CHAPTER 51

An Act to amend and reenact § 58-81 of the Code of Virginia, as amend-
ed, relating to deductions allowed for income tax purposes.
[S 169]

Approved February 18, 1952
Be it enacted by the General Assembly of Virginia:

That § 58-81 of the Code of Virginia, as amended, be amended and
reenacted as follows:

1. § 58-81. Deductions allowed.—Taxpayers reporting income as pre-
scribed by this chapter shall be allowed the following deductions:

(a) Expenses.—(1) Trade or Business Expenses.—(A) In Gen:
eral.—aAll the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reason-
able allowance for salaries or other compensation for personal services
actually rendered; traveling expenses (including the entire amount ex-
pended for meals and lodging) while away from home in the pursuit of a
trade or business; and rentals or other payments required to be made as
a condition to the continued use or possession, for purposes of the trade
or business, of property to which the taxpayer has not taken or is not
taking title or in which he has no equity.

(B) Corporate charitable contributions.—No deduction shall be al-
lowable under subparagraph (A) to a corporation for any contribution
or gift which would be allowable as a deduction under subsection (n) were
it not for the five per centum limitation therein contained and for the re-
quirement therein that payment be made within a specified time.

(2) Non-trade or non-business expenses.—In the case of an indivi-
dual, all the ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income, or for the manage-
ment, conservation, or maintenance of property held for the production
of income.

(b) Interest.—All interest paid or accrued within the taxable year
on existing indebtedness, except on indebtedness incurred or continued
to purchase or carry obligations or securities, the interest from which is
not or would not be taxable under this chapter.

(c) Taxes.—Taxes paid or accrued within the taxable year, except
income taxes, inheritance taxes, and taxes assessed for local benefits of a
kind tending to increase the value of the property assessed.

(d) Losses in Trade or Business.—Losses sustained during the tax-
able year and not compensated for by insurance or otherwise, if incurred
a trade or business, the income from which is subject to taxation in this

tate.

(e) Losses in Other Transactions Entered Into For Profit.—Losses
sustained during the taxable year and not compensated for by insurance
or otherwise, if incurred in any transaction entered into for profit, though
not connected with the trade or business; but in the case of a taxpayer
other than a resident of the State only such losses shall be deductible as
relate to transactions in real property or in tangible personal property
having an actual situs in this State.

(f) Losses From Casualty or Theft.—Losses sustained during the
taxable year of property not connected with the trade or business (but in
the case of a taxpayer other than a resident only of real property or tangi-
ble personal property having an actual situs in the State), if arising from
fire, storms, shipwrecks or other casualty or from theft and not compen-
sated for by insurance or otherwise.

(g) Bad Debts.—Debts due the taxpayer and actually ascertained to
be worthless and actually charged off within the taxable year.

(h) Repairs.—The actual amount paid or incurred during the taxable
year for repairs to and maintenance of buildings and machinery; pro-
vided that no deductions shall be made for any repair which is chargeable
to residence property occupied by its owner, or for depreciation thereof,
and the annual value of the estimated rental thereof shall not be included
in the income subject to taxation.
(i) Depreciation—A reasonable allowance for the exhaustion, wear
and tear (including a reasonable allowance for obsolescense) :

(1) of property used in the trade or business, or

(2) of property held for the production of income. In the case of
property held by one person for life with remainder to another person the
deduction shall be computed as if the life tenant were the absolute owner
of the property and shall be allowed to the life tenant. In the case of
property held in trust the allowable deduction shall be apportioned be-
tween the income beneficiaries and the trustee in accordance with the
pertinent provisions of the instrument creating the trust, or, in the ab-
sence of such provisions, on the basis of the trust income allocable to each.

(j) Depletion.—In the case of mines, oil and gas wells, other natural
deposits, and timber, a reasonable allowance for depletion and for depre-
ciation of improvements, according to the peculiar conditions in each case;
such reasonable allowance in all cases to be made under rules and regula-
tions to be prescribed by the Department of Taxation. In any case in
which it is ascertained as a result of operations or of development work
that the recoverable units are greater or less than the prior estimate there-
of, then such prior estimate (but not the basis for depletion) shall be re-
vised and the allowance under this subsection for subsequent taxable years
shall be based upon such revised estimate. In the case of leases the de-
ductions shall be equitably apportioned between the lessor and lessee. In
the case of property held by one person for life with remainder to another
person, the deduction shall be computed as if the life tenant were the ab-
solute owner of the property and shall be allowed to the life tenant. In
the case of property held in trust the allowable deduction shall be appor-
tioned between the income beneficiaries and the trustee in accordance with
the pertinent provisions of the instrument creating the trust, or, in the
abaenice of such provisions, on the basis of the trust income allocable to
each.

