Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 110 - INDIVIDUAL INCOME TAX › Section 23VAC10-110-83 - Net operating losses; treatment of the Virginia modifications in the loss year

Current through Register Vol. 40, No. 24, July 15, 2024
A.
				Modifications follow loss. The addition, subtraction and itemized deduction or
				deduction for zero bracket amount modifications shall be combined. The net
				result of these loss year modifications will follow the federal loss to the
				year in which the loss is utilized. It will be applied in the same proportion
				as the amount of loss that is absorbed. Thus, if the federal net operating loss
				is fully utilized in a carryback or carryforward year, the entire net amount of
				Virginia modifications will be applied to such year. If, however, the federal
				net operating loss is partially utilized in each of several years, the net
				Virginia modifications will be applied in the same ratio to the several years.
				For example, if 50% of a 1984 federal net operating loss is carried back to
				1981, then 50% of the 1984 net Virginia modifications will also be carried back
				to 1981.
B. When Virginia
				modifications exceed net operating loss. However, if in the loss year the
				positive Virginia modifications are greater than the federal net operating
				loss, Virginia negative modifications, plus the amount of Virginia personal
				exemptions and deductions, then Virginia taxable income for the loss year will
				be greater than zero. Under these circumstances, the net positive Virginia
				modification shall be limited to the amount of the federal net operating loss.
				For example, if the 1984 federal net operating loss is ($9,000), Virginia
				additions are $18,000, and Virginia subtractions are ($5,000), then 1984
				Virginia taxable income is $2,100 (assuming the taxpayer is single, under age
				65 and claims the Virginia standard deduction). The net modification ($18,000-
				$5,000 = $13,000) will be limited to the amount of federal net operating loss,
				i.e. $9,000. Therefore, if $6,000 of the federal net operating loss is carried
				back to 1981 then $6,000 of the net positive Virginia modification will also be
				carried back to 1981.
C. Worksheet
				and examples. The following worksheet or a facsimile thereof must be used and
				attached to the return to compute the amount of net Virginia modification in
				the loss year and the portion of this modification to be used in each of the
				carryback and/or carryforward years.
NET OPERATING LOSS MODIFICATION WORKSHEET
19___
Attach to the amended return for the
						  carryback year and/or to the return for the carryforward year
1. Year of loss
_________
2. Federal NOL for year of loss
_________
3. Amount of Federal NOL absorbed in this
						  carryback or carryforward year
_________
4. Percentage of NOL absorbed in this
						  carryback or carryforward year (Line 3 divided by Line 2)
_________
5. Virginia Modifications for year of the
						  loss
a) Total Additions (Line 6 Form 760)
_________
b) Total Subtractions (Line 9 Form 760)
(________)
c) If Itemized Deductions Claimed -
State Income Tax included in NOL
_________
OR
If Itemized Deductions Not Claimed- Federal ZBA included
						  in NOL
_________
d) Total State Tax Adjustment
_________
e) Other
_________
Total Net Modifications
_________
6. Amount of Virginia Loss Year
						  Modifications to be Applied to Carryback or Carryforward Year
(Line 5 x Line 4)
_________
Example 1.
In 1984, John and Mary Taxpayer suffered a federal net
				  operating loss of $26,560, which they carried back to 1981. The amount of the
				  1984 net operating loss absorbed in 1981 was $9,296. They had $520 of Virginia
				  income tax (withholding on wages) included in the federal net operating
				  loss.
Their 1984 Virginia income tax return contained the following
				  Virginia modifications:
Additions
A.C.R.S.
$400
Deduction for married couple when both work
$325
Total Additions
$725
Subtractions
State Tax refund (excessive 1983 withholding)
$350
Interest on obligations of the United States
$1,290
A.C.R.S.
