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    VA 529 Plan Deduction

    VA allows a deduction on the state return for its own state plan 529 contributions. If you read the Code section 58.1.322(7)a, it says,

    1. "A deduction shall be allowed to the purchaser for the amount paid or contributed during the taxable year;....." and ""...the amount deducted on any individual income tax return in any taxable year shall be limited to $4K per prepaid contract..." (Before 2008, it was $2K). No problem to this point.

    2. Then you go further down and it says "If the purchase price or annual contribution to a trust account exceeds $4K, the remainder may be carried forward and subtracted in future taxable years until the purchase price or contribution has been fully deducted." And therein lies the problem.

    3. #1 says "for the amount paid or contributed during the taxable year," and #2 says "purchase price OR annual contribution..." which can be two entirely different amounts, when the TP is making monthly payments over a period of many years.

    I have such a TP who was funding two different accounts for two children. We have recaptured the entire purchase price for one child, by taking sufficient deductions of $4K for her for the past several years and now only the second child's account remains with unrecaptured funds. Payments ended this year, but the 2014 contribution amount was only $720 to finish it up. I am trying to determine if I can bump the deduction up to $4k, and carry the remaining balance over to succeeding years. Has anyone had this situation?

    4. I need to know what the [/I]first year[/I] was that VA allowed this deduction, and my research has been unsuccessful.
    Last edited by Burke; 02-26-2015, 12:29 PM.

    #2
    529 subtraction

    Since I was snowed in - here in Virginia today, I tried to figure out the date you are looking for.

    The best I can come up with is in the Virginia instructions for 1998 - it says.. "Two new subtractions are available. A subtraction may be claimed by purchasers of prepaid tuition contracts with the Virginia Higher Education Tuition Trust Fund..."

    At that time the subtraction was $2,000.
    Last edited by CVTax; 02-26-2015, 10:07 PM.

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      #3
      Thanks. My client started in 2002, so that part is okay. They have been deducting since then, as I had her pull her old tax return. Still not sure about the annual amt vs the entire purchase price. It appears VA intended for the entire purchase price to eventually be recaptured and deducted, subject to the annual limitation of $4K per contract (since 2008.) So I am going to have to go back and track each of these since 2002, when a lump sum was paid, followed by monthly payments through 2014. PS: We were snowed in too with 4-5 inches, but I camped out at the office so I didn't have to waste a day. Maybe more coming in Sunday.
      Last edited by Burke; 02-27-2015, 11:03 AM.

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