How Iowa’s not coupling with the federal tax code may impact your business and individual tax returns
While the Iowa Legislature may still consider coupling with certain provisions of the federal tax code, it’s likely that these key provisions will continue to apply,
- Iowa is not coupling with Section 179 expense. The limit is $25,000 with a phase-out ranging from $200,000 to $225,000. Taxpayers in fiscal year 2015 remain eligible for the $500,000 Section 179 expense with a phase-out beginning at $2 million.
- Iowa is not coupling with Bonus Depreciation.
- Iowa is continuing to allow the Refundable Research Activities Credit, so there is no need for additional coupling.
- Contributions made directly from the IRA of an individual 70½ or older is included in Iowa gross income, but an Iowa itemized deduction is allowed.
- Iowa does not allow the Educator Expense deduction.
- Iowa does not allow an itemized deduction for General Sales Tax. If the taxpayer claims this deduction on their federal return, they may still claim an itemized deduction for non-Iowa income taxes on their Iowa return. Note, Iowa does not allow a deduction for Iowa income tax.
- Iowa did not couple with the 100% exclusion for gains on small business stock acquired after January 1, 2015. Iowa is still coupled with the Internal Revenue Code for stock acquired before 2015, so a 50% or 75% exclusion may apply.
- Income from the discharge of indebtedness on a principal residence is not excluded from Iowa income.
- Taxpayers cannot claim an Iowa itemized deduction for mortgage insurance premiums, which are treated as Qualified Residence Interest on the federal tax return.
- Taxpayers cannot claim the Tuition and Fees deduction on their Iowa tax return.
- Taxpayers cannot claim the Section 179D Energy Efficient Commercial Building deduction on their Iowa return.
- Iowa taxpayers may still claim a deduction for the Work Opportunity Tax Credit, which is added back to income on their federal returns.
- Iowa taxpayers who make qualified Leasehold, Retail and Restaurant Improvements will have to depreciate them over a 39-year life for Iowa purposes, instead of the federal 15-year life.
- Iowa will use the 10-year recognition period for S-Corporation Built-in Gains tax, instead of the federal 5-year recognition period.
LWBJ will continue to monitor legislative activity and advocate for our clients. Please contact us with any questions.