Contributors:
Tony Konkol | Manager
Robert Burke | Senior Manager
The Tax Cuts and Jobs Act (TCJA) that went into effect in 2018 limited individual deductions for state and local taxes to $10,000. Many states, including Virginia, developed a Pass-Through Entity Tax (PTET) to combat this limitation.
Effective for years 2021 – 2025, Virginia taxpayers can now pay their VA tax at the entity level, receive a federal deduction, and then receive a VA credit for the tax paid. This exercise converts what were presumably nondeductible VA taxes on their Form 1040 into deductible taxes, with the exact value depending on the amount of VA PTET and the owner’s marginal tax rate.
Public Document Ruling 24-12
The Virginia Assembly enacted legislation in 2022, and instructions were issued only for the years 2022 – 2025, with Virginia Bulletin No. 22-6 indicating further guidance was forthcoming. Guidance has since arrived via Public Document Ruling 24-12, which works as follows:
- File the VA 2021 PTET return online form and pay the 2021 tax due by no later than 9/16/24.
- The VA 2021 PTET return online filing will produce a 2021 K-1 equivalent for each member. Each member will take the information and claim a VA credit on their 2023 individual VA return.
Note: If the member has already filed their 2023 return, they will need to amend (VA return only) to claim the credit.
- When each member receives their 2024 federal K-1, it will include their share of the federal deduction for the 2021 VA PTET taxes paid in 2024.
For example, if the 2021 tax due is approximately $115,000 and the average marginal federal rate for members is 30%, the VA PTET deduction would equate to a federal tax savings of $34,500 for the members. The members would also receive their share of the $115,000 as a VA tax credit.
Navigating the Virginia Retroactive 2021 PTET Tax Election process can be complicated, which is why it is important to trust a team of experts to guide you through it. Our services include assistance with filing the VA 2021 PTET return online form and paying the 2021 tax due. Each member will receive a K-1 equivalent confirming the entity’s election and the member’s amount of refundable PTET credit. In 2024, each member will receive their share of the federal deduction for the 2021 VA PTET taxes paid, based on their K-1 equivalent for the 2021 PTET return.
Your Guide Forward
Don’t miss out on potential tax savings. Contact our State & Local Tax team to learn more about how we can help you navigate the Virginia Retroactive 2021 PTET Tax Election process.
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