How Does Virginia Tax Investment Income?

Virginia taxes investment income the same way it taxes wages: as ordinary income under the state’s four-bracket structure, with a top rate of 5.75% on taxable income above $17,000. There is no reduced rate for long-term capital gains, no preferential treatment for qualified dividends, and no separate investment tax. If a dollar of interest, dividends, or capital gain shows up on your federal return, it almost certainly shows up on your Virginia return at the same amount, and most of it will be taxed at 5.75%.¹

The Rate You Will Actually Pay

Virginia’s income tax starts with your federal adjusted gross income and then layers on a handful of state-specific adjustments.² The brackets are:

2% on the first $3,000 of taxable income
3% on income from $3,001 to $5,000
5% on income from $5,001 to $17,000
5.75% on all income above $17,000

These brackets have not been adjusted since 1990 and are not indexed for inflation.¹ For almost anyone with a job and a brokerage account, wage income alone fills the lower brackets, which means investment income lands at the top. An investor who sells stock for a $50,000 profit will pay 5.75% on nearly the entire gain, regardless of holding period.

Capital Gains Get No Discount in Virginia

This is the single biggest difference between federal and Virginia treatment. The IRS taxes long-term capital gains (assets held more than a year) at 0%, 15%, or 20% depending on income, while short-term gains are taxed at ordinary federal rates. Virginia makes no such distinction.¹ Short-term and long-term gains flow into the same tax base at the same rate.

The practical takeaway: the federal reward for holding assets longer does not translate into any state tax savings. Holding periods still matter for your federal bill; they do nothing for your Virginia bill.

Dividends and Interest

Qualified dividends get a favorable federal rate, but Virginia taxes qualified and ordinary dividends identically. Interest from savings accounts, CDs, corporate bonds, and Treasury securities all pass through your federal AGI into Virginia’s tax base.

Municipal bond interest is where Virginia investors most often get tripped up. Interest from bonds issued by Virginia or its localities is exempt from state tax. Interest from bonds issued by other states, however, must be added back on your Virginia return even though it remains tax-free federally.³ If you hold a national municipal bond fund, check the fund’s state-by-state breakdown; only the Virginia-sourced portion escapes state tax.

Capital Losses and Harvesting

Virginia conforms to federal rules on capital losses. Losses offset gains dollar-for-dollar, and up to $3,000 of net capital losses can be deducted against other income each year ($1,500 for married filing separately). Unused losses carry forward indefinitely.⁴ Because Virginia starts from federal AGI, the loss deduction automatically flows through; there is no separate state calculation.

Tax-loss harvesting therefore reduces your Virginia tax for the same reason it reduces your federal tax. The federal wash sale rule applies in the same way: buy a substantially identical security within 30 days before or after selling at a loss, and the IRS disallows the loss. That disallowance changes your federal AGI, so it changes your Virginia return too.

State-Level Breaks Worth Knowing

The Angel Investor Credit

Virginia offers a tax credit equal to 50% of a qualifying cash investment in an early-stage Virginia company, through the qualified equity and subordinated debt investments tax credit. The annual cap is $50,000 per investor.⁵

To qualify, the business must have annual gross revenues of $3 million or less and keep its principal office in Virginia, and the investment must be in equity or unsecured subordinated debt. A few things to know before you count on the credit:

Only $5 million in credits is available statewide each calendar year, with half reserved for commercialization investments. When demand exceeds the cap, credits are allocated proportionally, so you may receive less than 50%.
The credit is non-refundable but any unused amount carries forward for up to 15 years.
You must apply to the Virginia Department of Taxation and receive certification that the business qualifies before claiming the credit.

Qualified Small Business Stock

If you hold stock in a qualifying small C corporation, Section 1202 of the Internal Revenue Code lets you exclude some or all of the gain from federal income when you sell. Because Virginia builds its tax base from federal AGI, excluded gain never enters the Virginia calculation either.

For stock issued on or after July 5, 2025, the One Big Beautiful Bill Act created a tiered exclusion based on holding period: 50% at three years, 75% at four years, and 100% at five years. For stock issued before that date, the earlier rule still applies, requiring a five-year hold for the full 100% exclusion on stock acquired after September 27, 2010. The maximum excludable gain per issuer is the greater of $10 million or ten times your adjusted basis. Virginia has no add-back for Section 1202 excluded gain, so the federal benefit flows through automatically.²

Expired Venture Capital Subtraction

A previous subtraction for income attributable to certified Virginia venture capital accounts expired on January 1, 2024, and is not available for new investments.⁶ It applied only to investments made between January 1, 2018, and December 31, 2023. If you made a qualifying investment in that window and are amending an older return, you may still claim it.⁷

Don’t Forget the Federal NIIT

Virginia does not impose its own net investment income tax, but federal law adds a 3.8% NIIT on capital gains, dividends, interest, and other passive income once your modified AGI exceeds $200,000 single, $250,000 joint, or $125,000 married filing separately. Those thresholds are not inflation-adjusted.

Added together, a high-income Virginia investor in the top federal bracket can face roughly 29.55% on a long-term capital gain: 20% federal, 3.8% NIIT, and 5.75% state. That is the combined number worth keeping in mind when you decide whether to realize a large gain in a given year.

Quarterly Estimated Payments

Investment income usually arrives with no state tax withheld. If your Virginia tax liability after withholding and credits will exceed $150 for the year, you are required to make quarterly estimated payments.⁸ That is a far lower threshold than the federal $1,000 trigger, and it catches investors who are used to the federal rules.

The due dates are May 1, June 15, September 15, and January 15 of the following year. Virginia charges an addition to tax on underpayments unless you meet a safe harbor: paying at least 90% of the current year’s tax, or paying 100% of your prior year’s liability in equal installments. No penalty applies if your total underpayment is $1,000 or less.⁹ If your investment income swings from year to year, the prior-year safe harbor is usually easier to hit because it doesn’t require you to project the current year.

Filing the Return

Virginia residents report investment income on Form 760. State-specific adjustments, including the add-back for out-of-state municipal bond interest, go on Schedule ADJ. The angel investor credit is claimed in the credit section of Form 760 using the amount shown on your certification letter.

The Virginia filing deadline is May 1, not the federal April 15.¹⁰ That is helpful when corrected brokerage statements run late, but it is also the day your first estimated payment for the new year is due. Keep brokerage statements, basis records, and credit certifications for at least three years after filing.

1
Virginia Code Commission. Virginia Code 58.1-320 – Imposition of Tax
2
Virginia Code Commission. Virginia Code 58.1-321 – Virginia Taxable Income of Individuals
3
Virginia Code Commission. Virginia Code 58.1-322.01 – Virginia Taxable Income; Additions
4
Internal Revenue Service. Capital Gains and Losses
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Virginia Code Commission. Virginia Code 58.1-339.4 – Qualified Equity and Subordinated Debt Investments Tax Credit
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Virginia Department of Taxation. Subtractions
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Virginia Code Commission. Virginia Code 58.1-322.02 – Virginia Taxable Income; Subtractions
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Virginia Department of Taxation. Individual Estimated Tax Payments
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Virginia Code Commission. Virginia Code 58.1-492 – Failure by Individual, Trust or Estate to Pay Estimated Tax
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Virginia Department of Taxation. When to File