(k) Dividends On Bank Stocks.—Dividends received during the tax-
able year upon stock of national banks and dividends received during the
taxable year upon stock of banks and trust companies organized under
the laws of this State.

(1) Other Dividends or Portions Thereof.—Dividends received dur-
ing the taxable year from stock in any corporation, the income of which
was assessable for the preceding year under the provisions of the income
tax laws of this State; provided that when only a part of the income of
any such coropration was so assessable, only a corresponding part of the
dividends received therefrom shall be deductible.

(m) Charitable and Other Contributions.—In the case of an indi-
vidual, contributions or gifts payment of which is made within the taxable
year to or for the use of:

(1) The United States, any state, territory, or any political subdivi-
sion thereof or the District of Columbia, or any possession of the United
States, for exclusively public purposes;

- (2) A corporation, trust, or community chest, fund, or foundation,
created or organized in the United States or in any possession thereof or
under the law of the United States or of any state or territory or of any
possession of the United States, organized and operated exclusively for
religious, charitable, scientific, literary, or educational purposes, or for
the prevention of cruelty to children or animals, no part of the net earn-
ings of which inures to the benefit of any private shareholder or individual]
and no substantial part of the activities of which is carrying on propa-
ganda, or otherwise attempting, to influence legislation;

(3) The special fund for vocational rehabilitation authorized by sec-
tion 12 e) the World War Veterans’ Act, 1942, 43 Stat. 611 (U.S. C. Title
38, § 440) ;

(4) Posts or organizations of war veterans, or auxiliary units or so-
cieties of any such posts or organizations, if such posts, organizations,
units, or societies are organized in the United States or any of its posses-
sions, and if no part of their net earning inures to the benefit of any private
shareholder or individual; or

(5) A domestic fraternal society, order or association, operating un-
der the lodge system, but only if such contributions or gifts are to be used
exclusively for religious, charitable, scientific, literary, or educational pur-
poses, or for the prevention of cruelty to children or animals;

To an amount which in all the above cases combined does not exceed
fifteen per centum of the taxpayer’s adjusted gross income. Such con-
tributions or gifts shall be allowable as deductions only if verified under
rules and regulations prescribed by the Department of Taxation.

(n) Charitable and Other Contributions By Corporations and Co-
operative Associations.—In the case of a corporation, or a co-operative
association or co-operative farm produce marketing association organized
under the provisions of chaps 14 and 15, Title 13 of the Code of Vir-
ginia, contributions or gifts payment of which is made within the taxable
year to or for the use of:

(1) The United States, any state, territory, or any political subdi-
vision thereof or the District of Columbia, or any possession of the United
States, for exclusively public purposes;

(2) A corporation, trust, or community chest, fund, or foundation,
created or organized in the United States or in any possession thereof or
under the law of the United States, or of any state or territory, or of the
District of Columbia, or of any possession of the United States, organized
and operated exclusively for religious, charitable, scientific, veteran re-
habilitation service, literary, or educational purposes or for the preven-
tion of cruelty to children (but only if such contributions or gifts are to
be used within the United States or any of its possessions exclusively for
such purposes), no part of the net earnings of which inures to the benefit
of any private shareholder or individual, and no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting,
to influence legislation; or

(3) Posts or organizations of war veterans, or auxiliary unfts of,
or trusts or foundations for, any such posts or organizations, if such
posts, organizations, units, trusts, or foundations are organized in the
United States or any of its possessions, and if no part of their net earn-
ings inure to the benefit of any private shareholder or individual ;

To an amount which, in the case of a corporation, does not exceed
five per centum of the taxpayer’s net income as computed without the
benefits of this section; to an amount which, in the case of a co-operative
association or co-operative farm produce marketing association, does not
exceed five per centum of the savings or earnings of such association avail-
able for distribution to its members and patrons. Such contributions or
gifts shall be allowable as deductions only if verified under rules and regu-
lations prescribed by the Department of Taxation.

