TAXATION
Virginia tax legislation: What you need to know After two years of trying tax seasons, Virginia CPAs are gearing up for a more normal (we hope?) tax season. A variety of legislation was passed by the Virginia
General Assembly this year. The below items all went into effect on July 1, 2021, unless otherwise noted. For a full report on all the changes, as this list is not allinclusive, read the “2021 Legislative Summary” from the Virginia Department of Taxation, available as a PDF at tax.virginia.gov.
CONFORMITY OF VIRGINIA’S TAX CODE TO THE INTERNAL REVENUE CODE After many conversations among legislators on how to handle conforming with federal coronavirus relief legislation, conformity was passed effective March 15, 2021, and advanced from Dec. 31, 2019, to Dec. 31, 2020. Virginia generally conforms to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 (CAA), with certain exceptions. Ultimately, Virginia does conform to: • COVID-19-related retirement distributions. • Above-the-line charitable contributions deduction. • Deduction limitations for certain charitable contributions.
• Extension of the 7.5% floor in the medical expense deduction. • Provisions of CARES Act related to the net operating loss (NOL) limitations and carryback. • Excess business losses for noncorporate taxpayers. • Business interest deduction limitations. • Deductibility of business expenses funded by PPP loan and Economic Injury Disaster Loan (EIDL) fund proceeds except as described above.
Further guidance on EIDLs
• Depreciation of certain residential rental property over a 30-year period.
The Virginia-specific tax deductions and subtractions in the conformity bills are limited to Paycheck
• Enhancing the charitable deduction for individuals for certain contributions. • Temporary full business meals deduction.
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With respect to forgiven Paycheck Protection Program (PPP) loan expense deductibility and Rebuild Virginia grant income, Virginia allows a deduction of up to $100,000 for tax year 2020. All previous deconformity remains in place, such as bonus depreciation, and Virginia also does not conform to the following:
• Extension of exclusion for certain employer payments of student loans.
• Extension of the $300 deduction for nonitemizers to taxable year 2021.
DISCLOSURES
• Repeal of the deduction for qualified tuition.
TAX let us know that Virginia will conform to the tax-free treatment of such loans by generally conforming to section 278(c) of the CAA. In addition, the conformity legislation would deconform from §§ 278(b)(2) and 278(c)(2) of the CAA, which authorize deductions for expenses paid with emergency EIDL grants, targeted EIDL advances, and subsidies for certain loan payments. As a result, a fixed date conformity addition would be required for any deductions claimed on a federal return for expenses for which the taxpayer has been reimbursed by such grants, advances or subsidies.
• Exclusion of educational payments.
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• Temporary enhancement of the EITC.
FALL 2021
