Tax Type
Individual Income Tax
Description
Capital gains; Spouses filing separately
Topic
Taxable Income
Date Issued
06-02-1987
June 2, 1987
Re: Ruling Request / Capital Gains
Individual Income Tax
Dear ********************
This is in reply to your letter of August 8, 1986 to***********of the department's Technical Services Section regarding the proper Virginia treatment of capital gains for individuals who use Virginia filing status 4. I apologize for the delay in responding to your letter and hope that the delay has not caused you any inconvenience.
FACTS
You have requested a ruling regarding the proper allocation of the net capital gain in the following circumstances:
-
- Husband and Wife file a joint federal income tax return for taxable year 1985. They file a Virginia income tax return using Virginia filing status 4 - Married Filing Separately on a Combined Return.
During taxable year 1985 two stock transactions take place. In the first transaction, the Wife has a $3,000 short term loss on the sale of stock. In the second transaction, the Husband has a $10,000 long term gain on the sale of stock. In each of the stock transactions, the stock was separately owned; therefore, the loss is attributable to property owned by the Wife and the gain is attributable to property owned by the Husband.
- Husband and Wife file a joint federal income tax return for taxable year 1985. They file a Virginia income tax return using Virginia filing status 4 - Married Filing Separately on a Combined Return.
-
- Net Short Term Loss
Net Long Term Gain
Net Gain
IRC §1202 Deduction *
Net Capital Gain Income
* Repealed by the federal Tax Reform Act of 1986
- Net Short Term Loss
RULING
In order that taxpayers may be relieved of the complicated computations involved in prorating both the gain and the loss by the 60% deduction granted under IRC §1202 (now repealed), the department has determined that in the example that you have submitted, the net gain included in federal adjusted gross income should be allocated to the spouse whose property generated the gain. In the above example, since the sale of the Husband's stock generated the positive income and the net result included in federal adjusted gross income is positive income, the net capital gain should be reported in the Husband's column (Column B) for Virginia purposes.
As I am sure you are well aware, the federal Tax Reform Act of 1986 repealed the 60% deduction allowed under IRC §1202. Due to the repeal of that deduction, the above ruling is not applicable to taxable years beginning after December 31, 1986.
For taxable years beginning on and after January 1, 1987, the separate components of the net gain or loss will be allocable to the spouse who earned the income or with respect to whose property the income (loss) is attributable. If the above example had been for a taxable year beginning on and after January 1, 1987, the Wife would have included the $3,000 short term loss in the computation of her allocable share of federal adjusted gross income and the Husband would have included the $10,000 long term gain in the computation of his allocable share of federal adjusted gross income. Therefore, the result of combining the amounts in column A and column B on the Virginia income tax return would be equal to the net gain reported on the federal income tax return.
If you have any further questions, please do not hesitate to contact this office.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner