the buyer should not try. The form asks for the gross sales price of the real property and its associated tangible personal property, a figure that exists whether the proceeds go to the seller or to a qualified intermediary. The intermediary's role in the chain does not make the buyer's counterparty a resident, so the buyer files on the nonresident seller as usual.

What the exchange changes is the back half of the form. The seller information section says that any gain recognized for federal income tax purposes by a nonresident from the sale of North Carolina real property is also subject to North Carolina income tax, so the nonresident must file a North Carolina return and pay tax on that portion of federal taxable income. A completed section 1031 exchange recognizes no gain federally, so nothing from the sale flows onto Form D-400 and Schedule PN.

Keep the copy the buyer sends you. The Department uses the report to match a nonresident's sale against a return, and a seller who files no D-400 because the exchange produced no North Carolina income should expect a letter asking why; the NC-1099NRS copy, the exchange agreement and federal Form 8824 answer it. The records to keep after an exchange include that correspondence.

The 4% withholding is for nonresident contractors' service fees, not property sales

G.S. 105-163.3 requires every payer who pays more than $1,500 in a calendar year to a nonresident contractor or an ITIN contractor to withhold 4% from the compensation paid for personal services performed in North Carolina, including fees for performances, entertainment, athletic events, speeches and film or broadcast work. The statute speaks of compensation and payees; it does not mention the purchase price of real property, and the NC-1099NRS form, which would be the natural place to collect such a withholding, has no payment line.

The confusion usually comes from closing checklists that lump North Carolina with Georgia and South Carolina, both of which do withhold on nonresident sellers. If a settlement statement shows a North Carolina state withholding line on a sale of real estate, ask the closer for the statute; there is none, and money sent to Raleigh without a mechanism to credit it will be slow to recover. The state-by-state picture of withholding at closing is where the real withholding states are listed.

The one North Carolina payment a nonresident seller may owe around closing is estimated income tax on recognized gain, discussed below, and that is the seller's own voucher rather than a buyer's hold-back.

Boot, failed exchanges and the estimated tax rule on the back of the form

If you recognize gain, on cash boot or because the exchange fails, North Carolina taxes it at its flat individual rate, 3.99% for taxable years after 2025 according to the Department's rate schedule, with possible further reductions from 2027 under the triggers in Session Law 2023-134. The gain is reported on Form D-400 with Schedule PN apportioning North Carolina-source income.

The NC-1099NRS instructions warn that the nonresident may be liable for estimated income tax on the gain to be recognized. Estimated tax is required if you expect to owe $1,000 or more and your withholding and credits will be less than 90% of the current year's tax or 100% of the prior year's; a seller with no North Carolina filing requirement in the prior year is excused, and partnerships, estates and trusts do not pay estimated tax. Hypothetical: a Virginia resident sells a Raleigh duplex for $700,000 and keeps $100,000 that is entirely recognized gain; North Carolina tax at 3.99% is $3,990, due through estimated payments or with the D-400. Run your own numbers with your CPA, because Schedule PN also pulls in any other North Carolina income.

The same instructions flag a trap for anyone thinking about an opportunity zone fund instead of an exchange: North Carolina did not conform to the temporary deferral of gain invested in a qualified opportunity fund under section 1400Z-2, so those gains are included in a nonresident seller's state tax even though they are deferred federally. The exchange route has no such mismatch, a point developed under moving 1031 funds into an opportunity zone fund.

After closing: no tracking form, and the excise stamp is the only state charge on the deed

North Carolina has no annual report of deferred gain, so an exchange of North Carolina property for property elsewhere, including a Delaware Statutory Trust interest, creates no continuing state filing once the NC-1099NRS has been matched to a return or a non-filing explanation. The excise stamp tax on the deed is paid by the seller before recording and has no exchange exemption; its rate is on the state page.

For the closing file, three documents cover the state: the buyer's NC-1099NRS copy, the exchange agreement showing proceeds assigned to the intermediary, and the federal Form 8824 for the year.