Virginia Tax Credits: Individual, Business, and Carryover Rules

Virginia tax credits reduce your state income tax dollar for dollar, and the Commonwealth offers a wide slate of them for individuals, families, business owners, and investors. The most useful ones fall into a few clusters: a state Earned Income Tax Credit, a credit that prevents double taxation when you work in another state, donation-based credits for scholarships and conservation, and larger business credits for hiring, historic rehabilitation, and affordable housing. Each has its own eligibility rules, caps, and carryover period, and several require you to apply to a state agency before you file your return.

Credits Most Individuals Can Claim

Earned Income Tax Credit or Credit for Low Income Individuals

If you qualified for the federal Earned Income Tax Credit, Virginia gives you three mutually exclusive options for tax years 2025 and 2026, and you can only pick one:¹

A refundable EITC equal to 20% of your federal EITC. Because it’s refundable, you receive the full amount even if it exceeds your Virginia tax liability.
A nonrefundable EITC, also 20% of the federal credit, that can only reduce your Virginia tax to zero.
The Credit for Low Income Individuals, up to $300 per personal or dependent exemption. Nonrefundable.

For most filers, the refundable version wins because it pays out regardless of what you owe. The nonrefundable EITC or the low-income credit only makes sense if your Virginia liability is high enough to absorb the credit and the low-income calculation produces a larger number. Run all three before choosing.²

A few disqualifiers catch people. You cannot claim any version if someone else claimed you as a dependent on their Virginia return. You are also disqualified if you, your spouse, or any dependent on your return claimed certain Virginia subtractions, including the National Guard wage subtraction, the military basic pay subtraction, or the age deduction.¹

Credit for Taxes Paid to Another State

Virginia residents who earn income in another state and pay income tax there can claim a credit equal to the lesser of the tax paid to the other state or the Virginia tax attributable to that income. Only earned income and business income qualify. Wages, salaries, professional fees, and income from a trade or business you actively operate all count. Investment income, dividends, interest, and capital gains do not, even if another state taxed them. You’ll need documentation showing the tax paid, typically a copy of that state’s return.³

Education Improvement Scholarships Credit

Donate cash or marketable securities to an approved scholarship-granting organization and Virginia gives you a credit worth 65% of the donation. The minimum donation is $500 and the credit is capped at the first $125,000 you donate in a year, producing a maximum individual credit of $81,250. The scholarships fund private school tuition for students from lower-income families or students with disabilities. A statewide cap of $25 million per fiscal year limits total credits issued, so credits are allocated first-come when demand is high.⁴ Unused credit carries forward five years.⁵

Land Preservation Tax Credit

When you donate land or a conservation easement to a qualifying organization, Virginia gives you a credit equal to 40% of the fair market value of the donated interest. Most taxpayers can claim up to $50,000 of the credit per year; if you donate land outright (fee simple) to the Commonwealth, the annual limit rises to $100,000.⁶ Unused credits carry forward 10 years, and they are transferable: you can sell unused credits to other Virginia taxpayers, who then claim them on their own returns subject to the same $50,000 annual cap and an 11-year window from the original issuance date. Sellers report the transfer on Form LPC-2 and owe a 5% transfer fee, with exceptions for designated beneficiaries and certain disregarded entities.⁷

Credits for Businesses and Larger Investors

Major Business Facility Job Tax Credit

A business that creates 50 or more new full-time positions at a single facility can claim $1,000 per qualifying job. The threshold drops to 25 new jobs if the facility sits in an economically distressed area or enterprise zone.⁸ Unused credits carry forward 10 years.⁵

Recapture is real. For five years after the credit year, if your qualifying headcount drops below the average you had during the year you earned the credit, Virginia recomputes the credit at the lower number and claws back the difference. If headcount falls below the 50-job (or 25-job) threshold entirely, every credit earned for that facility is fully recaptured.⁸

Historic Rehabilitation Tax Credit

Renovating a certified historic building earns a state credit equal to 25% of eligible rehabilitation expenses, and it stacks with the 20% federal credit for a combined 45% offset on the same project.⁹ The work must be consistent with the Secretary of the Interior’s Standards for Rehabilitation and must meet a minimum spending threshold that depends on the building type:

For owner-occupied residential buildings, rehabilitation costs must equal at least 25% of the building’s assessed value for local real estate tax purposes in the year before work began.
For commercial and other buildings, costs must reach at least 50% of the prior-year assessed value.⁹

Starting with the 2025 tax year, the maximum credit a single taxpayer can claim per year, including carryovers, is $7.5 million.⁹ Unused credit carries forward 10 years.⁵ Pass-through entities allocating the credit to their members must file Form TCA within 30 days of certification and at least 90 days before filing their income tax return.¹⁰

Virginia Housing Opportunity Tax Credit

Created in 2021 and extended through 2030, this credit targets developers and investors in affordable housing projects that already receive federal Low-Income Housing Tax Credits. When the Virginia Housing Development Authority certifies a project, the state credit equals the federal allocation and is claimed one-tenth per year over a 10-year credit period. For 2026 through 2030, total statewide credits are capped at $64 million per year, with $20 million reserved for projects in the Balance of State Pool (areas outside major metro regions). The credit is nonrefundable, unused amounts carry forward five years, and if the federal credits are recaptured or disallowed, a proportional share of the Virginia credits is also recaptured.¹¹

Expired Credits You Can Still Carry Forward

Two credits that appear in older Virginia tax guides no longer generate new credit amounts, but if you earned them before they expired, any unused portion still carries forward five years from the year originally earned:⁵

The Research and Development Expenses Tax Credit under § 58.1-439.12:08, which equaled 15% of the first $300,000 in qualified R&D expenses (or 20% for research conducted with a Virginia college or university), along with the separate major R&D credit under § 58.1-439.12:11 for expenses exceeding $5 million. Both authorizations ended for taxable years beginning on or after January 1, 2025. A 2025 legislative effort to extend them did not pass.¹²
The Green and Alternative Energy Job Creation Tax Credit, which offered $500 per job for companies creating at least five positions paying $50,000 or more annually in renewable energy or energy conservation. It expired January 1, 2025.⁵

Statewide Caps and Pre-Approval Deadlines

Several Virginia credits operate under aggregate statewide caps. Once total credits issued to all taxpayers reach the cap, no more are issued that year regardless of eligibility. The education improvement scholarships credit is capped at $25 million statewide; the housing opportunity credit at $64 million. Some housing and community development credits have much smaller pools with priority given to applications received by a set date.¹⁰

Some credits require applying to a state agency well before you file your return. The Livable Home Tax Credit, which covers accessibility retrofits and certain new home purchases, requires applications to the Department of Housing and Community Development by January 31 of the year following the work’s completion.¹⁰ Miss the deadline and the credit is gone, even if you otherwise qualify. If the credit you want has a statewide cap, apply early.

How Carryover Rules Work

When your credit exceeds what you can use in a single year, Virginia lets you carry the unused portion forward. The number of years varies by credit:⁵

Three years: Biodiesel and Green Diesel Fuels, Worker Training
Five years: Neighborhood Assistance Act, Education Improvement Scholarships, Communities of Opportunity, Food Donation, Housing Opportunity
Seven years: Livable Home
Ten years: Historic Rehabilitation, Land Preservation (donations from 2007 onward), Major Business Facility Job, Farm Wineries and Vineyards

Virginia requires you to use carryover credits before applying any current-year credits. Within your carryovers, claim the ones closest to expiring first, regardless of the order they appear on your schedule.⁵ Losing track of a carryover and letting it expire is one of the most common avoidable mistakes in Virginia tax planning.

How to File and What to Keep

Individuals report credits on Schedule CR, filed with Form 760. The schedule calculates each credit before you transfer the combined total to your return.¹³ Corporations use Schedule 500CR, which also tracks carryovers, attached to Form 500.¹⁴

Many credits require certification numbers issued by state agencies. Historic rehabilitation credits involve the Department of Historic Resources, community development credits require numbers from the Department of Housing and Community Development, and education-related credits need certification from the Department of Education. Entering the wrong number, or leaving it off, typically triggers a follow-up letter from the Department of Taxation and delays processing.

Virginia requires you to keep records supporting any claimed credit for at least three years from the return’s due date or the date you actually filed, whichever is later.¹⁵ For credits with 10-year carryover periods, keep them longer: the three-year clock restarts each time you claim a carryover amount on a new return. Hold on to original donation receipts, payroll records documenting job creation, certification letters from state agencies, and any pre-approval correspondence.

1
Virginia Department of Taxation. Virginia Earned Income Tax Credit (EITC) and Credit for Low Income Individuals
2
Virginia Code Commission. Code of Virginia – Article 3. Tax Credits for Individuals
3
Virginia Code Commission. Virginia Administrative Code 23VAC10-110-221 – Credit for Income Taxes Paid to Another State
4
Virginia Code Commission. Virginia Code 58.1-439.26 – Tax Credit for Donations to Certain Scholarship Foundations
5
Virginia Department of Taxation. 2025 Form 500CR Instructions
6
Virginia Code Commission. Virginia Code 58.1-512 – Land Preservation Tax Credits for Individuals and Corporations
7
Virginia Department of Taxation. Transferring a Land Preservation Tax Credit
8
Virginia Code Commission. Virginia Code 58.1-439 – Major Business Facility Job Tax Credit
9
Virginia Code Commission. Virginia Code 58.1-339.2 – Historic Rehabilitation Tax Credit
10
Virginia Department of Taxation. Housing and Community Development Tax Credits
11
Virginia Code Commission. Virginia Code – Article 13.4. Virginia Housing Opportunity Tax Credit Act
12
Virginia Code Commission. Virginia Code 58.1-439.12:08 – Research and Development Expenses Tax Credit
13
Virginia Department of Taxation. 2025 Virginia Schedule CR Instructions
14
Virginia Department of Taxation. Corporation Income Tax
15
Virginia Department of Taxation. Recordkeeping for Individual Income Tax Purposes