Tax Type
Individual Income Tax
Description
Itemized deduction for mortgage interest; loan for a motor home (recreational vehicle)
Topic
Federal Conformity
Date Issued
04-12-2012
April 12, 2012
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of individual income tax assessment issued to ***** (the "Taxpayers") for the taxable year ended December 3'I, 2007. I apologize for the delay in responding to your letter.
FACTS
On their 2007 individual income tax return, the Taxpayers reported an itemized deduction for mortgage interest resulting from a loan for a motor home (recreational vehicle). The Department disallowed the deduction because the interest was not reported on a federal information return (Form 1098) and no real estate tax was paid. The Taxpayers appeal the assessment, contending the motor home is a qualified residence for federal income tax purposes.
DETERMINATION
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI).
As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. The Department does retain the authority under Va. Code § 58.1-219 to adjust federal adjusted gross income and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the Internal Revenue Code. However, where the IRS has examined the federal taxable income of a taxpayer, the Department does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011).
Virginia Code § 58.1-322 D 1 allows a taxpayer to deduct from its Virginia adjusted gross income the amount allowed for itemized deductions for federal income tax purposes. Under IRC § 163(a), taxpayers may deduct mortgage interest paid on a principal residence. The Department's auditor disallowed the mortgage interest deduction because the lender did not issue a Form 1098 and the Taxpayers did not pay any real estate tax on the motor home.
Under IRC § 6050 H, only lenders that receive $600 or more of interest from an individual on a mortgage during calendar year are required to report such interest on Form 1098. Pursuant to Treas. Reg. § 1.6050H-1T, a "mortgage" is any obligation that is secured primarily by real property, regardless of whether the property is located inside or outside the United States. Because a motor home is not generally considered to be real property, the lender would not have been required to issue a Form 1098 to the Taxpayers.
With regard to real estate taxes, the Department must consider whether a motor home would meet the requirements of a qualified residence under IRC § 163. A "qualified residence" can include a principal residence, as that term is defined for purposes of the IRC § 121, and a second residence if it contains sleeping space, a kitchen and a toilet that meets the requirements of IRC § 280A (d). See Treas. Reg. §1.163-10T (p).
In this case, the motor home has a sleeping space, kitchen, and a toilet. Further, the Taxpayers have provided documentation to show they met the personal use requirements under IRC § 280A (d). Further, the Department has been unable to find any federal income tax rules expressly prohibiting motor homes from being treated as a qualified residence. Accordingly, the assessment issued to the Taxpayers for the 2007 taxable year will be abated.
While the Department has ruled that a mortgage interest deduction for interest paid on the motor home is permitted, Va. Code § 58.1-311 would require the Taxpayers to report a change or correction in federal taxable income, including Schedule A, within one year of the final determination of such change or correction by filing an amended return with the Department. If a taxpayer fails to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions concerning this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings Division, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4793524455.E
Rulings of the Tax Commissioner