On February 20, 2026, Governor Abigail Spanberger signed into law HB 29, which includes several changes to Virginia's income tax laws. Notably, HB 29 changes how the state conforms to the Internal Revenue Code (IRC) from rolling conformity to fixed-date conformity, conforming to most provisions in the One Big Beautiful Bill Act (OBBBA).¹ HB 29 also removes the sunset date for elective pass-through entity tax (PTET).

The Virginia Department of Taxation (Department) issued Tax Bulletin 26-1 (February 20, 2026) to provide guidance on the IRC-related changes in HB 29.

IRC conformity and OBBBA

Virginia has moved from rolling to fixed-date conformity to the IRC and now conforms to the IRC as it existed on December 31, 2025. The law also conforms to any amendment to federal law that extends the expiration date of a federal tax provision to which Virginia conforms, or has previously conformed, with certain exceptions. Accordingly, and as explained by the Department, Virginia conforms to provisions of the OBBBA to the extent the provisions affect the computation of federal taxable income (corporations) or federal adjusted gross income or federal itemized deductions (individuals).

Virginia, however, specifically decouples under HB 29 from the following OBBBA provisions:

• Special depreciation allowance for qualified production property under IRC Section 168(n)
• Immediate expensing of domestic research and experimental (R&E) expenditures, including retroactive and catchup provisions under IRC Section 174A (these R&E expenditures will continue to be subject to the applicable amortization period)
• Increased dollar limitation for expensing certain depreciable business assets under IRC Section 179

Virginia continues to decouple from the bonus depreciation provisions under IRC Section 168(k).

HB 29 decreases Virginia's deduction for disallowed business interest expenses under IRC Section 163(j). Effective for tax years beginning on and after January 1, 2025, the state deduction for disallowed business interest decreases to 20% (from 50%) of interest disallowed on the federal return.

The law also modifies the subtraction from federal taxable income for amounts included under IRC Section 951A² by changing "global intangible low-taxed income" to "net controlled foreign corporation tested income," aligning to changes under the OBBBA.

These changes are effective on February 20, 2026 (the date of enactment), unless otherwise noted.

PTET

HB 29 makes permanent the elective pass-through entity tax. Without this action, the election would only have been available for tax years beginning before 2027. HB 29 also makes permanent Va. Code Ann. Section 58.1-332(C)(2), which deems state income tax paid by a pass-through entity (PTE) under the law of another state that is substantially similar to Virginia's elective PTET to have been paid by the PTE's individual owners.

Implications

Taxpayers should take these changes into consideration when filing their returns and making estimated tax payments. The Department said that "[t]axpayers benefiting from these federal provisions must maintain separate Virginia records and calculate depreciation, amortization, carryforwards, and adjustments as if [OBBBA] changes had not been enacted." Depending on whether the Viriginia deductions are smaller or greater than the federal deduction, the taxpayer may have to make an addition or subtraction modification for the year at issue.

Taxpayers that have already filed their 2025 Virginia income tax returns may need to file an amended return.