Could part-year Virginia residents claim a prorated state standard deduction after itemizing on their federal return?

Plain-English summary

Virginia denied the couple a prorated standard deduction because they had itemized on their federal return. They lived in Virginia until July 1, 2010, then bought a Maryland home and incurred enough property tax and mortgage interest to itemize federally.

Part-year residents may claim only deductions attributable to the Virginia-resident period. The Maryland home expenses were paid after the move, so they did not create Virginia itemized deductions.

Virginia nevertheless tied the state deduction method to the federal election. A taxpayer who itemizes federally must itemize in Virginia and cannot switch to the Virginia standard deduction. The Department said it had no authority to grant the requested exception.

What this means for you

• Model the Virginia result before choosing the federal deduction method in a move year.
• Federal itemization controls whether Virginia's standard deduction is available.
• Part-year Virginia itemized deductions are limited to payments made during the Virginia-resident period.
• Personal exemptions and a federal-standard-based Virginia deduction may be prorated under different rules.

Common questions

Q: Could the couple claim Virginia's prorated standard deduction?
A: No. Their federal itemization election barred it.

Q: Could they use the Maryland home expenses as Virginia itemized deductions?
A: No. Those payments were made after they ceased being Virginia residents.

Q: Why does Virginia follow the federal election?
A: The determination said the rule preserves federal conformity and reduces administration and compliance costs.

Citations and references

• Va. Code §§ 58.1-303 and 58.1-322 D 1 b.
• 23 VAC 10-110-40.
• Virginia Public Documents 82-92, 02-108, and 10-54.

Subject

Itemize federal income tax return required to itemize on Virginia return

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-72

Original ruling text

May 16, 2013

Re: Ruling Request: Part-Year Return and Itemized Deductions

Dear *:

This is in response to your letter requesting a ruling that addresses whether you and your wife ("the Taxpayers") are allowed to use a prorated standard deduction for Virginia income tax purposes in the same year in which you elected to itemize deductions on your federal income tax return.

FACTS

The Taxpayers were residents of Virginia between 1984 and July 1, 2010. During this period, the Taxpayers never had a sufficient amount of deductions to itemize for federal income tax purposes and they utilized the standard deduction. On July 1, 2010, the Taxpayers purchased a home and established residency in Maryland. The Taxpayers then began making Maryland property tax and interest payments. The property taxes and interest derived from the Taxpayers' Maryland home were enough for them to elect to itemize deductions on their 2010 federal income tax return. The Taxpayers elected to itemize their deductions for federal income tax purposes and filed a Virginia part-year individual income tax return for their time as Virginia residents during the 2010 taxable year. Because the Taxpayers elected to itemize on their federal income tax return, they were required to itemize on their Virginia part-year return in lieu of the standard deduction. However, because the property tax and interest payments were made while the Taxpayers were residents of Maryland, they had no itemized deductions to claim on their Virginia part-year return.

The Taxpayers object to the Virginia law that requires taxpayers to itemize deductions for Virginia income tax purposes when the taxpayer itemizes deductions for federal income tax purposes, and request permission to claim a prorated standard deduction on their Virginia part-year return.

DETERMINATION

Virginia Code § 58.1-303 provides that a person who becomes a resident of another state during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, under Title 23 of the Virginia Administrative Code (VAC) 10-110-40, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. Part-year residents may only include itemized deductions when determining their Virginia taxable income if the payments that created the deductions were made while the taxpayer was a Virginia resident. 23 VAC 10-110-40. Pursuant to Va. Code § 58.1-303, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes. 23 VAC 10-110-40.

In general, a taxpayer does not have a right to any tax deduction. "Credits, deductions or exemptions allowed in the computation of an income tax are privileges accorded as a matter of legislative grace and not as a matter of taxpayer right." Public Document (P.D.) 02-108 (07/01/2002). See also Deputy v. duPont , 308 U.S. 488 (1940). Further, "deductions allowable in computing income allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority." P.D. 10-54 (05/07/2010). Therefore, the Virginia General Assembly may place reasonable limitations on the use of deductions.

Under Va. Code § 58.1-322 (D)(1)(b), taxpayers may claim the Virginia standard deduction only if they have not elected to itemize deductions on their federal income tax return. Therefore, whether an individual may itemize deductions or claim the standard deduction on his Virginia return is dependent upon which election he makes on his federal income tax return. The intent of this provision is to retain conformity with the Internal Revenue Code, which reduces the costs of administering and insuring compliance with Virginia's income tax laws. P.D. 82-92 (07/01/1982).

In the instant case, the Taxpayers elected to itemize deductions on their federal income tax return. Virginia law is specific with respect to allowable deductions and, therefore, the Department must require itemization on the Virginia return when itemization has been elected on the federal income tax return. Accordingly, the Taxpayers' request to claim a prorated standard deduction on their 2010 Virginia part-year tax return cannot be granted.

CONCLUSION

For the foregoing reasons, the Taxpayers may not use a prorated Virginia standard deduction because they elected to itemize deductions on their federal income tax return. The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have additional questions, please contact * in the Office of Tax Policy, Policy Development Division, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

PD/1-4769301175