The 2026 Virginia General Assembly session brought sweeping changes to the Commonwealth’s tax laws, affecting individuals, businesses, and nonprofit organizations. From permanent standard deduction increases to a first-of-its-kind data center tax and expanded local sales tax authority, these changes require careful attention from taxpayers and their advisors. For nonprofit leaders, business owners, and individual taxpayers across Virginia, understanding these new laws is essential for compliance and strategic planning. This comprehensive guide breaks down each major change, explains what it means for you, and provides practical guidance for navigating the updated tax environment. Standard Deduction Increases: Permanent Relief for Virginia Taxpayers One of the most taxpayer-friendly changes in the 2026 budget is the permanent increase to Virginia’s standard deduction. Under House Bill 30, the standard deduction — currently set at $8,750 for single filers and $17,500 for joint filers in 2026 — will increase in subsequent years . The scheduled increases are as follows: 2027: $9,200 (single/married filing separately) / $18,400 (joint) 2028–2029: $9,300 (single/married filing separately) / $18,600 (joint) Critically, the General Assembly removed the sunset provision that would have allowed the standard deduction to revert to $3,000 for single filers and $6,000 for married couples after taxable year 2026. This makes the higher deduction amounts permanent, providing long-term certainty for Virginia taxpayers. For nonprofit organizations with employees, this change may affect payroll tax planning and employee compensation discussions. For individual taxpayers, it may influence the decision to itemize versus take the standard deduction. Earned Income Tax Credit Extension Virginia’s refundable Earned Income Tax Credit (EITC), equal to 20% of the federal EITC, was scheduled to expire after Tax Year 2026. HB 30 extends this credit through Taxable Year 2029, with the credit now set to sunset for taxable years beginning on or after January 1, 2030 . This extension provides continued relief for low-to-moderate-income working families across Virginia. Nonprofits that serve these populations should be aware of the extension for client education and outreach purposes. Local Sales Tax Referendum Authority Expanded Counties and cities gained expanded authority to place an additional local sales and use tax of up to 1% before voters . This change follows the 2026 legislative session’s broader discussion of local revenue options for school construction and transportation projects. Under the new law: The additional tax must be approved by referendum Funds must be used for school construction or renovation, or public transportation for certain localities Food purchased for home consumption and essential personal hygiene products are exempt from the increase For nonprofits and businesses operating in localities that adopt the tax, point-of-sale systems will need updates to reflect the new rate. Data Center Electricity Consumption Tax: A First in the Nation As part of the 2026 budget deal, Virginia enacted a per-kilowatt-hour tax on data center electricity use — the first such tax in the nation . Key provisions of the tax include: Rate: $0.011 per kilowatt-hour Effective Date: July 1, 2026 Scope: Applies to utility-supplied and self-generated electricity Cap: $600 million in annual collections, with excess refunded pro-rata to operators Sunset: July 1, 2028 Notably, the budget preserves Virginia’s existing sales tax exemption on data center equipment. The tax applies to all electricity consumed at each data center per month, and operators must report and remit the tax to the State Corporation Commission. For nonprofit organizations that operate data centers or rely on cloud services, this tax may indirectly affect costs as providers pass through the expense. Cannabis Businesses: Decoupling from IRC Section 280E Virginia’s 2026 budget establishes a retail recreational cannabis marketplace, generally effective July 1, 2027. Alongside it, Virginia decouples from the federal deduction limitation under IRC Section 280E . IRC Section 280E bars businesses “trafficking” in Schedule I or II controlled substances — which includes cannabis given its federal classification — from deducting ordinary business expenses like rent, payroll, and marketing. Historically, these businesses could only deduct cost of goods sold, pushing effective tax rates well above normal levels. Under the new law: Virginia will no longer apply the federal Section 280E deduction limitation to licensed cannabis businesses for state income tax purposes This allows those businesses a broader set of deductions at the state level than they receive federally The budget sets a state cannabis excise tax of 6%, rising to 8% after July 1, 2029 Localities may impose an additional tax of between 1% and 3.5% Medical cannabis purchases remain exempt from the new state excise tax For nonprofit organizations involved in cannabis-related advocacy or education, these changes may affect their constituents and programming. Fixed-Date IRC Conformity: A Major Structural Change Effective February 20, 2026, Virginia now conforms to the Internal Revenue Code as it existed on December 31, 2025 . Previously, Virginia followed “rolling conformity,” automatically adopting most federal tax changes. This shift to fixed-date conformity means that any federal tax changes enacted after December 31, 2025, will not automatically apply to Virginia returns. Taxpayers must now carefully track “deconformity” items — specifically