Recent Virginia legislation advances the state’s IRC conformity date to December 31, 2018. As a result, Virginia now generally conforms to the Tax Cuts and Jobs Act (TCJA) and the Bipartisan Budget Act (BBA) of 2018. Exceptions to Virginia’s conformity are noted below.
The legislation also makes a number of changes in response to the federal tax reform legislation. These include:
– increasing the state’s standard deduction;
– enacting a deduction for real and personal property taxes;
– enacting a deduction for 20% of business interest disallowed as a deduction under IRC Sec. 163(j);
– expanding the state’s subtracion for Subpart F income to include GILTI (IRC Sec. 951A); and
– establishing a Taxpayer Relief Fund.
Conformity Exceptions for Tax Year 2018
Under the legislation, Virginia does not conform to the following:
– special bonus depreciation allowance for certain property;
– five-year carryback period for certain net operating losses (NOLs);
– deductions related to the original issue discount on applicable high-yield discount obligations;
– exclusions related to cancellation of debt income; and
– the overall limitation on itemized deductions for certain taxpayers for tax years beginning after 2018.
Virginia Standard Deduction
For tax years 2019 through 2025, the state standard deduction is increased to:
– from $3,000 to $4,500 for individuals; and
– from $6,000 to $9,000 for married taxpayers filing joint returns.
Deduction for Real and Personal Property Taxes
Real and personal property taxes not otherwise deducted because of the federal limitation on the state and local tax deduction may be subtracted. The subtraction is effective for tax years after 2018 and applies to taxes imposed by Virginia or any other taxing jurisdiction.
Federal Business Interest Deduction
For tax years beginning after 2017, corporate and personal income taxpayers may subtract 20% of business interest disallowed as a deduction under IRC Sec. 163(j).
Expansion of Subpart F Subtraction to Include GILTI
The legislation expands the state’s current subtraction for Subpart F income to include IRC Sec. 951A global intangible low-taxed income (GILTI). The inclusion of GILTI applies to tax years beginning after 2017. The subtraction applies to the extent the income is included in federal taxable income. Specifically, this means taxpayers may claim a subtraction equal to the net inclusion of GILTI after considering the offset of any deduction allowed, including IRC Sec. 250.
Refunds and the Taxpayer Relief Fund
Under the legislation, taxpayers filing a complete tax year 2018 income tax return are eligible for a refund up to the following amounts:
– $110 for individuals; and
– $220 for married taxpayers filing joint returns.
A refund is allowed up to the amount of a taxpayer’s tax liability after the application of any deductions, subtractions, or credits. Refunds will be issued October 1 through October 15, 2019. The bill also establishes a special, nonreverting fund (Taxpayer Relief Fund) for additional revenues generated by TCJA.
Processing of TY 2018 Personal Income Tax Returns
The enactment of this legislation allows the Virginia Department of Taxation to being processing returns for this year. Taxpayers should expect a longer turnaround time for refunds due to a large backlog of returns already submitted. Taxpayers should consult the instructions for the appropriate 2018 Virginia income tax return for information regarding how to make adjustments.
The Virginia Department of Taxation has issued guidance regarding the conformity legislation, available at https://tax.virginia.gov/guidance-documents.
Ch. 17 (H.B. 2529) and Ch. 18 (S.B. 1372), Laws 2019, effective February 15, 2019, and applicable as noted; Tax Bulletin 19-1, Virginia Department of Taxation, February 15, 2019; Virginia Tax to Begin Processing Returns, Virginia Department of Taxation, February 15, 2019