Tax Type
Individual Income Tax
Description
Losses on sale of tax-exempt bonds
Topic
Taxable Income
Date Issued
06-20-1988
June 20, 1988
Re: Ruling Request
Individual Income Tax
Virginia Tax Free Bonds
Dear*****************
This is in reply to your letter of September 16, 1987 in which you request a ruling regarding the proper Virginia income tax treatment of losses suffered on the sale of certain obligations. Specifically, you are requesting a ruling regarding the proper treatment of losses on the sale of obligations on which both the interest earned and the gain on the sale is exempt from Virginia taxation.
RULING
Since Virginia is a conformity state for individual income tax purposes, the net gain or loss from the sale of these obligations (taxable for federal purposes, but exempt for Virginia purposes) is reflected in federal adjusted gross income. Thus any loss allowable for federal income tax purposes, including those netted against any capital gains, is taken into consideration in arriving at federal adjusted gross income - the starting point for computing Virginia taxable income.
Virginia Code §58.1-322 C.2. specifically provides a subtraction from federal adjusted gross income (to the extent included in federal adjusted gross income) for "[i]nterest on obligations of this Commonwealth or of any political subdivision or instrumentality of this Commonwealth." Also the Virginia Acts creating certain agencies or political subdivisions may contain a statutory exemption from state and local taxation for any capital gain arising from the sale of the obligations of the agency or political subdivision. Therefore, any gains from the sale of such obligations, included in federal adjusted gross income, may be subtracted from federal adjusted gross income in the computation of Virginia taxable income. Losses on the sale of such obligations will not require any modification to federal adjusted gross income in the computation of Virginia taxable income.
If you have any additional questions, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner