Governor signs Virginia tax conformity into law

CPAs can exhale. Today, Gov. Ralph Northam signed legislation to advance the date of conformity of Virginia’s tax code to the U.S. Internal Revenue Code from Dec. 31, 2019, to Dec. 31, 2020. Because of the bill’s emergency clause, conformity goes into effect immediately and is retroactive. The House version of conformity HB 1935 was passed on Friday, Feb. 26, while the Senate version, SB 1146, was passed on Saturday morning, Feb. 27.

The Virginia Department of Taxation has just released Tax Bulletin 21-4 (PDF) containing important information about Virginia income tax returns.

Virginia will conform to most U.S. Internal Revenue Code provisions through Dec. 31, 2020, including:

COVID-19-related retirement distributions.
Above-the-line charitable contributions deduction.
Deduction limitations for certain charitable contributions.
Exclusion of educational payments.
Extension of the $300 deduction for non-itemizers to taxable year 2021.
Enhancing the charitable deduction for individuals for certain contributions.
Temporary full business meals deduction.
Extension of exclusion for certain employer payments of student loans.
Depreciation of certain residential rental property over a 30-year period.
Temporary enhancement of the EITC.
Repeal of the deduction for qualified tuition.

Deconformity

With respect to forgiven PPP loan expense deductibility and Rebuild Virginia grant income, Virginia will allow a deduction of up to $100,000 for tax year 2020. Virginia will not conform to the following:

Extension of the 7.5% floor in the medical expense deduction.
Provisions of the federal Coronavirus Aid, Relief, and Economic Security (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 EIDL fund proceeds except as described above.
All previous deconformity will remain in place, such as bonus depreciation.

Economic Injury Disaster Loans (EIDL)

We have received several questions from CPAs about EIDL treatment. Per the Virginia Department of Taxation, under HB 1935 and SB 1146 Virginia would conform to the tax-free treatment of such loans by generally conforming to section 278(c) of the Consolidated Appropriations Act (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.

The Virginia-specific tax deductions and subtractions in the conformity bills are limited to Paycheck Protection Program loan recipients and Rebuild Virginia grant recipients only. Such proposed subtraction and deduction do not apply to recipients of EIDL grants, targeted EIDL advances and subsidies for certain loan payments.

A sincere thanks

The complexities presented by pandemic-related relief made this year’s conformity process especially challenging. We cannot thank you enough for your messages and calls to your elected officials to advocate for conformity. With the help of dedicated members, leaders and committee volunteers, as well as our legislative counsel and staff, we were able to secure a vote.

Questions or comments about VSCPA advocacy efforts? Contact Emily Walker, VP, advocacy, any time at [email protected] or (804) 612-9428.