H.F. _____ Section 1. Section 450.1, subsection 1, paragraph d, Code 1 2013, is amended to read as follows: 2 d. “Real estate or real “Real estate” or “real property” for 3 the purpose of appraisal under this chapter means real estate 4 which is the land and appurtenances, including structures 5 affixed thereto. 6 Sec. 2. Section 450.1, subsection 1, Code 2013, is amended 7 by adding the following new paragraphs: 8 NEW PARAGRAPH . 0a. “Farming operation” means the use of 9 farm real estate to produce a crop as defined in section 717.1 10 or to produce livestock as defined in section 717.1. 11 NEW PARAGRAPH . 00a. (1) “Farm real estate” means real 12 estate that is all of the following: 13 (a) Ten acres or more that are not laid off into lots 14 of less than ten acres or divided by streets or alleys into 15 parcels of less than ten acres. 16 (b) Used for a farming operation. 17 (2) “Farm real estate” includes a residence and associated 18 garage or shed constructed on the real estate and any structure 19 located on the real estate that is constructed for use as part 20 of a farming operation as described in subparagraph (1). 21 Sec. 3. Section 450.7, Code 2013, is amended by adding the 22 following new subsection: 23 NEW SUBSECTION . 4. This section does not apply to family 24 farm property subject to a qualified exemption and qualified 25 lien as provided in sections 450.9A and 450.9B. 26 Sec. 4. Section 450.9, Code 2013, is amended to read as 27 follows: 28 450.9 Individual exemptions. 29 In computing the tax on the net estate, the entire amount of 30 property, all of the following applies: 31 1. The interest in property, and income passing 32 to the surviving spouse, and parents, grandparents, 33 great-grandparents, and other lineal ascendants, children 34 including legally adopted children and biological children 35 -1- LSB 1880YC (4) 85 da/sc 1/ 7

H.F. _____ entitled to inherit under the laws of this state, stepchildren, 1 and grandchildren, great-grandchildren, and other lineal 2 descendants are exempt from tax. 3 2. Family farm property is exempt from tax as provided in 4 section 450.9A. 5 Sec. 5. NEW SECTION . 450.9A Family farm property —— 6 qualified exemption. 7 The tax on real property and personal tangible property 8 as provided in section 450.2 shall not be imposed on family 9 farm property located in this state if a qualified exemption 10 is elected by a person who is passed such property under this 11 chapter. In order to make the election, all of the following 12 must apply: 13 1. The family farm property is limited to the following: 14 a. Farm real estate. However, more than half the total 15 acres of the farm real estate must have been devoted to a 16 farming operation at any time in the last three years prior to 17 the year of the decedent’s death. 18 b. Farm machinery and equipment used in the farming 19 operation and passed as part of the same bequest or devise as 20 the farm real estate described in paragraph “a” . 21 2. The family farm property is passed to any of the 22 following: 23 a. A qualified individual. The qualified individual must 24 be related to the decedent within the second, third, or fourth 25 degree of consanguinity or affinity, excluding any individual 26 who is exempt from tax as provided in another provision of this 27 chapter. The family farm property may pass to more than one 28 qualified individual to the extent that the interest is shared 29 by all qualified individuals. 30 b. A partnership in which all partners are qualified 31 individuals as described in paragraph “a” . 32 c. A family farm corporation or family farm limited 33 liability company as defined in section 9H.1. However, the 34 shareholders of the family farm corporation or members of the 35 -2- LSB 1880YC (4) 85 da/sc 2/ 7

