Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 110 - INDIVIDUAL INCOME TAX › Section 23VAC10-110-141 - Virginia taxable income; additions

Current through Register Vol. 40, No. 24, July 15, 2024
To the extent excluded from FAGI, the items enumerated below
				  shall be added to FAGI in computing Virginia taxable income. (For the ACRS
				  addition, see 23VAC10-110-150.)
1.
				Interest on obligations of other states and certain obligations of the United
				States.
a. Obligations of other states.
				Interest on obligations of any state other than Virginia or on the obligations
				of a political subdivision of such other state or interest or dividends on
				obligations or securities of any authority, commission or instrumentality
				thereof which are exempt from federal but not state income tax must be added to
				FAGI. The amount to be added shall be reduced by the expenses not deducted in
				computing federal adjusted gross income.
b. Certain obligations of the United States.
				Interest on obligations or securities of the United States or any commission,
				authority or instrumentality thereof, which is exempt from federal income tax
				but which is not exempt (under federal law) from state income tax must be added
				to FAGI. The amount to be added shall be reduced by expenses not deducted in
				computing FAGI.
c. Expenses
				deductible in computing the addition are those which by virtue of IRC §
				265 (which prohibits the deduction of expenses allocable to or interest on
				indebtedness incurred or continued to purchase or carry on obligations exempt
				from federal income tax) are not deductible for federal purposes.
Example: Taxpayer has $2,500 in interest income from
				  obligations of State X and $500 in interest from obligations of Virginia. None
				  of this $3,000 in interest is subject to federal income tax. "A" incurs $300 in
				  expenses related to this interest income which, by virtue of IRC § 265 was
				  not deductible in computing FAGI. The amount of interest income to be added to
				  FAGI in computing Virginia taxable income is computed as follows:
$2,500 (taxable State X interest)
-
[300 (nondeductible x expenses) X
$2,500
- taxable State X interest]
$3,000
- total interest
= $2,250
The total nondeductible interest expenses are proportioned
				  between interest taxable in Virginia (State X) and that not subject to Virginia
				  tax (Va.) to determine the portion of these expenses which may be deducted in
				  computing the interest addition.
If the interest is on an obligation created by a compact or
				  agreement to which this state is a party, such interest shall not be added to
				  FAGI in computing Virginia taxable income.
d. Regulated investment companies. Interest
				on any obligations taxable under subdivisions 1 a or 1 b of this section which
				is received by a regulated investment company and passed through to the
				shareholders in qualifying distributions as defined in IRC § 852 shall be
				taxable in the hands of the shareholders and must be added to FAGI (to the
				extent excluded therefrom) in computing the shareholder's Virginia taxable
				income.