Could taxpayers who moved into Virginia in July 2011 claim itemized deductions on a full-year resident return?

Subject

July 2011 move required part-year return and deduction allocation

Plain-English summary

The couple should have filed a part-year return rather than a full-year Virginia return. They moved into Virginia in July 2011 and were taxable as residents only for the portion after the move.

Part-year residents could claim itemized deductions paid after becoming Virginia residents. If using the standard deduction federally, they had to prorate the Virginia standard deduction.

Result: Virginia gave the taxpayers 60 days to file Form 760PY and would adjust the assessment from the new information.

What this means for you

• Use Form 760PY for a midyear move into Virginia.
• Track when deductible expenses were actually paid.
• Allocate or prorate deductions under the part-year rules.
• File the correct form to replace an information-based assessment.

Citations and references

• Va. Code §§ 58.1-111 and 58.1-303; 23 VAC 10-110-40(B).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-164

Original ruling text

August 18, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply 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, 2011. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayers, a husband and wife, moved into Virginia from the * (State A) in July 2011. The Taxpayers filed a Virginia resident return and claimed a subtraction for the income earned while residing in State A. The Department determined the Taxpayers were part-year residents, adjusted the 2011 return based on the information available and issued an assessment. The Taxpayers appeal the assessment, contending they were entitled to the more itemized deductions than allowed by the Department.

DETERMINATION

Because the Taxpayers changed their domiciliary residence to Virginia in 2011, they were considered to be part-year residents under Virginia law. Instead of filing a Virginia resident return (Form 760), an individual who moves into Virginia during a taxable year files a part-year return (Form 760PY). The Taxpayers, however, filed a 2011 Form 760.

Under Va. Code § 58.1-303, a person who becomes a resident of Virginia during a taxable year is taxed as a resident only for the portion of the year that he resides in Virginia. The taxpayer, however, is only eligible to claim the amount of itemized deductions paid after moving into Virginia. If the taxpayer claims the standard deduction for federal income tax purposes, the taxpayer must prorate the standard deduction on the Virginia part-year return. See Title 23 of the Virginia Administrative Code 10-110-40 B.

Because the Taxpayers failed to file the proper Virginia income tax return, the Department made adjustments based on the information available as permitted under Va. Code § 58.1-111. Additional information provided with the appeal indicates the Taxpayers may be entitled to additional itemized deductions based on the time they resided in Virginia. Because the Taxpayers may have additional information that more accurately reflects their Virginia taxable income, they are requested to file a Virginia part-year individual income tax return for the 2011 taxable year to more accurately reflect their Virginia income tax liability. The return should be filed within 60 days of the date of this letter.

The return and payment for the corresponding liability should be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23218-7203, Attention: *. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If such return is not filed within the allotted time, the assessment will be adjusted in accordance with the enclosed spreadsheet and collection action will resume.

The Code of Virginia sections 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 ruling, you may contact * at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-5824915891.D