H.F. _____ family farm limited liability company must all be related to 1 the decedent as qualified individuals as provided in paragraph 2 “a” . 3 3. The interest in the farm real estate passes in fee 4 simple, notwithstanding any debt, lien, or other encumbrance 5 against the farm real estate. 6 4. An appraisal prepared pursuant to section 450.24 is filed 7 with the clerk of court and the director of revenue pursuant 8 to section 450.29. 9 5. An inheritance tax qualified exemption statement is 10 filed with the department of revenue on a form prescribed by 11 the department. 12 a. The statement shall include the amount of the tax due as 13 if an election were not made under this section. 14 b. The statement must be filed in the office of the county 15 recorder of the county where the estate is probated, and of the 16 county where the farm real estate is located. The statement 17 must be filed for recording prior to filing the statement with 18 the department. The statement shall be filed in the manner 19 provided in section 558.66. The statement shall be indexed as 20 provided in sections 558.49 and 558.52. 21 c. The statement must be filed with the department on or 22 before the date that the tax is required to be paid under 23 section 450.6. 24 6. a. For ten years from the date of the decedent’s 25 death, a person eligible to make an election as provided in 26 this section who conveys the farm real estate to a person 27 not eligible to make such an election is liable for the tax 28 otherwise imposed upon the family farm property as provided in 29 this chapter. A person is not liable for the tax so long as 30 the person being conveyed the farm real estate would have been 31 eligible to make the election if the decedent had died on the 32 date the conveyance was made. 33 b. The department shall assess interest on the amount due as 34 if the tax was delinquent beginning on the date of conveyance 35 -3- LSB 1880YC (4) 85 da/sc 3/ 7

H.F. _____ at the rate in effect under section 421.7. 1 Sec. 6. NEW SECTION . 450.9B Family farm property —— 2 qualified lien. 3 1. A qualified lien is created on farm real estate that 4 is subject to a family farm property qualified exemption as 5 provided in section 450.9A. The amount of the qualified lien 6 equals the amount of the person’s tax liability and interest as 7 provided in that section. The lien does not apply to the farm 8 real estate if the lien provided in section 450.7, subsection 9 1, would also have not applied to the farm real estate. 10 2. The qualified lien expires on the date that a person 11 eligible to make an election under section 450.9A is no longer 12 liable for the tax. 13 3. Notwithstanding the requirement that the inheritance tax 14 qualified exemption statement be filed with a county recorder 15 as provided in section 450.9A, a notice of the qualified lien 16 created in this section is not required to be recorded in order 17 to preserve the rights of the department as a lien holder. 18 4. The rights of the department under the qualified lien 19 created in this section have priority over all subsequent 20 mortgages, purchases, or judgment creditors. A conveyance 21 after the decedent’s death of the farm real estate does not 22 discharge the qualified lien. However, if any additional tax 23 is determined to be owing under this chapter or chapter 451 24 after the qualified lien has been released under subsection 25 5, paragraph “a” , subparagraph (1) or (2), the qualified lien 26 does not have priority over subsequent mortgages, purchases, 27 or judgment creditors unless notice of the qualified lien 28 is recorded in the office of the county recorder in the 29 same counties where the inheritance tax qualified exemption 30 statement is required to be filed pursuant to section 450.9A. 31 5. a. The department of revenue may release the qualified 32 lien by filing in the office of the clerk of the court in 33 the county where the farm real estate is located, where the 34 decedent owner died, or where the estate is pending or was 35 -4- LSB 1880YC (4) 85 da/sc 4/ 7

H.F. _____ administered, one of the following: 1 (1) A receipt in full payment of the tax. 2 (2) A certificate of nonliability for the tax as to the farm 3 real estate reported in the estate. 4 (3) A waiver of the qualified lien as to all or any 5 part of the farm real estate reported in the estate, which 6 shall release the qualified lien as to the farm real estate 7 designated in the waiver. 8 b. Upon request, the department shall provide a person with 9 a copy of the receipt, certificate, or waiver. 10 Sec. 7. Section 450.10, subsection 6, Code 2013, is amended 11 to read as follows: 12 6. a. Property, interest in property, or income 13 passing to the surviving spouse, and parents, grandparents, 14 great-grandparents, and other lineal ascendants, children 15 including legally adopted children and biological children 16 entitled to inherit under the laws of this state, stepchildren, 17 and grandchildren, great-grandchildren, and other lineal 18 descendants, is not taxable under this section . 19 b. Family farm property is exempt from tax as provided in 20 section 450.9A. 21 EXPLANATION 22 BACKGROUND —— INHERITANCE TAX. Code chapter 450 imposes an 23 inheritance tax on real estate and tangible personal property 24 located in this state. 25 BACKGROUND —— CONSANGUINITY AND AFFINITY. Generally, an 26 inheritance tax is assessed differently upon family members 27 of the decedent. An individual’s familial relationship is 28 classified according to an assigned number (degree) that 29 separates the individual from an ancestor (consanguinity) or 30 from a spouse’s ancestor (affinity). In either case, the 31 relationship is measured lineally where one person is ascending 32 from an ancestor (father, grandfather, great-grandfather, and 33 so on) or descending from that ancestor (child, grandchild, 34 great-grandchild, and so on). Alternatively, the relationship 35 -5- LSB 1880YC (4) 85 da/sc 5/ 7