$110
Total Subtraction
$1,750
The worksheet to compute the net Virginia modification from
				  the loss year should be completed as follows:
Example 1
NET OPERATING LOSS MODIFICATION WORKSHEET
19
81
Attach to the amended return for the
						  carryback year and/or to the return for the carryforward year
1. Year of loss
1984
2. Federal NOL for year of loss
$26,560
3. Amount of Federal NOL absorbed in this
						  carryback or carryforward year
$9,296
4. Percentage of NOL absorbed in this
						  carryback or carryforward year (Line 3 divided by Line 2)
35%
5. Virginia Modifications for year of the
						  loss
a) Total Additions (Line 6 Form 760)
$725
b) Total Subtractions (Line 9 Form 760)
($1,750)
c) If Itemized Deductions Claimed -
State Income Tax included in NOL
$520
OR
If Itemized Deductions Not Claimed - Federal ZBA
						  included in NOL
_____
d) Total State- Tax Adjustment
$520
e) Other
_____
Total Net Modifications
($505)
6. Amount of Virginia Loss Year
						  Modifications to be Applied to Carryback or Carryforward Year
(Line 5 X Line 4)
($177)
Example 2.
Same as Example 1, except that $390 of the $520 1984 (loss
				  year) Virginia income tax claimed as an itemized deduction was from estimated
				  income tax payments based on anticipated investment income. First the amount of
				  State tax included in the net operating loss must be computed. On the Federal
				  Schedule A, Form 1045, line 8(a), the nonbusiness deductions equal $15,350 and
				  the nonbusiness income line 8(b) equals $9,850. For federal purposes, in
				  computing the net operating loss, only $390 of the State tax deduction claimed
				  on federal Form 1040, Schedule A, is included in the non-business deductions on
				  the federal Form 1045, Schedule A. Since only 64.2% (9850)/(15350) of the
				  non-business deductions are included in the net operating loss, only $250 ($390
				  X 64.2%) of the non-business portion of the State tax deduction is included in
				  the net operating loss. The $130 of State tax that is a business deduction
				  (from withholding on wages) is included in the net operating loss also.
				  Therefore, a total of $380 ($250 + $130) of State tax is included in the net
				  operating loss.
Example 2
NET OPERATING LOSS MODIFICATION WORKSHEET
19
81
Attach to the amended return for the
						  carryback year and/or to the return for the carryforward year
1. Year of loss
1984
2. Federal NOL for year of loss
$26,560
3. Amount of Federal NOL absorbed in this
						  carryback or carryforward year
$9,296
4. Percentage of NOL absorbed in this
						  carryback or carryforward year (Line 3 divided by Line 2)
35%
5. Virginia Modifications for year of the
						  loss
a) Total Additions (Line 6 Form 760)
$725
b) Total Subtractions (Line 9 Form 760)
($1,750)
c) If Itemized Deductions Claimed -
State Income Tax included in NOL
$380
OR
If Itemized Deductions Not Claimed - Federal ZBA
						  included in NOL
_____
d) Total State- Tax Adjustment
$380
e) Other
_____
Total Net Modifications
(-$645)
6. Amount of Virginia Loss Year
						  Modifications to be Applied to Carryback or Carryforward Year
(Line 5 X Line 4)
($225.75)
Example 3.
John and Mary Taxpayer suffered a federal net operating loss
				  of $26,560 in 1984, which they carried back to 1981. The amount of the 1984 net
				  operating loss absorbed in 1981 was $9,296. They did not itemize deductions in
				  1984. Because their non-business income exceeded their non-business deductions
				  the entire federal zero bracket amount was included in the net operating
				  loss.
Example 3
NET OPERATING LOSS MODIFICATION WORKSHEET
19
81
Attach to the amended return for the
						  carryback year and/or to the return for the carryforward year
1. Year of loss
1984
2. Federal NOL for year of loss
$26,560
3. Amount of Federal NOL absorbed in this
						  carryback or carryforward year
$9,296
4. Percentage of NOL absorbed in this
						  carryback or carryforward year (Line 3 divided by Line 2)
35%
5. Virginia Modifications for year of the
						  loss
a) Total Additions (Line 6 Form 760)
$725
b) Total Subtractions (Line 9 Form 760)
($1,750)
c) If Itemized Deductions Claimed -
State Income Tax included in NOL
_____
OR
If Itemized Deductions Not Claimed - Federal ZBA
						  included in NOL
$3,400
d) Total State- Tax Adjustment
$3,400
e) Other
______
Total Net Modifications
$2,375
6. Amount of Virginia Loss Year
						  Modifications to be Applied to Carryback or Carryforward Year
(Line 5 X Line 4)
$831
Statutory Authority
§§ 58.1-203 and 58.1-311 of the Code of Virginia.