Virginia Research and Development Credit

Expired: Both Virginia research credits, the refundable Research and Development Expenses Tax Credit and the nonrefundable Major Research and Development Expenses Tax Credit, apply only to taxable years beginning before January 1, 2025. No credit is available for research expenses in taxable years beginning in 2025 or later. HB 1969 (2025), which would have extended the credits, failed in conference on February 22, 2025. The 2026 General Assembly session did not revive either credit (Virginia Tax 2026 Legislative Summary, July 6, 2026). What still applies: carryforwards of Major credits, records and exam support for 2024 and earlier claims, and Virginia's 2026 deconformity from federal §174A expensing.

At a glance

Jurisdiction: Virginia (VA)
Credit name: Research and Development Expenses Tax Credit (Va. Code §58.1-439.12:08) and Major Research and Development Expenses Tax Credit (Va. Code §58.1-439.12:11)
Administering agency: Virginia Department of Taxation
Rate(s) and base (taxable years beginning before 2025):
- R&D Expenses credit (Virginia QREs of $5 million or less): 15% of the first $300,000 of Virginia QREs above the Virginia base amount, or 20% if the research was done with a Virginia public or private college or university. Elective alternative: 10% of Virginia QREs above 50% of the prior three-year average (5% of current QREs if any of the three prior years had none). Per-taxpayer cap $45,000, or $60,000 with a Virginia college or university.
- Major credit (Virginia QREs over $5 million): for 2023–2024, 10% of the first $1 million of QREs above 50% of the prior three-year average and 5% of the excess above that (5% of current QREs if any of the three prior years had none). Per-taxpayer cap $300,000, or $400,000 with a Virginia college or university. Before 2023, a flat 10% with no per-taxpayer cap.
Refundable? The R&D Expenses credit was refundable. The Major credit was not.
Transferable? No.
Carryforward: R&D Expenses credit: none (refundable). Major credit: 10 succeeding taxable years, and the credit used in a year cannot exceed 75% of that year's tax.
Annual cap / proration: For taxable years 2023–2024, statewide caps were $15.77 million (R&D Expenses) and $16 million (Major), both prorated if oversubscribed.
Pre-approval / application and deadline: An application to Virginia Tax was due by September 1 of the calendar year after the taxable year. The last deadline, for 2024 credit years, was September 1, 2025.
Forms: Application through Virginia Tax. Credits were claimed on Schedule CR (individuals and fiduciaries) or Form 500CR (corporations).
Sunset / recent changes: Expired for taxable years beginning on or after January 1, 2025. No 2026 revival. 2026 budget amendments (HB 29, Chapter 7, effective February 20, 2026) deconform Virginia from federal §174A immediate expensing for business taxpayers.

What it is

Virginia used to offer two research credits: a refundable credit for businesses with Virginia QREs of $5 million or less, and a nonrefundable Major credit for businesses above $5 million. Both required an application and both had statewide caps. Both have expired, so this page covers what still matters for prior-year claims and carryforwards.

Who can claim it

No new credits can be earned for taxable years beginning on or after January 1, 2025.
Taxpayers who received Major credits for 2024 or earlier may still use unused amounts within the 10-year carryforward period.
Taxpayers with approved R&D Expenses credits for 2024 or earlier should keep records in case of examination.

How it is calculated

These rules apply to taxable years beginning before January 1, 2025 only.

R&D Expenses credit: 15% of the first $300,000 of Virginia QREs above the Virginia base amount (20% for research with a Virginia college or university), up to $45,000 ($60,000). Taxpayers could instead elect 10% of Virginia QREs above 50% of the prior three-year average, with the same caps. Credits were prorated if total approved credits exceeded the statewide cap.
Major credit: for 2023–2024, 10% of the first $1 million of excess QREs (above 50% of the three-year average) plus 5% of the excess above that, capped at $300,000 per taxpayer ($400,000 with a Virginia college or university), and prorated against the $16 million cap.

How to claim it

No new applications are accepted.
Use Major credit carryforwards on Form 500CR or Schedule CR. Keep the Virginia Tax approval letter showing the allocated credit amount.
Separate 2026 item: under Virginia's fixed-date conformity (to December 31, 2025, with listed deconformities), business taxpayers must add back the federal §174A deduction for domestic research expenditures, including the retroactive and catch-up amounts, and follow Virginia's rules for recovering those costs. See Virginia Tax Bulletin 26-1.

Recent changes

HB 1518 (2024, Chapter 661), effective for taxable years beginning on or after January 1, 2023: raised the R&D Expenses cap from $7.77 million to $15.77 million, lowered the Major cap from $24 million to $16 million, and introduced the 10%/5% step rate and the $300,000/$400,000 per-taxpayer caps for the Major credit for 2023–2024. It did not change the existing sunset (taxable years beginning before January 1, 2025), which had been set by 2020 legislation.
HB 1969 (2025): an extension bill that failed in conference on February 22, 2025.
2026 Regular Session: no legislation revived either credit. HB 29 (Chapter 7, effective February 20, 2026) set a fixed IRC conformity date of December 31, 2025 and deconformed from §174A immediate expensing.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims for taxable years beginning before 2025 also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Virginia and other locations, how Virginia amounts reconcile to federal Form 6765, the Virginia credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Virginia tax.

For each Major credit carryforward year: what was the original approved amount, and what has been used each year since?
Did the carryforward use stay within the 75%-of-tax limit each year?
For 2024 and earlier claims: did the QREs relate to research done in Virginia, and how were they apportioned?
Was the college or university rate supported by a written agreement with a Virginia institution?
Did a 2025 or later Virginia return claim a new research credit by mistake?
How did you handle the §174A add-back on the 2025 Virginia return?

Common weak spots

Claiming new Virginia research credits for 2025 or later years.
Carryforward schedules that do not match the Virginia Tax approval letters.
Not making the §174A add-back.
University-rate claims without a qualifying contract.

Next steps

Run a mock audit for Virginia
Official source: Virginia Department of Taxation (opens in a new tab)
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Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.