Years ago, we made contributions to VA 529 accounts for our children and deducted those contributions on our Virginia tax returns. We ended up with money left over in the 529 accounts. In 2022, we took a $20k distribution from one of these accounts. There were no qualified educational expenses to offset the distribution, so we will pay income tax (and 10% federal penalty) on the gain. Virginia 529 reported the basis ($13k) and the gain ($7k) components of the distribution on a 1099-Q. Using TurboTax Premier desktop version, the gain is reported as taxable federal income in the federal interview section. In the Virginia state interview section, the gain is not excluded from Virginia taxable income (correctly, because there were no extenuating circumstances like death or disability of the beneficiary, etc). My question is whether and HOW to report the basis portion of the nonqualified distribution for recapture on the Virginia state income tax return. I am guessing we add the $13k back in Schedule ADJ "Additions to Income", "Other additions", code 99? Can't find any specific reference to this in Virginia's Form 760 Instructions. It does reference Virginia ABLE account recapture, but not 529s. Thanks!
