Virginia does not conform to federal §168(k) bonus depreciation. Virginia uses fixed-date IRC conformity and has explicitly disallowed §168(k) since 2003. STR investors get the full federal deduction but must add back 100% on the Virginia return. On a $150,000 federal deduction, that costs about $8,625 in Year-1 state tax timing. Compare Virginia's treatment to every other US jurisdiction in the complete state-by-state conformity map.
Modeled on a $150,000 federal §168(k) deduction. Open the state conformity tool →
How Virginia Treats §168(k) — The Add-Back Mechanic
Virginia is a fixed-date conformity state — meaning the General Assembly formally adopts a specific version of the IRC each year rather than automatically rolling forward with federal changes. That legislative choice matters: even when Virginia's conformity date is current, §168(k) is separately excluded from the state calculation. It's a belt-and-suspenders approach to a provision Virginia has consistently rejected since 2003.
The mechanic: compute federal taxable income using the full §168(k) deduction. On the Virginia return, add back the entire federal bonus amount using the individual addition modification under §58.1-322.03. Then take Virginia depreciation using standard MACRS without bonus. In years 2 onward, Virginia depreciation exceeds federal depreciation because federal was accelerated in Year 1, and the excess is reported as a subtraction modification.
Notable narrow exception: Virginia does allow §168(n) additional first-year depreciation for qualified disaster property. So the decoupling is specific to §168(k) — it's not a blanket rejection of all accelerated depreciation provisions.
Worked Example — $150,000 Federal Deduction on a Virginia STR
Consider an investor buying a $1.1M STR near Shenandoah National Park, running a cost seg-style analysis, and identifying $150,000 in 5-year and 15-year bonus-eligible property (kitchen finishes, appliances, FF&E, hot tub, deck, landscaping). The federal §168(k) deduction is $150,000 in Year 1.
Assumptions: Federal marginal rate 37% · Virginia top marginal rate 5.75% · Bonus depreciation acquired and placed in service after January 19, 2025 · STR loophole (§469) qualification confirmed for federal purposes.
| Line | Federal return | Virginia return |
|---|---|---|
| §168(k) Year-1 deduction | $150,000 | $0 (100% add-back) |
| Year-1 tax rate | 37% | 5.75% |
| Year-1 tax savings | $55,500 | $0 |
| Year-1 state savings missed | — | ~$8,625 |
| Recovery | N/A (fully deducted) | MACRS over 5/15/39 years |
The $8,625 Virginia miss is a timing shift, not a permanent loss. The federal $55,500 Year-1 savings is unaffected by Virginia's decoupling.
The Statute Explained
The fixed-date structure has one practical implication: even in years when the General Assembly passes conformity legislation to catch up with federal changes, the §168(k) carve-out is preserved. When OBBBA restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025, nothing about Virginia's treatment changed. Virginia also separately excludes §168(l), §168(m), §1400L, and §1400N — a fairly aggressive posture against accelerated depreciation generally.
How Virginia Compares to Federal-Conforming States
Of the 50 US states plus DC, roughly half conform fully to federal §168(k). Virginia sits in the decoupled camp with neighbors North Carolina (partial, 85% add-back), DC, and Massachusetts — but contrasts sharply with Alabama, which flows the entire federal bonus through to the state return with no add-back. Virginia's 5.75% top rate is in the middle of the pack, making the state timing miss meaningful but not among the largest nationally.
Use the state conformity tool to compare Virginia against any other state at any federal deduction amount, or browse the full 50-state hub for a side-by-side view.
What This Means for Your STR Purchase Decision
Virginia's STR markets — Shenandoah, Virginia Beach, Chincoteague, the Blue Ridge, Northern Virginia getaways — support meaningful cost seg opportunities. The state's non-conformity is real, but doesn't change whether a deal pencils. Three practical implications:
- Federal Year-1 savings are your primary lever. On a Shenandoah cabin with $150,000 in bonus-eligible property, the $55,500 federal Year-1 savings is where the STR loophole delivers.
- Track basis on two ledgers. Virginia basis will exceed federal basis for the life of the property. On disposition, expect a Virginia-specific gain/loss recalculation.
- Consider §168(n) for disaster-zone property. If your property is in a federally declared disaster zone, Virginia does allow §168(n) — a narrow but useful exception.
Before you write an offer on a Virginia STR, run the address on your property — the report models the full federal Year-1 deduction and lets you factor Virginia's timing shift into your underwriting.
Analyze a specific Virginia property
Run any Virginia STR listing through DepreciMax's $99 property report — line-item finish classification, federal §168(k) modeling, and Virginia timing math included.
Frequently asked questions
Does Virginia conform to federal §168(k) bonus depreciation in 2026?
No. Virginia uses fixed-date IRC conformity and has explicitly disallowed §168(k) since 2003 under Va. Code §58.1-301. STR investors add back 100% on the Virginia return.
How much does Virginia non-conformity cost a short-term rental investor?
On a $150,000 federal §168(k) deduction with Virginia's 5.75% top marginal rate and 100% add-back, the Year-1 state miss is approximately $8,625. The federal $55,500 Year-1 savings is unaffected.
What is the Virginia statute for §168(k) non-conformity?
Va. Code §58.1-301 (IRC conformity with §168(k) explicit exclusion) and §58.1-322.03 (individual addition). Virginia Tax Bulletin 16-1 documents the reporting.
Does Virginia allow §168(n) qualified disaster property?
Yes. Virginia's decoupling is specific to §168(k). Virginia DOES allow §168(n) additional first-year depreciation for qualified disaster property.
Does Virginia non-conformity kill the short-term rental loophole?
No. The STR loophole is a federal §469 mechanism. Virginia's add-back only changes state-level Year-1 timing. The federal deduction and the federal STR loophole benefit are unaffected.
Did OBBBA change Virginia's treatment of bonus depreciation?
No. Virginia's disallowance is written directly into Va. Code §58.1-301 as an explicit exclusion. OBBBA restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025 at the federal level, but nothing flows through to the Virginia return.
Every state's §168(k) position, in one place
Interactive map, sortable table, and deep-dive guide for each of the 51 jurisdictions — post-OBBBA verified.
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