What Changes are Coming to Virginia’s Qualified Equity and Subordinated Debt Investments Credit?

Sunset of Virginia’s Investment Tax Credit impacts planning opportunities

Virginia’s Qualified Equity and Subordinated Debt Investments Credit has been a valuable tax planning opportunity for investors supporting qualified Virginia businesses. However, recent legislative changes will significantly impact its future availability.

Tax credit sunset provision

With the passage of Virginia House Bill 2653 (Chapter 311), the credit now includes a sunset provision. The credit will be repealed for taxable years beginning after December 31, 2025, meaning taxpayers will no longer be able to claim it for investments made after 2025. For those considering this credit as part of their tax strategy, time is limited to take advantage of the benefit.

How the credit works

This credit is available to eligible taxpayers who make qualified investments in qualified businesses. It can be applied against both individual income tax and fiduciary income tax.

Key details include:

• • Credit Amount: up to 50% of the qualified investments in a qualified business made during the taxable year and are capped at $50,000 per taxpayer and not to exceed the taxpayer’s liability.
  • Carryforward: Unused credits may be carried forward for up to 15 years.
  • Qualified Investments: Investments in equity or subordinated debt of state-qualified businesses.
    • Equity must be held for at least three years after the credit is granted.
    • Subordinated debt must not require principal repayment for at least three years after issuance.
  • Restrictions: Receiving compensation for the investment disqualifies the taxpayer.
    

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    What is a Qualified Business?

    A business that has its principal office or facility in Virginia AND:

    • Has no more than $3 million of gross revenues in the most recent fiscal year;
    • Is engaged in a business primarily in or does substantially all of its production in Virginia;
    • Has not during its existence more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments; and
    • Is primarily engaged in or is primarily organized to engage in one or more of certain types of high technology-related fields, including but not limited to advanced manufacturing, agricultural technologies, biotechnology, information technology, etc.

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Annual limits and application process

The total statewide credit allocation is $5 million per year. If applications exceed this amount, credits are prorated among applicants.

• Investor Application: Complete Form EDC and submit by April 1 of the year following the investment year.
• Business Qualification: Complete Form QBA by December 31 of the year in which qualification is requested. Businesses must qualify annually.

Planning considerations

If you are considering investments that may qualify, it’s important to:

1. Act before the end of 2025 to secure eligibility.
2. Coordinate with your tax advisor to ensure investments meet the holding period and other requirements.
3. Submit applications early to avoid prorated credits.

Keiter’s tax team can help evaluate whether this credit aligns with your investment strategy and ensure all requirements are met before the sunset date. Contact your Keiter Opportunity Advisor | Email | Call: 804.747.0000