Virginia Enacts Subtraction for REIT Income

Virginia has enacted a subtraction for income attributable to an investment in a Virginia real estate investment trust (REIT) made between 2018 and 2025. In order to qualify, the REIT must be certified by the Department of Taxation.

Certification of REIT Required

To certify a REIT, the REIT trustee must register the trust prior to December 31, 2024. The subtraction is available only for years during which the REIT was certified.

When registering the REIT, the trust must indicate that it intends to invest:

  • at least 90% of trust funds in Virginia; and
  • at least 40% of trust funds in real estate in localities that are distressed or double distressed.

A locality is considered to be “distressed” if it has:

  • an annual unemployment rate that is greater than the final statewide average unemployment rate for that calendar year; or
  • a poverty rate that exceeds the statewide average poverty rate for that year.

A locality is considered to be “double distressed” if it meets both criteria.

Limitations on Subtractions from REIT Income

Taxpayers may not take a subtraction from income when:

  • when the subtraction for investments in Virginia venture capital accounts is claimed for the same investment; or
  • when the qualified equity and subordinated debt investments tax credit is claimed for the same investment.

Special Limitations for Individuals

An individual may not take a subtraction on REIT in additional cases. First, they may not take a subtraction for an investment in a trust that is managed by a family member or an affiliate of the taxpayer. In addition, a subtraction isn’t allowed a subtraction for certain long-term capital gains is claimed for the same investment

Special Limitations for Corporate Taxpayers

Corporate taxpayers also are subject to additional limitations on taking the subtraction.

A subtraction is not permitted against corporate income taxes for an investment in a trust that is managed by an affiliate of the taxpayer.

Also, a corporation may not take a subtraction when:

  • a subtraction for certain long-term capital gains is claimed for the same investment; or
  • a subtraction for investments in Virginia venture capital accounts is claimed for the same investment.

Ch. 821 (H.B. 365), Laws 2018, effective July 1, 2018, applicable as noted above

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