Updated Guidance from Virginia – May 28, 2026

The Virginia Department of Taxation issued updated guidance on May 28, 2026, regarding Virginia's conformity to the 2025 federal new tax bill.

For taxpayers subject to Virginia's Limited Itemized Deduction computation and those claiming the general sales tax deduction on Line 5a of Virginia Schedule A, the amount reported on Line 5a must be limited to the applicable federal State and Local Tax (SALT) cap:

$40,000 for most filers
$20,000 for Married Filing Separately taxpayers
A reduced amount if the taxpayer is subject to the federal modified adjusted gross income (MAGI) phaseout

Amended Returns May Be Necessary

If a taxpayer has not already received an adjustment notice from the Virginia Department of Taxation, an amended return may be necessary if the SALT cap changes affect the bottom-line tax result.

Taxpayers subject to the Virginia Limited Itemized Deduction computation and those claiming the general sales tax deduction on Line 5a of Virginia Schedule A for Tax Year 2025 should consider filing an amended return if:

The originally filed Virginia Schedule A used Virginia's pre-conformity SALT cap of $10,000 ($5,000 if Married Filing Separately) instead of the applicable federal SALT cap amount under the 2026 conformity legislation; or
The taxpayer is subject to the federal MAGI-based SALT cap reduction and did not report the reduced amount on Line 5a of Virginia Schedule A.

Important: The state and local income tax or general sales tax deduction reported on Line 5a of Virginia Schedule A cannot exceed the applicable federal SALT cap amount. The capped amount entered on Line 5a should also be used when completing the Virginia Limited Itemized Deduction Worksheet. Failure to apply the SALT cap directly on Line 5a may affect the calculation and processing of the return.

Original Guidance from Virginia – March 31, 2026

As a result of 2026 Virginia legislation, Virginia conforms to most provisions of the new tax bill that affect:

Federal adjusted gross income (AGI)
Federal itemized deductions for individuals
Federal taxable income for corporations

The following exceptions apply for Tax Year 2025.

Itemized Deductions

Virginia continues to:

Deconform from the federal reduction in the medical expense deduction floor
Deconform from federal requirements related to the overall limitation on itemized deductions
Generally deconform from the federal SALT cap and the new federal overall limitation on itemized deductions

Virginia retains its own overall limitation on itemized deductions and applies the applicable federal SALT cap amount when calculating the Virginia limitation.

For returns already filed, Virginia originally indicated it would automatically adjust returns subject to the Virginia overall limitation on itemized deductions to align with the updated conformity provisions and that amended returns would not be required for that specific adjustment. Under the updated guidance, however, taxpayers should consider filing an amended return if they have not already received an adjustment notice from the Department and there is a bottom-line tax difference due to the SALT cap changes.

Business Interest Deduction

Virginia conforms to the federal changes affecting the amount of business interest disallowed at the federal level.

For Tax Year 2025, Virginia reduces its deduction for federally disallowed business interest to 20%.

Deconformity From Certain Business Provisions

Virginia continues to deconform from several federal business provisions that affect the timing of deductions and recoveries. Taxpayers benefiting from these federal provisions must maintain separate Virginia records and make fixed-date conformity adjustments on Schedule ADJ.

Affected provisions include:

Immediate expensing of qualified production property
Immediate expensing of domestic research and experimental expenditures, including retroactive and catch-up provisions
Increased expensing limits for certain depreciable assets