When it comes to Virginia rental income tax is the state-level tax imposed on income earned from renting out real estate in Virginia, many landlords wonder if they owe anything beyond the federal side.
Understanding the Basics: Does Virginia Tax Rental Income?
Short answer: Yes. Virginia treats rental income the same way the federal government does - as taxable income that must be reported on your personal income tax return.
The Virginia Department of Taxation (VDOT) requires you to include all net rental earnings on your state return. Net earnings are calculated after subtracting allowable expenses, just like on the federal Schedule E.
To keep things clear, let’s break down the key pieces you’ll encounter.
Key Players and Forms You’ll Use
- Virginia Department of Taxation is the state agency responsible for collecting individual income taxes, including rental income.
- Federal Income Tax is the overarching tax framework administered by the IRS that also covers rental earnings. Virginia mirrors many federal rules but has its own filing forms.
- Schedule E is the IRS Schedule used to report rental, royalty, and partnership income. The numbers you put on Schedule E flow onto your Virginia return.
- Virginia Form 760 is the individual income tax return for Virginia residents and part-year residents. Rental income is reported on line 6 of this form.
- Rental Property Deductions are expenses you can subtract from gross rent to arrive at net taxable income.
- Depreciation is a non-cash deduction that spreads the cost of the building over 27.5 years for residential rentals.
- Passive Activity Loss Rules are IRS limits that can restrict how much rental loss you can deduct against other income.
- Property Tax is the local tax levied on real estate, which is fully deductible as a rental expense.
Step‑By‑Step: Reporting Rental Income on Your Virginia Return
- Gather all rent receipts, lease agreements, and expense invoices for the tax year.
- Complete federal Schedule E. Enter total rents received, then subtract each allowable expense (advertising, repairs, insurance, etc.). Record the net profit or loss.
- Transfer the net amount from Schedule E to Virginia Form 760, line 6 ("Rental income or loss"). If you have a loss, make sure it conforms to the passive activity loss rules before it reduces other Virginia taxable income.
- Attach any required schedules (e.g., a copy of Schedule E) if the state auditor requests verification.
- File Form 760 by the April 15 deadline (or October 15 if you filed a federal extension).
Missed the deadline? Virginia offers a short‑fall payment extension until November15, but interest accrues at the state rate.
What Expenses Can You Deduct?
Virginia follows the federal list almost verbatim, but it’s worth seeing the most common items in one place.
| Deduction | Description | Typical % of Gross Rent |
|---|---|---|
| Mortgage interest | Interest paid on the loan used to purchase the rental property | 15‑30% |
| Property tax | Annual local tax assessed on the property | 5‑10% |
| Insurance | Landlord liability and property insurance premiums | 2‑5% |
| Repairs & maintenance | Costs to keep the property in rentable condition (e.g., plumbing, painting) | 5‑15% |
| Depreciation | Annual allocation of building cost over 27.5 years | ~3% |
| Utilities (if paid by landlord) | Electricity, water, gas, trash removal | 1‑4% |
| Advertising | Online listings, signage, rental agency fees | 0.5‑2% |
| Professional services | Legal, accounting, property management fees | 2‑5% |
Keep receipts for at least three years. The Virginia Department of Taxation can audit you, and solid records make the process painless.
Special Situations: Short‑Term Rentals, Airbnb, and Vacation Homes
Virginia does not draw a line between long‑term leases and short‑term rentals when it comes to income tax. Whether you list a unit on Airbnb or rent it month‑to‑month, the gross receipts count.
However, short‑term rentals often trigger additional local levies (e.g., hotel or occupancy taxes). These fees are typically collected by the platform and remitted to the locality, but you must still report the net rent after those taxes are removed.
Penalties for Not Reporting Rental Income
If you omit rental income, Virginia can assess:
- A 5% penalty on the under‑reported amount, plus interest.
- Potential criminal charges for willful tax evasion if the amount exceeds $10,000.
- Loss of eligibility for certain state tax credits.
Voluntary disclosure before the state discovers the omission can slash penalties dramatically, often to a flat $150 fee.
Tips to Keep Your Rental Taxes Straight
- Set up a separate bank account for all rental‑related cash flow. It makes tracking easier.
- Use accounting software that can generate a Schedule E‑compatible profit‑and‑loss statement.
- Review the Virginia Department of Taxation’s Rental Property Publication (VAT‑2025‑RPT) each year for updates.
- Consider hiring a CPA familiar with Virginia rental rules if your portfolio exceeds three units.
And remember, the most important takeaway: rental income tax Virginia is real, but with proper bookkeeping you’ll never pay more than you owe.
Frequently Asked Questions
Do I have to pay Virginia tax if I only rent out a room in my house?
Yes. Any rental income, even from a single room, is taxable. You’ll report the income on Schedule E and transfer the net amount to Form 760. You can deduct a portion of expenses proportional to the space rented.
Can I deduct my mortgage principal payments?
No. Only the interest portion is deductible. The principal repayment is a capital investment and may affect your basis for future capital gains calculations.
What if I have a rental loss? Does Virginia let me offset other income?
Rental losses are subject to the passive activity loss rules. If your adjusted gross income (AGI) is below $150,000, you can usually deduct up to $25,000 of passive loss against other income. Above that threshold, the ability phases out.
Do I need a separate Form 760 for each rental property?
No. All rental income and expenses are aggregated on a single Schedule E, and the net figure is reported once on Form 760.
How does depreciation affect my eventual sale of the property?
Depreciation reduces your taxable income each year, but the total amount claimed is recaptured as ordinary income when you sell. The recapture rate is 25% in Virginia, aligning with federal rules.