Section 179 expensing and bonus depreciation — and may need to make add-back adjustments on their Virginia returns. For nonprofits and businesses, this change creates additional compliance complexity. Working with a qualified tax professional who understands Virginia’s conformity rules is essential. Virginia Nonprofit Sales Tax Exemption Requirements For nonprofit organizations seeking to maintain or obtain Virginia sales and use tax exemption, the requirements remain stringent : Federal Exemption: The organization must be exempt from federal income taxation under §§ 501(c)(3), 501(c)(4), or 501(c)(19) VDACS Compliance: Proof of compliance with Virginia’s charitable solicitation law Administrative Cost Limit: Annual administrative costs (including salaries and fundraising) must not exceed 40% of annual gross revenue Financial Review Threshold: Organizations with gross annual revenue of at least $750,000 in the previous year must provide a financial review performed by an independent CPA Audit Threshold: Virginia Tax may require a full financial audit for organizations with gross annual revenue of at least $1.5 million Form 990 Provision: A copy of the federal Form 990, 990-EZ, 990-PF, or 990-N must be
Investment fraud has become increasingly sophisticated, leaving victims with not only financial devastation but also complex tax questions. If you or a family member suffered significant losses from investment scams, you may be eligible to claim a theft-loss deduction under Internal Revenue Code Section 165. Understanding the rules, the appropriate tax year for claiming the deduction, and the documentation required is essential for maximizing recovery through the tax code. This guide addresses the specific situation of a family based in Annandale, Virginia, whose family member suffered investment scam losses, and a spouse who made a loan that is now unlikely to be repaid. We will explore the theft-loss deduction rules, the tax treatment of non-business bad debts, the implications of multi-state residency, and estimated tax planning strategies for international organization employees. The Theft-Loss Deduction Under IRC Section 165 What Qualifies as a Theft Loss For federal income tax purposes, the existence of a “theft” is governed by the laws of the jurisdiction where the loss occurred . The term “theft” is interpreted broadly to encompass any criminal appropriation of another’s property, including swindling, false pretenses, and other forms of guile . A taxpayer is not required to identify the specific perpetrator of the fraud to claim a deduction . A taxpayer claiming a theft loss must prove that the loss resulted from a taking of property or cash that was illegal and done with criminal intent . Under the applicable state law, a taxpayer must prove a theft occurred by a preponderance of the evidence, rather than the criminal standard of beyond a reasonable doubt . Furthermore, a criminal conviction or prosecution is not a prerequisite to claiming a Section 165 deduction . Distinguishing Investment Losses from Theft Losses Not all investment losses qualify as theft losses. If an investment simply declined in value due to market conditions, poor management, or legitimate business failure, it is generally treated as a capital loss, not a theft loss. However, if the loss resulted from fraud, deceit, or misrepresentation—where the perpetrator induced the investment through false pretenses—it may qualify as a theft loss. The recent case of Deutsch v. Commissioner, T.C. Memo. 2026-111, provides important guidance . In that case, the Tax Court validated a $925,000 theft loss deduction for investment wire transfers, finding clear acts of deception by the perpetrators. The court noted that the taxpayer is not required to identify the specific perpetrator of the fraud to claim a deduction . The Critical Distinction: Investment Transfers vs. Living Expenses One important lesson from the Deutsch case is that not all losses associated with a scam qualify as deductible theft losses. The court disallowed a deduction for $295,600 advanced to cover the perpetrator’s living expenses, distinguishing between investment losses and personal expenses . Taxpayers should carefully document which losses were investment-related versus personal. When to Claim the Theft-Loss Deduction Under current law, a theft loss is generally treated as sustained during the taxable year in which the taxpayer discovers the loss . However, if a claim for reimbursement exists for which the taxpayer has a reasonable prospect of recovery, the loss is treated as sustained in the taxable year when the taxpayer can determine with reasonable certainty whether reimbursement will be received . This discovery rule is critical. If the investment scam was discovered in 2024, for example, the theft loss would generally be claimed on the 2024 tax return. If discovered in 2025, it would be claimed on the 2025 return. In some cases, amended returns may be necessary to claim the deduction in the correct year. The Proposed Tax Relief for Fraud Victims Act Congress is currently considering legislation that would provide additional relief for fraud victims. H.R. 9500, introduced in June 2026, would allow taxpayers to elect to treat certain theft losses involving fraud, deceit, or misrepresentation as sustained during the taxable year in which the loss occurs, rather than the year of discovery . The bill would also extend the period of limitation for credit or refund claims and create an exception to the 10% early distribution penalty for retirement distributions related to theft losses . Taxpayers should monitor this legislation closely. The Non-Business Bad Debt Deduction When a Loan Becomes a Bad Debt Your wife’s situation—loaning a significant amount of money to a family member that is now unlikely to be repaid—presents a different tax issue. If the loan was made with a genuine expectation of repayment and documented as a loan (not a gift), it may qualify as a non-business bad debt under IRC Section 166. A non-business bad debt is treated as a short-term capital loss on Schedule D of the tax return. This means it can offset capital gains and up to $3,000 of ordinary income per year, with any excess carried forward to future years. Requirements for Claiming a Bad Debt Deduction To claim a non-business bad debt deduction, the taxpayer must be able to demonstrate that: A debtor-creditor relationship existed when the loan was made The loan had value at the time it was made The debt became worthless during the tax year There was a reasonable expectation of repayment at the time of the loan The documentation is critical. A promissory note, written loan agreement, or other evidence of the loan’s terms and conditions strengthens the claim. Distinguishing Loans from Gifts If the transfer was intended as a gift rather than a loan, no bad debt deduction is available. The IRS scrutinizes loans between family members closely. Evidence that the transfer was a loan includes: A written promissory note A stated interest rate A repayment schedule Evidence of repayment attempts Contemporaneous documentation If the loan was made without these indicia, the IRS may treat it as a gift, disallowing any deduction. Multi-State Tax Considerations: Virginia to DC The Reciprocity Agreement Your wife, Jeanie, moved from Virginia to DC in 2025 and began filing taxes in DC that year. Virginia and DC have a reciprocal tax agreement that affects how income
Virginia has enacted new legislation authorizing localities to provide partial real property tax exemptions for buildings undergoing “qualifying residential conversion” from commercial, retail, or religious use . This represents a significant new tool for encouraging housing development and addressing affordability challenges across the Commonwealth. For property owners, developers, and local governments, understanding this new program is essential for evaluating potential conversion projects and maximizing available incentives. What Is a Qualifying Residential Conversion? Under Senate Bill 181 (Chapter 994), a building qualifies for the partial property tax exemption if it meets specific criteria : Building Age and Use The building must be at least 15 years old and currently used for retail, commercial, or religious purposes. The conversion must result in residential use. Affordable Housing Requirements The building must meet one of the following affordability requirements: Reserving at least 30% of units for households at or below 80% of the median per capita income, OR Being subject to a binding, written affordable housing agreement with the Commonwealth or locality How the Partial Exemption Works The partial exemption can last up to 15 years . The exemption may be based on either: The increase in assessed value resulting from the qualifying conversion, OR A percentage of such increase However, the exemption cannot exceed the conversion expenses—excluding acquisition costs and expenses attributable to any enlargement of the building . Local Flexibility The legislation provides localities with flexibility in implementing the exemption. Localities may also provide additional incentives such as: Reduced permit fees Regulatory flexibility Recapture and Compliance The partial exemption is subject to recapture if affordability requirements are not maintained . Additionally, there is a potential five-year lookback tax and interest penalty upon certain noncompliant property transfers. This means developers and property owners must ensure ongoing compliance with affordability covenants to retain the benefit of the exemption. Related Property Tax Changes in 2026 The 2026 legislative session also brought other property tax changes : Sale of Real Estate for Delinquent Taxes House Bill 474 (Chapter 151) increases the maximum assessed value of a parcel of land that may be subject to appointment of a special commissioner to convey real estate to a locality as a result of unpaid real property taxes or liens. The threshold increases from $75,000 to $125,000. Personal Property Tax Extension for Federal Shutdowns House Bill 915 (Chapter 239) allows local governing bodies to extend personal property tax deadlines for federal employees affected by government shutdowns. This applies to furloughed employees and essential employees who work without immediate pay. The extension must end no later than 90 days after the federal government reopens. Electric-Powered Landscaping Equipment House Bill 557 (Chapter 403) establishes electric-powered landscaping equipment used in a trade or business as a separate class of property for local taxation. Localities may levy a tax on this equipment at a different rate than other tangible personal property . How Nova Tax & Accounting Services Can Help At Nova Tax & Accounting Services, we help property owners and developers understand Virginia’s evolving property tax landscape. Our team provides tax planning, entity structuring, and compliance guidance for real estate investments and conversions. For more information, visit https://novataxservices.com/ or schedule a consultation. External Links: Virginia Tax – Legislative Summary 26-82 Virginia Tax – New Virginia Tax Laws