By Terry Barrett, CPA, Tax Senior Manager | State & Local Tax Services Team Leader
Leverage Virginia Tax Credits to Minimize Your Tax Due
A key part of tax planning (i.e., minimizing tax due) involves taking advantage of tax credits that are available. Virginia offers a wide array of tax credits designed to promote investment in the Commonwealth and its businesses. In our article Virginia Tax Credits for Individual and Corporate Taxpayers, we included a listing of the various tax credits available to individuals and corporations. Here, we provide a highlight of credits impacted by action of the General Assembly in 2020 and some of the more popular tax credits.
Tax Credit and Incentive Updates from the 2020 Virginia General Assembly
- The Communities of Opportunity Tax Credit was expanded to allow landlords renting a qualified housing unit located in an eligible census tract within the Washington-Arlington-Alexandria Metropolitan Statistical Area to qualify for the credit. Previously, only landlords with qualified housing units in either the Richmond Metropolitan or Virginia Beach-Norfolk-Newport News Metropolitan Statistical Areas were eligible for the credit. The sunset date for the credit was extended to January 1, 2025. This tax credit is equal to 10 percent of the annual market rent for a specific qualifying housing unit and is prorated for a unit that is qualified for less than a full year.
- The Green Job Creation Tax Credit was scheduled to sunset January 1, 2021 but has been extended to January 1, 2025. This is a 500 dollar income tax credit for each new green job created and can be claimed for up to 350 new jobs. A “green job” is one that is in an industry related to alternative and renewable energy.
- The Motion Picture Production Tax Incentives have been extended from January 1, 2022 to January 1, 2027. The tax credit is available to motion picture production companies making a movie or other production in Virginia which spends at least 250,000 dollars in production costs in the state. The tax credit is equal to 15 percent of qualified expenses or 20 percent of qualified expenses if the filming is done in an area identified by the Virginia Economic Development Partnership as being economically distressed. Other credits may also be available.
- Research and Development Expenses Tax Credits. The sunset date for both credits was extended to January 1, 2025. The deadline for submitting applications for these credits to the Department of Taxation changed from June 1 to September 1 for the calendar year following the close of the taxable year in which expenses related to these credits were paid or incurred. Both credits can be claimed against individual and corporation income taxes.
- The annual cap for funds available for the Research and Development Expenses Tax Credit was raised from 7 million to 7.77 million dollars per fiscal year. This is a refundable tax credit for taxpayers with 5 million dollars or less in qualified research and development expenses during the year. The credit is equal to 15 or 20 percent of the first 300,000 dollars in qualified expenses, depending upon whether the research was conducted in conjunction with a Virginia public or private college or university.
- The annual credit cap for the Major Research and Development Expenses Tax Credit was increased from 20 million dollars to 24 million dollars per fiscal year. This credit is not. It is available to taxpayers with more than 5 million dollars in qualified research and development expenses during the year. The credit is equal to 10 percent of the difference between the current year’s qualifying expenses and 50 percent of the average amount of qualifying expenses for the three previous years.
- The Recyclable Materials Processing Equipment and Alternative Recycling Tax Credit was expanded by making the purchase of machinery and equipment used in advanced recycling eligible for the credit. The sunset date for the credit was extended from January 1, 2020 to January 1, 2025. The income tax credit is equal to 20 percent of the purchase price of equipment used to make things from recycled materials or to convert waste products into raw materials. The credit can be claimed against individual and corporation income taxes
- The Land Preservation Tax Credit was schedule to be increased to 50,000 dollars for taxable years beginning on and after January 1, 2020, however at the Special Session of the General Assembly, the credit was reduced to 20,000 dollars through January 1, 2023.
Other Popular Virginia Credits
- Qualified Equity and Subordinated Debt Investments Credit
This credit is available to taxpayers who make a qualified investment in a qualified business. In our article, Investing in Virginia Businesses? Learn About the Tax Benefits,, we explained the tax benefits of the credit but here we offer a short refresher. The investment must be a cash investment in the form of equity or subordinated debt. Further, the investment must be in a qualified business with a principal office or facility in Virginia and meeting certain other requirements such as having no more than 3 million dollars of gross revenues in the current fiscal year; doing business primarily or substantially in Virginia; being primarily engaged in or primarily organized to engage in one or more of certain types of high-technology-related fields. The credits can be up to 50 percent of a qualified investment but are capped at 50,000 dollars per taxpayer per taxable year. Any unused credit can be carried forward for up to 15 years or until the full amount of the credit has been used. The funds available for the credits are capped so taxpayer may receive only a portion of the credit sought.
- Historic Rehabilitation Tax Credit
An income tax credit equal to 25 percent of eligible expenses for the rehabilitation of a certified historic structure – whether an income-producing property or a taxpayer’s own home. A credit of up to 5 million dollars, but not exceeding a taxpayer’s liability, can be claimed on a return. Unused credits may be carried forward for up to 10 years. In order to qualify for the credit the cost of the rehabilitation must be at least 50 percent of the assessed value of income-producing property prior to rehabilitation, or 25 percent of the assessed value of a taxpayer’s home. The credit may be claimed against individual income, fiduciary income, corporation income, bank franchise, and the insurance premiums license tax. The credit is administered by the Department of Housing and Community Development.
- Farm Wineries and Vineyards Tax Credit
An income tax credit available for Virginia farm wineries and vineyards in an amount equal to 25 percent of the cost of all qualified capital expenditures made in connection with the establishment of new Virginia farm wineries and vineyards and capital improvements made to existing Virginia farm wineries and vineyards. The total amount of tax credits available for a calendar year are limited to 250,000 dollars, thus if applications for the credit exceed that amount, credits will be issued by the Department of Taxation to applicants on a pro rata basis. Applications for the credit must be filed by April 1 and late submissions are not accepted. The credit is available to both individuals and corporations.
- Enterprise Zone Act Grants
Prior to July 2005, Virginia had an Enterprise Zone Tax Credit administered through the Department of Housing and Community Development (DHCD). Businesses with agreements in place with DHCD before the credit expired may continue to claim it; however, for others, there now is a grant program, the Virginia Enterprise Zone program, which is designed to encourage job creation and private investment. There are designated Enterprise Zones throughout the state where grant-based incentives, specifically the Job Creation Grant and the Real Property Investment Grant, are available. Visit the Virginia Enterprise Zone website for more information.
Virginia Tax Credit Requirements
There may be specific requirements to meet to qualify for certain credits, like the submission of applications or documentation by certain dates. Missing due dates may result in ineligibility for the credits. Thus, taking advantage of the tax saving opportunities requires diligence on the part of taxpayer. For more information regarding the tax credits offered by Virginia see our article, Virginia Tax Credits for individual and Corporate Taxpayers, the Department of Taxation’s website, or reach out to your Keiter Opportunity Advisor, Email, Call: 804.747.0000
Additional Tax Planning Resources
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.