Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 110. Individual Income Tax
6/27/2022

23VAC10-110-83. Net operating losses; treatment of the Virginia modifications in the loss year.

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

1981

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

1981

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

1981

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.

Historical Notes

Derived from VR630-2-311.1 § 4, eff. taxable years beginning on and after January 1, 1985.

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