Uncap the real estate taxes in the Virginia itemized deduction logic (#4534)

* Uncapp the real estate taxes in the Virginia itmemized deduction logic
Fixes #4505

* format

* add va_capped_state_and_local_sales_or_income_tax variable

Author: PavelMakarchuk

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: patch
+  changes:
+    fixed:
+    - Uncap real estate taxes in the Virginia itemized deduction logic.

policyengine_us/parameters/gov/states/al/tax/income/agi/gross_income_sources.yaml

@@ -27,4 +27,4 @@ metadata:
     - title: 2021 Alabama Department of Revenue Form 40
       href: https://www.revenue.alabama.gov/forms/2021-alabama-individual-income-tax-return-2/
     - title: The Code of Alabama 1975 Section 40-18-14 (a)
-      href: https://casetext.com/statute/code-of-alabama/title-40-revenue-and-taxation/chapter-18-income-taxes/article-1-general-provisions/section-40-18-14-adjusted-gross-income-of-individuals
+      href: https://casetext.com/statute/code-of-alabama/title-40-revenue-and-taxation/chapter-18-income-taxes/article-1-general-provisions/section-40-18-14-adjusted-gross-income-of-individuals

policyengine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/applicable.yaml

@@ -2,10 +2,11 @@ description: Virginia sums up the following deductions to compute the itemized d
 values:
   2013-01-01:
     - medical_expense_deduction
-    - salt_deduction
     - interest_deduction
     - charitable_deduction
+    - real_estate_taxes
     - casualty_loss_deduction
+    - va_capped_state_and_local_sales_or_income_tax
 metadata:
   unit: list
   period: year

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/deductions/va_capped_state_and_local_sales_or_income_tax.yaml

@@ -0,0 +1,29 @@
+- name: State and local tax capped at $10,000
+  period: 2021
+  input:
+    filing_status: SINGLE
+    real_estate_taxes: 0
+    state_and_local_sales_or_income_tax: 11_000
+    state_code: VA
+  output:
+    va_capped_state_and_local_sales_or_income_tax: 10_000
+
+- name: Cap reduced by the amount of real estate taxes
+  period: 2021
+  input:
+    filing_status: SINGLE
+    real_estate_taxes: 3_000
+    state_and_local_sales_or_income_tax: 11_000
+    state_code: VA
+  output:
+    va_capped_state_and_local_sales_or_income_tax: 7_000
+
+- name: Cap fully reduced by the amount of real estate taxes
+  period: 2021
+  input:
+    filing_status: SINGLE
+    real_estate_taxes: 13_000
+    state_and_local_sales_or_income_tax: 11_000
+    state_code: VA
+  output:
+    va_capped_state_and_local_sales_or_income_tax: 0

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/deductions/va_itemized_deductions.yaml

@@ -14,9 +14,8 @@
   period: 2021
   input:
     filing_status: HEAD_OF_HOUSEHOLD
-    real_estate_taxes: 50_000
     adjusted_gross_income: 800_000 # > $306,300
-    state_and_local_sales_or_income_tax: 10_000
+    state_and_local_sales_or_income_tax: 60_000
     state_code: VA
   output:
     va_itemized_deductions: 0
@@ -67,57 +66,3 @@
     state_code: VA
   output:
     va_itemized_deductions: 40_000 #20,000+20,000
-
-- name: Tax unit with taxsimid 7856 in k21.its.csv and k21.ots.csv - Integration test
-  absolute_error_margin: 2
-  period: 2021
-  input:
-    people:
-      person1:
-        age: 63
-        employment_income: 82010
-        qualified_dividend_income: 4005.0
-        taxable_interest_income: 5505.0
-        short_term_capital_gains: 2005.0
-        long_term_capital_gains: 2505.0
-        rental_income: 4505.0
-        taxable_private_pension_income: 1500.0
-        social_security_retirement: 5000.0
-        real_estate_taxes: 24000
-        mortgage_interest: 36000
-        self_employment_income: 158010
-        business_is_qualified: true
-        business_is_sstb: false
-        w2_wages_from_qualified_business: 100e6
-      person2:
-        age: 63
-        employment_income: 82010
-        qualified_dividend_income: 4005
-        taxable_interest_income: 5505
-        short_term_capital_gains: 2005
-        long_term_capital_gains: 2505
-        rental_income: 4505
-        taxable_private_pension_income: 1500
-        social_security_retirement: 5000
-      person3:
-        age: 16
-      person4:
-        age: 16
-      person5:
-        age: 16
-    tax_units:
-      tax_unit:
-        members: [person1, person2, person3, person4, person5]
-        tax_unit_itemizes: True
-        state_income_tax: 19956.35
-    spm_units:
-      spm_unit:
-        members: [person1, person2, person3, person4, person5]
-        snap: 0  # not in TAXSIM35
-        tanf: 0  # not in TAXSIM35
-    households:
-      household:
-        members: [person1, person2, person3, person4, person5]
-        state_fips: 51  # VA
-  output:  # expected results from patched TAXSIM35 2024-03-21 version
-    va_itemized_deductions: 35_282

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/deductions/va_reduced_itemized_deductions.yaml

