CHAPTER 352

An Act to amend and reenact § 58-81, as amended, of the Code «
Virginia, relating to income tax deductions allowed. 5 18
[

Approved April 1, 1966

Be it enacted by the General Assembly of Virginia:

1. That § 58-81, as amended, be amended and reenacted as follow:

§ 58-81. Taxpayers reporting income as prescribed by this chapt
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 ta?
able year in carrying on any trade or business, including a reasonab.
allowance for salaries or other compensation for persona] services actuall
rendered; traveling expenses (including the entire amount expended fc
meals and lodging) while away from home in the pursuit of a trade ¢
business; and rentals or other payments required to be made as a cond
CH. 852] ACTS OF ASSEMBLY 541

(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
requirement 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 tax-
able 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. 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 tax-
able year and not compensated for by insurance or otherwise, if incurred in
made or business, the income from which is subject to taxation in this

(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 compen-
sated for by i insurance or otherwise.

(zg) 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 tax-
able year for repairs to and maintenance of buildings and machinery;
provided that no deductions shall be made for any repair which is charge-
able 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 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 prop-
erty 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) 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 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
property held in trust the allowable deduction shall be apportioned be-
tween the income beneficiaries and the trustee in accordance with the per-
tinent 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 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 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 divi-
dends received therefrom shall be deductible. ;

(m) Charitable and other contributions.—In the case ofan 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 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 ;

( 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 exclusively 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 ex-
ceed fifteen per centum of the taxpayer’s adjusted gross income. Such
contributions or gifts shall be allowable as deductions only if verified
anaer the rules and regulations prescribed by the Department of Taxa-

ion.

(n) Charitable and other contributions by corporations and co-oper-
ative 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 18 [now Title 13.1, Chapter 8,
§ 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 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 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 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 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 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 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 con-
tribution 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 § 58-78 (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 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),
tmeluding necessary expenses of special training and schooling for mentally
retarded or emotionally disturbed dependents.

(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-
penses 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 (exclusive of exemptions allowed under § 58-98(a) (2) or
(3), with a maximum deduction of two thousand five hundred dollars, ex-
cept 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, 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 is married at any time during the taxable year
shall be made in accordance with the provisions of § 58-105 (b) (5).

(3) (i) 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.

(ii) For purposes of paragraph (i)

(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) if 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.

(iii) For purposes of paragraph (i), an individual shall be consid-
ered to be disabled if he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental im-
pairment which can be expected to result in death or to be of long-con-
tinued 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.—In the case of an individual, at his election a stand-
ard deduction as follows: a

(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 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 hun-
dred 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—IiIn the case of husband and wife, the
standard 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 shal] be made as of the
time of such death; and oo

(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 by the teacher for the improvement of his or her pro-
fessional qualifications or standing as a teacher. The amount of the deduc-
tion shall not exceed twelve hundred dollars. ote
2. This act shall be effective for taxable years beginning after December

-first, nineteen hundred sixty-five. $= = = 8 = ©