In the case of a corporation reporting its net income on the accrual
basis, at the election of the taxpayer any contribution or gift payment of
which is made after the close of the taxable year and on or before the
fifteenth day of the third month following the close of such year shall,
for the purpose of this section, be considered as paid during such taxable
year if, during such year, the board of directors authorized such contribu-
tion or gift. Such election shall be made only at the time of the filing of
the return for the taxable year, and shall be signified in such manner as
the Department of Taxation shall by rules and regulations prescribe.
(o) Alimony, Etc., Payments.—In the case of a husband described
in § 58-78 (c), amounts includible under § 58-78 (c) in the gross income
of his wife, payment of which is made within the husband’s taxable year.
If the amount of any such payment is, under § 58-79 (c) or § 58-121.1,
stated to be not includible in such husband’s gross income, no deduction
shall be allowed with respect to such payment under this subsection.

(p) Medical, Dental, Etc., Expenses.—Expenses paid during the tax-
able year, not compensated for by insurance or otherwise, for medical
care of the taxpayer, his spouse, or a dependent specified in § 58-98
(c) —*

(1) If neither the taxpayer nor his spouse has attained the age of
sixty-five before the close of the taxable year, to the extent that such ex-
menses exceed five per centum of the adjusted gross income; or

(2) If either the taxpayer or his spouse has attained the age of sixty-
five before the close of the taxable year, (A) the amount of such expenses
for the care of the taxpayer and his spouse, and (B) the amount by which
such expenses for the care of such dependents exceed five per centum of
the adjusted gross income. The deduction under this subsection shall not
be in excess of one thousand two hundred and fifty dollars multiplied by
the number of exemptions allowed under § 58-98 for the taxable year (ex-
clusive of exemptions allowed under § 58-98 (a) (2) or (8), with a maxi-
mum deduction of two thousand five hundred dollars, except that the maxi-
mum deduction shall be five thousand dollars in the case of a joint re-
turn of husband and wife under § 58-105 (b). The term “medical care,”
as used in this sub-section, shall include amounts paid for the diagnosis,
cure, mitigation, treatment, or prevention of disease, or for the purpose
of affecting any structure or function of the body (including amounts
paid for accident or health insurance). The determination of whether an
individual 1s married at any time during the taxable year shall be made
an accordance with the provisions of § 58-105 (b) (5).

(q) Optional Standard Deduction for Individuals.—

(1) Allowance.—In the case of an individual, at his election a stand-
ard deduction as follows:

(A) Adjusted gross income $5,000 or more.—If his adjusted gross
income is five thousand dollars or more, the standard deduction shall be
five hundred dollars or an amount equal to five per centum of the adjust-
ed gross income, whichever is the lesser, except that in the case of a sep-
arate return by a married individual, the standard deduction shall be two
hundred fifty dollars.

(B) Adjusted gross income less than $5,000.—If his adjusted gross
income is less than five thousand dollars the standard deduction shall be
an amount equal to five per centum of the adjusted gross income.

(2) In lieu of certain deductions and credits.—The standard deduc-
tion shall be in lieu of: (A) all deductions other than those which under
§ 58-78 (d) are to be subtracted from gross income in computing adjusted
gross income, and (B) all credits with respect to taxes of other states.

(3) Method and effect of election.—

(A) The standard deduction shall be allowed only if the taxpayer so
elects in his return, and the Department of Taxation shall by rules and
regulations prescribe the manner of signifying such election in the return.

(B) If the taxpayer does not signify, in the manner provided by
subparagraph (A), his election to take the standard deduction, it shall
not be allowed. If he does so signify, such election shall be irrevocable.

(4) Husband and wife.—In the case of husband and wife, the stand-
ard deduction shall not be allowed to either if the net income of one of the
spouses is determined without regard to the standard deduction.

(5) Short period.—In the case of a taxable year of less than twelve
months on account of a change in the accounting period, the standard de-
duction shall not be allowed.

(6) Determination of status.—For the purposes of the sub-section:

(A) The determination of whether an individual is married shall be
made as of the close of his taxable year, unless his spouse dies during his
taxable year, in which case such determination shall be made as of the
time of such death; and

(B) An individual legally separated from his spouse under a decree
of divorce or of separate maintenance shall not be considered as married.
2. This act shall be in force for the taxable year nineteen hundred fifty
two, and for every taxable year thereafter until otherwise provided by
aw.