May 14, 2019
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2015.
FACTS
The Taxpayers used distributions from individual retirement accounts (IRAs) to purchase their first home. The Taxpayers filed a 2015 Virginia individual income tax return and claimed a subtraction for the distributions for income attributable to a first-time home buyer savings account. The Department denied the subtraction and issued an assessment. The Taxpayers appealed, contending that an IRA may be considered a first-time home buyers savings account that is eligible for the subtraction.
DETERMINATION
During the 2014 Session, the Virginia General Assembly enacted House Bill 331 (2014 Acts of Assembly, Chapter 729), which allows a taxpayer to designate an account at a financial institution as a first-time home buyer savings account. Distributions from such accounts must then be used for the purpose of paying or reimbursing the down payment and allowable closing costs for the purchase of a single-family residence in Virginia by a qualified beneficiary. An account holder may subtract any interest, capital gains, or other income attributable to such account to the extent it is subject to federal income taxation. See Virginia Code § 58.1-322.02 25.
The Form 1099s provided indicate that the entire amount of the distributions were subject to federal income tax. As such, the distributions met the requirement of being “other income attributable to such account to the extent it is subject to federal income taxation.” Therefore, as long as the account otherwise met the requirements of being a first-time home buyer savings account, the IRAs would have qualified.
The Department has issued First-Time Home Buyers Savings Account Guidelines (the “Guidelines”). See Public Document (P.D.) 15-2 (1/7/2015). The Guidelines require that for the first taxable year when the subtraction is claimed, the taxpayer must attach a statement to the return indicating:
• The names of any other individuals with an ownership interest in the account;
• The account number or other account identifier;
• The type of principal (cash or marketable securities) contributed to the account;
• The amount of principal and interest in the account as of the last day of the taxable year;
• The amount of any withdrawals from the account during the taxable year; and
• The account beneficiary or beneficiaries.
First-time home buyer savings accounts have a principal limit of $50,000 and a combined principal and interest limit of $150,000. In order to verify that the limits were not exceeded, the Department attempted to obtain account statements from the Taxpayers. To date, these statements have not been provided.
The Taxpayers will be provided one last opportunity to provide the information requested. The Taxpayers must submit documentation within 30 days of the date of the letter indicating the amount of all withdrawals from the accounts during the 2015 taxable year and the amount of principal and interest remaining in the accounts, if any, as of the last day of that taxable year. The documentation must be provided within 30 days of the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the information will be reviewed and the subtraction will be permitted, if warranted. If the information is not submitted within the time allotted, then the assessment will be considered to be correct.
The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1870.M