@@ -13,9 +13,8 @@
   period: 2021
   input:
     filing_status: HEAD_OF_HOUSEHOLD
-    real_estate_taxes: 50_000
     adjusted_gross_income: 800_000 # > $306,300
-    state_and_local_sales_or_income_tax: 10_000
+    state_and_local_sales_or_income_tax: 60_000
     state_code: VA
   output:
     va_reduced_itemized_deductions: 0

policyengine_us/tests/policy/baseline/gov/states/va/tax/income/integration.yaml

@@ -78,3 +78,62 @@
   output:  # expected results from patched TAXSIM35 2024-03-01 version
     va_income_tax: 1_969.48
 
+- name: Tax unit with taxsimid 5034 in k21.its.csv and k21.ots.csv
+  absolute_error_margin: 1
+  period: 2021
+  input:
+    people:
+      person1:
+        age: 54
+        employment_income: 137010
+        qualified_dividend_income: 3505.0
+        taxable_interest_income: 5505.0
+        long_term_capital_gains: 1005.0
+        rental_income: 2505.0
+        real_estate_taxes: 24000
+        mortgage_interest: 14000
+        self_employment_income: 141010
+        business_is_qualified: true
+        business_is_sstb: false
+        w2_wages_from_qualified_business: 100e6
+      person2:
+        age: 54
+        employment_income: 65010
+        qualified_dividend_income: 3505.0
+        taxable_interest_income: 5505.0
+        long_term_capital_gains: 1005.0
+        rental_income: 2505.0
+        ssi: 0  # not in TAXSIM35
+        state_supplement: 0  # not in TAXSIM35
+        wic: 0  # not in TAXSIM35
+        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
+      person3:
+        age: 11
+        ssi: 0  # not in TAXSIM35
+        state_supplement: 0  # not in TAXSIM35
+        wic: 0  # not in TAXSIM35
+        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
+      person4:
+        age: 11
+        ssi: 0  # not in TAXSIM35
+        state_supplement: 0  # not in TAXSIM35
+        wic: 0  # not in TAXSIM35
+        ma_covid_19_essential_employee_premium_pay_program: 0  # not in TAXSIM35
+    tax_units:
+      tax_unit:
+        members: [person1, person2, person3, person4]
+        tax_unit_itemizes: True
+        state_income_tax: 20045.91
+    spm_units:
+      spm_unit:
+        members: [person1, person2, person3, person4]
+        snap: 0  # not in TAXSIM35
+        tanf: 0  # not in TAXSIM35
+    households:
+      household:
+        members: [person1, person2, person3, person4]
+        state_fips: 51  # VA
+  output:  # expected results from patched TAXSIM35 2024-05-07 version
+    va_reduced_itemized_deductions: 37_049.81
+    va_itemized_deductions: 37_049.81
+    va_income_tax: 18433.05

policyengine_us/variables/gov/states/va/tax/income/deductions/va_capped_state_and_local_sales_or_income_tax.py

@@ -0,0 +1,26 @@
+from policyengine_us.model_api import *
+
+
+class va_capped_state_and_local_sales_or_income_tax(Variable):
+    value_type = float
+    entity = TaxUnit
+    definition_period = YEAR
+    label = "Capped state and local sales or income tax for Virginia itemized deductions purposes"
+    unit = USD
+
+    def formula(tax_unit, period, parameters):
+        uncapped_state_and_local_tax = tax_unit(
+            "state_and_local_sales_or_income_tax", period
+        )
+        p_salt = parameters(
+            period
+        ).gov.irs.deductions.itemized.salt_and_real_estate
+        filing_status = tax_unit("filing_status", period)
+        real_estate_tax = add(tax_unit, period, ["real_estate_taxes"])
+        state_and_local_tax_cap = p_salt.cap[filing_status]
+        cap_reduced_by_real_estate_tax = max_(
+            state_and_local_tax_cap - real_estate_tax, 0
+        )
+        return min_(
+            uncapped_state_and_local_tax, cap_reduced_by_real_estate_tax
+        )

policyengine_us/variables/gov/states/va/tax/income/deductions/va_reduced_itemized_deductions.py

@@ -13,10 +13,6 @@ class va_reduced_itemized_deductions(Variable):
     def formula(tax_unit, period, parameters):
         p_va = parameters(period).gov.states.va.tax.income.deductions.itemized
 
-        uncapped_state_and_local_tax = tax_unit(
-            "state_and_local_sales_or_income_tax", period
-        )
-
         # Part A: If AGI from federal return is over a certain amount, then
         # limitations to the itemized deduction are applied
         # Line 1 - sum of medical exepens ded., capped state and local tax,
@@ -68,13 +64,12 @@ def formula(tax_unit, period, parameters):
             va_itm_deds_adjustment[mask] / excess_ded[mask]
         )
         # Part B Line 13 - capped state and local income tax
-        p_salt = parameters(
-            period
-        ).gov.irs.deductions.itemized.salt_and_real_estate
-        capped_state_and_local_tax = min_(
-            uncapped_state_and_local_tax, p_salt.cap[filing_status]
-        )
+
         # Line 14 - Multiply line 11 by line 13
+        capped_state_and_local_tax = tax_unit(
+            "va_capped_state_and_local_sales_or_income_tax", period
+        )
+
         state_and_local_tax_adj = (
             capped_state_and_local_tax * adjustment_fraction
         )