Virginia Additions to Income
The starting point for computing Virginia taxable income is federal adjusted gross income. Certain items of income that are either not taxable for federal purposes or are not reported in federal adjusted gross income are taxable on the Virginia return. These items, which are listed below, must be reported as additions to federal adjusted gross income on the Virginia return.
- Interest on federally exempt U.S. obligations
- Accumulation distribution income
- Lump-sum distribution income
- Cancellation of Debt Income (Fixed Date Conformity Adjustment)
- Income from Dealer Disposition of Property
- Domestic Production Deduction (Fixed Date Conformity Adjustment)
- Telework Expenses
Federal law generally exempts interest on state and local government bonds and securities from income tax. Since Virginia law exempts only income from Virginia state and local obligations, an addition is required to bring interest income from obligations of other states into Virginia taxable income. The amount to be added back on the Virginia return is the income less related expenses. Report on Schedule ADJ, line 1. Code of Virginia Section 58.1-322 [B] 
Virginia's date of conformity with the Internal Revenue Code (IRC) was advanced from December 31, 2011, to December 31, 2013, with limited exceptions. Virginia will continue to disallow federal income tax deductions for bonus depreciation allowed for certain assets under IRC §§ 168(k), 168(l), 168(m), 1400L and 1400N; the five-year carryback of federal net operating loss deductions generated in taxable year 2008 or 2009; and, federal income tax deductions for applicable high yield discount obligations under IRC § 163(e)(5)(F). In addition, fixed date conformity adjustments continue to be required for Cancellation of Debt Income under IRC § 108(i), and the domestic production deduction under IRC § 199.
If federal legislation is enacted that results in changes to the Internal Revenue Code for the 2013 taxable year, taxpayers will be required to make adjustments to their Virginia returns that are not described in the instruction booklet. Information about any such adjustments will be posted on the Department's website.
10 Interest on federally exempt U.S. obligations - Enter the amount of interest or dividends exempt from federal income tax, but taxable in Virginia, less related expenses.
11 Accumulation distribution income - Enter the taxable income used to compute the partial tax on an accumulated distribution as reported on federal Form 4970.
12 Lump-sum distribution income - If you received a lump-sum distribution from a qualified retirement plan and used the 20% capital gain election, the ten-year averaging option, or both on federal Form 4972, complete the table below:
Enter the total amount of distribution subject to federal tax.
(ordinary income and capital gain) 1. _______________
Enter the total federal minimum distribution allowance,
federal death benefit exclusion and federal estate
tax exclusion. 2. _______________
Subtract Line 2 from Line 1. Enter this amount
on Line 2b or 2c of your Virginia Schedule ADJ. 3. _______________
13 Cancellation of Debt Income (Fixed Date Conformity Adjustment) - Enter the amount of cancellation of debt income from transactions in 2010 that were completed on or ?before April 21, 2010, elected to be reported as an addition required by conformity in equal amounts over three taxable years: 2010, 2011 and 2012. Taxpayers must add back the entire amount of any cancellation of debt income resulting from transactions after April 21, 2010.
14 Income from Dealer Disposition of Property - Enter the amount that would be reported under the installment method from certain dispositions of property. If, in a prior year, the taxpayer was allowed a subtraction for certain income from dealer dispositions of property made on or after January 1, 2009, in the years following the year of disposition, the taxpayer is required to add back the amount that would have been reported under the installment method. Each disposition must be tracked separately for purposes of this adjustment.
15 Domestic Production Deduction (Fixed Date Conformity Adjustment) - Enter 1/3 of the total amount of the domestic production deduction claimed on your federal return pursuant to IRC § 199. For taxable years 2010 and thereafter, Virginia does not conform to the domestic production deduction allowed under IRC § 199. Instead of allowing this deduction to flow through, Virginia allows a deduction equal to two-thirds of the federal deduction.
16 Telework Expenses - Individuals who claim the Virginia Telework Expenses Tax Credit are not allowed to exclude those expenses from Virginia Income. To the extent excluded from federal adjusted gross income, any expenses incurred by a taxpayer in connection with the Telework Expenses Tax Credit must be added to the Virginia return.
99 Other - Enter the amount of any other income not included in federal adjusted gross income, which is taxable in Virginia. Attach an explanation of the addition.
Last Updated 11/14/2013 10:16