Short Answer

In North Carolina, your share of partition-sale proceeds is generally subject to capital-gains tax to the extent your share of the net sales price (after court‑approved selling costs) exceeds your tax basis in the property. You typically report the sale on your federal return (Form 8949/Schedule D) and include the result on your North Carolina return. No money is distributed until the court confirms the sale and approves payment of the commissioner’s commission and attorneys’ fees.

Understanding the Problem

You’re a co-owner in a North Carolina partition action asking: Will my distribution be taxable, and how do I report it? Here, a commissioner will conduct the sale, the court will first approve payment of the commissioner’s commission and attorneys’ fees, and then distribute the remaining proceeds. One key fact: you want to know how and when your check is issued and what happens if another owner never claims theirs.

Apply the Law

Under North Carolina law, a partition by sale follows judicial-sale procedures. The commissioner must report the sale, the court must confirm it, and the court authorizes payment of sale costs (including the commissioner’s commission and approved attorneys’ fees) before distributing the balance according to ownership shares. For taxes, you generally compute gain or loss using federal rules; North Carolina income tax starts from your federal result with state adjustments as applicable.

Key Requirements

• Sale confirmation and costs first: The court confirms the sale and approves commissions, attorneys’ fees, court costs, and similar expenses before any owner receives funds.
• Amount realized: Your “amount realized” is your allocated share of the sale price reduced by your proportionate share of court‑approved selling expenses.
• Tax basis: Your basis is typically what you paid for your share (or inherited/received basis), adjusted for improvements and any depreciation taken.
• Gain or loss: Gain equals amount realized minus basis; report on federal Form 8949/Schedule D and include it on your North Carolina return. Holding period drives long‑ vs. short‑term treatment.
• Distribution mechanics: After confirmation and orders approving fees, the commissioner issues checks or deposits funds per the court’s order; you may be asked for a W‑9 before payment.

What the Statutes Say

• North Carolina Gen. Stat. § 1-339.1 (Judicial sales procedures) – Partition sales follow judicial-sale rules; the sale is reported and confirmed before distribution.
• North Carolina Gen. Stat. § 116B-67 (Claim of property from State Treasurer) – Unclaimed funds transferred to the State Treasurer can be reclaimed by the owner.

Analysis

Apply the Rule to the Facts: Because the court must first approve the commissioner’s commission and attorneys’ fees, your taxable gain is computed on your share of the net proceeds after those selling costs. If your adjusted basis in your share is lower than your net proceeds, you will generally report capital gain; if higher, a loss may result (subject to limitations). You’ll likely receive a check after the court confirms the sale and enters the disbursement order; confirm with the commissioner whether it will be mailed or available for pick‑up.

Process & Timing

1. Who files: The commissioner. Where: Clerk of Superior Court in the North Carolina county where the case is pending. What: Report of Sale and later motions/orders for confirmation and disbursement. You may be asked for a Form W‑9. When: After the sale and once the upset‑bid period closes, the court considers confirmation; only after confirmation and approval of fees will distributions be authorized.
2. After confirmation, the commissioner seeks an order to pay the commission, attorneys’ fees, costs, and then distribute net proceeds to co‑owners by their shares; timing varies by county and docket.
3. Disbursement occurs by check or other method directed by the court/commissioner. If a payee cannot be located or does not claim funds, the commissioner may deposit the funds with the Clerk; unclaimed funds can later be sent to the State Treasurer for safekeeping until claimed.

Exceptions & Pitfalls

• Basis changes outcomes: inherited property often has a date‑of‑death “step‑up” in basis; gifts carry over basis; improvements and depreciation adjust basis and can affect gain and depreciation recapture.
• Fees allocation: ensure the commissioner allocates sale costs pro rata; those reduce your amount realized for gain calculations.
• Use of property: if you used the property as a primary residence or for rental/business, special federal rules (exclusions or recapture) may apply; confirm before filing.
• Liens/judgments: recorded liens against an owner’s interest may be paid from that owner’s share before distribution.
• Unclaimed funds: if your address is outdated, your check may be returned and deposited with the Clerk and later sent to the State Treasurer; keep your contact information current.

Talk to a Partition Action Attorney

If you’re dealing with a court‑ordered partition sale and want to understand taxes, timing, and how distributions work, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.