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zappagrrl
New Member

Virginia disallowed long term capital gains subtraction

I owned Rental property in Florida for 2-1/2 years. I received a notice stating this is disallowed and owe the tax plus accrued interest. I trusted TurboTax  to file this correctly. What went wrong?
9 Replies
Critter
Level 15

Virginia disallowed long term capital gains subtraction

Were you a full year resident of VA that year ?   If so you may have read the screen instructions incorrectly  since  you are not allowed a subtraction for that income item even though it was earned in another state.  Instead you would have gotten a credit for the taxes paid to the other state on the duplicated income ... however since FL doesn't have an income tax you would get no credit.
Hal_Al
Level 15

Virginia disallowed long term capital gains subtraction

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Hal_Al
Level 15

Virginia disallowed long term capital gains subtraction

Rental property does not qualify for the VA capital gains exclusion. That is for the sale of certain small businesses. What "went wrong" was you answered yes (in the Turbotax interview) when asked if you qualified for this deduction.

If you disagree, The TurboTax (TT) accuracy guarantee process is explained here

https://ttlc.intuit.com/questions/1901269-how-do-i-submit-a-claim-under-the-turbotax-100-accurate-ca....

but it only covers actual CALCULATION errors in the program, not user error (and it’s almost always user error), and it only pays any penalties or interest resulting from that error, not the taxes. Either way, you are still responsible for the increase in tax.

Hal_Al
Level 15

Virginia disallowed long term capital gains subtraction

From the instructions for form 763:
Code 52. Certain Long-Term Capital Gains
Provided the long-term capital gain or investment services
partnership income is attributable to an investment in a
“qualified business” as defined in Va. Code § 58.1-339.4 or
any other technology business approved by the Secretary of
Technology, it may be allowed as a subtraction. The business
must have its principal facility in Virginia and less than $3
million in annual revenues for the fiscal year preceding the
investment. The investment must be made between the dates
of April 1, 2010, and June 30, 2020. Taxpayers claiming
the Qualified Equity and Subordinated Debt Credit cannot
claim this subtraction relating to investments in the same
business. In addition, no investment is “qualified” for this
deduction if the business performs research in Virginia on
human embryonic stem cells.

Reference: <a rel="nofollow" target="_blank" href="https://www.tax.virginia.gov/sites/default/files/2017-01/763-2016-instructions.pdf">https://www.tax....>
zappagrrl
New Member

Virginia disallowed long term capital gains subtraction

Taxpayers rely on TurboTax to know and understand the codes for various states. The average person is going to answer "yes" to the question "Do you think you qualify for this deduction?".  They never asked any questions concerning a qualified business in Va. Code § 58.1-339.4. Why would we pay a tax service if we knew the answer?   TurboTax just lost a customer.
Critter
Level 15

Virginia disallowed long term capital gains subtraction

I am sure there was a "Learn more" link for that question so if you didn't know for sure if you qualified OR you didn't understand the question  you could read the rules.

If you want you can download the amendment program with the state program and open your tax file to review the actual screen where you made that choice ....

<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed"...>
bella-zakaryan
New Member

Virginia disallowed long term capital gains subtraction

The same thing happened to us for 3 years in a row! Turbotax has definitely lost us as a customer and I will make sure to write about this in every social media outlet and tell all my friends.  You cannot trust Turbotax to actually prepare your taxes correctly.  Never again!
zappagrrl
New Member

Virginia disallowed long term capital gains subtraction

I agree Bella. The penalty for me was $300. They make determinations on every other tax issue (that’s why we pay them). TurboTax dropped the ball on this one.  Will never use them again.
Critter
Level 15

Virginia disallowed long term capital gains subtraction

Sadly you are blaming a computer program for your failing to read and understand the question especially if you did it more than once ... going forward be aware that all the DIY tax programs work on essentially the same interview style so slow down and read all the helps along the way especially if you are not sure of something.
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