CHAPTER 328

An Act to amend and reenact § 58-81, as amended, of the Code of
Virginia, relating to deductions from income for purposes of taxation.

[S 58]
Approved March 17, 1960

Be it enacted by the General Assembly of Virginia:

1. That § 58-81, as amended, of the Code of Virginia, be amended and re-
enacted as follows:

§ 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 General.—
All the ordinary and necessary expenses paid or incurred during the tax-
able year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; traveling expenses (including the entire amount expended 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 the purposes of the trade or busi-
ness, 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 o1
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) Nontrade or nonbusiness expenses.—In the case of an individual,
all the ordinary and necessary expenses paid or incurred during the taxable
vear for the production or collection of income, or for the management, con.
servation, 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. All interest actually paid
within the taxable year on tax liabilities due to the State or the United
States shall be deductible as interest.

(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 taxable
year and not compensated for by insurance or otherwise, if incurred in
trade or business, the income from which is subject to taxation in this State.

(e) Losses in other transactions entered into for profit.—Losses sus-
tained 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 tax-
able 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 tangible
personal property having an actual situs in this State), if arising from
fire, storms, shipwrecks or other casualty or from theft and not com-
pensated 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; provided
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.

(1) Depreciation.—A reasonable allowance for the exhaustion, wear
and tear (including a reasonable allowance for obsolescence) :

(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 between the
income beneficiaries and the trustee in accordance with the pertinent pro-
visions of the instrument creating the trust, or, in the absence of such
provisions, on the basis of the trust income allocable to each. _

(j) Depletton.—In the case of mines, oil and gas wells, other natural
deposits, and timber, a reasonable allowance for depletion and for deprecia-
tion 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 thereof,
then such prior estimate (but not the basis for depletion) shall be revised
and the allowance under this subsection for subsequent taxable years shall
be based upon such revised estimate. In the case of leases the deductions
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 absolute owner
of the property and shall be allowed to the life tenant. In the case of prop-
erty held in trust the allowable deduction shall be apportioned between
the income beneficiaries and the trustee in accordance with the pertinent
provisions of the instrument creating the trust, or in the absence of such
provisions, on the basis of the trust income allocable to each.

(k) Dividends on bank stocks.—Dividends received during the taxable
year upon stock of national banks and dividends received during the taxable
year upon stock of banks and trust companies organized under the laws ot
this State.

(1) Other dividends or portions thereof.—Dividends received during
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
corporation 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 individual,
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 sub-
division 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 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;

(3) The special fund for vocational rehabilitation authorized by
section 12 of 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
societies 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 earnings inures to the benefit of any private
shareholder or individual; or

(5) A domestic fraternal society, order or association, operating under
the lodge system, but only if such contributions or gifts are to be used exclu-
sively for religious, charitable, scientific, literary, or educational purposes,
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
the rules and regulations prescribed by the Department of Taxation.

(n) Charitable and other contributions by corporations and co-opera-
tive associations.—In the case of a corporation, or a co-operative associa-
tion or co-operative farm produce marketing association organized under
the provisions of chapters 14 and 15, Title 13 [now Title 13.1, chapter 3,
§ 13.1-301 et seq.] of the Code of Virginia, 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 subdivision
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 rehabill-
tation service, literary, or educational purposes or for the prevention 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 pur-
poses), 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 units 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 earnings 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 available for
distribution to its members and patrons. Such contributions or gifts shall
be allowable as deductions only if verified under rules and regulations
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 contribution
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) Alumony, 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 § 58-78 (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 taxable
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
expenses 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 (exclu-
sive of exemptions allowed under § 58-98 (a) (2) or (3), with a maximum
deduction of two thousand five hundred dollars, except that the maximum
deduction shall be five thousand dollars in the case of a joint return of
husband and wife under § 58-105 (b). The term ‘‘medical care,”’ as used in
this subsection, shall include amounts paid for the diagnosis, cure, mit-
igation, treatment, or prevention of disease, or for the purpose of affecting
any structure or function of the body (including amounts paid for ac-
cident or health insurance). The determination of whether an individual
is married at any time during the taxable year shall be made in accordance
with the provisions of § 58-105 (b) (5).

(3) (1) Subject to the provisions hereof, the deductions under this
paragraph shall not exceed—

(A) Fifteen thousand dollars, if the taxpayer has attained the age
of sixty-five before the close of the taxable year and is disabled, or if his
spouse has attained the age of sixty-five before the close of the taxable
year and is disabled and if his spouse does not make a separate return
for the taxable year, or

(B) Thirty thousand dollars, if both the taxpayer and his spouse
have attained the age of sixty-five before the close of the taxable year
and are disabled and if the taxpayer files a joint return with his spouse.

(1) For purposes of paragraph (1)

(A) Amounts paid by the taxpayer during the taxable year for
medical care, other than amounts paid for—

(a) his medical care, if he has attained the age of sixty-five before
the close of the taxable year and is disabled, or

(b) the medical care of his spouse, if his spouse has attained the
age of sixty-five before the close of the taxable year and is disabled, shall
be taken into account only to the extent that such amounts do not exceed
the maximum limitation provided elsewhere in this subsection which would
(but for the provisions hereof) apply to the taxpayer for the taxable year;

(B) tf the taxpayer has attained the age of sixty-five before the
close of the taxable year and is disabled, amounts paid by him during the
taxable year for his medical care shall be taken into account only to the
extent that such amounts do not exceed fifteen thousand dollars; and

(C) if the spouse of the taxpayer has attained the age of sixty-five
before the close of the taxable year and is disabled, amounts paid by the
taxpayer during the taxable year for the medical care of his spouse shall
be taken into account only to the extent that such amounts do not exceed
fifteen thousand dollars.

(iu) For purposes of paragraph (1), an individual shall be considered
to be disabled if he is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued and
indefinite duration. An individual shall not be considered to be disabled
unless he furnishes proof of the existence thereof in such form and
manner as the Commissioner may require.

(iv) For purposes of paragraph (i), the determination as to whether
the taxpayer or his spouse is disabled shall be made as of the close of the
taxable year of the taxpayer, except that if his spouse dies during such
taxable year such determination shall be made with respect to his spouse
as of the time of such death.

(q) Optional standard deduction for individuals.—

(1) Allowance.—lIn the case of an individual, at his election a
standard deduction as follows:

(A) Adjusted gross income $5,000 or more.—lf his adjusted gross ing
come is five thousand dollars or more, the standard deduction shall be five
hundred dollars or an amount equal to five per centum of the adjusted gross
income, whichever is the lesser, except that in the case of a separate 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 de-
duction shall be in lieu of: (A) all deductions other than those which un-
der § 58-78 (d) are to be subtracted from gross income in computing ad-
justed 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 re-
turn.

(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
deduction shall not be allowed.

(6) Determination of status.—For the purposes of this subsection:

(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.

(r) Teaching expenses.—In the case of teachers in the public free
schools who are members of the Virginia Supplemental Retirement Sys-
tem, all reasonable and necessary expenses paid or incurred by the teacher
during the taxable year by virtue of any college, university or extension
work undertaken during any summer by the teacher for the improvement
of his or her professional qualifications or standing as a teacher.

2. This act shall be effective for taxable years beginning after December
thirty-first, nineteen hundred and fifty-nine.