H.F. _____ may be measured collaterally where two individuals share a 1 common ancestor but not by linear ascent or descent (e.g., a 2 brother, sister, uncle, or cousin). 3 For consanguinity, the first degree includes a parent or 4 child; the second degree includes a grandparent, sibling, or 5 grandchild; the third degree includes a great-grandparent, 6 aunt or uncle, niece or nephew, or great-grandchild; and 7 the fourth degree includes a great-niece or great-nephew, 8 great-aunt or great-uncle, or first cousin. For affinity, 9 family relationships are measured on the spouse’s side in the 10 same manner. 11 CURRENT INHERITANCE TAX —— RATES. The amount of inheritance 12 tax assessed on property in Iowa depends upon the status of 13 the inheriting person and, if the person is an individual, the 14 amount of that individual’s inheritance share. For example, 15 for property passing to a second degree family member (brother 16 or sister, or son-in-law or daughter-in-law) the bottom rate 17 is 5 percent on an amount up to $12,500 and the top rate is 18 10 percent on an amount in excess of $150,000. For all other 19 individuals, the bottom rate is 10 percent on an amount up to 20 $50,000 and the top rate is 15 percent on an amount in excess of 21 $100,000. A for-profit corporation is assessed a single rate 22 of 15 percent. 23 CURRENT INHERITANCE TAX —— EXEMPTIONS FOR INDIVIDUALS. 24 Currently, an individual is exempt from inheritance tax if the 25 individual is related to the decedent as a spouse or stepchild; 26 as a lineal ascendant beginning with a parent (first degree), 27 and then grandparent (second degree), great-grandparent (third 28 degree), great-great-grandparent (fourth degree) and so on; or 29 as a lineal descendant beginning with child (first degree), 30 and then grandchild (second degree), great-grandchild (third 31 degree), great-great-grandchild (fourth degree), and so on. 32 BILL —— PROPOSED INHERITANCE TAX ON FARM REAL ESTATE. The 33 bill exempts (1) a person inheriting family farm property 34 within the second, third, or fourth degree of consanguinity 35 -6- LSB 1880YC (4) 85 da/sc 6/ 7

H.F. _____ or affinity, (2) more than one individual where the divided 1 interest is shared by individuals related within that degree, 2 (3) a partnership where all partners are related within that 3 degree, or (4) a family farm corporation or family farm limited 4 liability company (Code chapter 9H) where equity holders are so 5 related. Family farm property includes farm real estate of 10 6 acres or more where a farming operation is located and any farm 7 machinery and equipment used in the farming operation. The 8 interest in the farm real estate must pass in fee simple. 9 BILL —— SPECIAL CLAW-BACK PROVISION. The bill requires a 10 qualified exemption statement to be filed in the office of the 11 county recorder of the county in which the farm real estate 12 is located, with a copy of the statement delivered to the 13 department in lieu of the tax payment. A person who is passed 14 the family farm property is liable for the inheritance tax if 15 the person conveys the farm real estate to a person who is not 16 related within the fourth degree of consanguinity or affinity 17 to the decedent within 10 years after the decedent’s death. 18 The department is required to assess interest on the amount due 19 as if the tax was delinquent. 20 BILL —— QUALIFIED LIEN. The bill creates a qualified 21 lien on the farm real estate that is subject to the family 22 farm property qualified tax exemption. The department of 23 revenue is the lienholder. The amount of the qualified lien 24 equals the amount of the person’s tax liability and interest. 25 The qualified lien is based on a current lien used by the 26 department of revenue (Code section 450.7). The qualified 27 lien expires after a person eligible to make an election for a 28 qualified exemption is no longer liable for the tax. 29 BILL —— APPLICABILITY. This Act applies to estates of 30 decedents dying on or after July 1, 2013. 31 -7- LSB 1880YC (4) 85 da/sc 7/ 7