701—42.3 (422) Nonresident and part-year resident credit. For tax years beginning on or after January 1, 1982, an individual who is a nonresident of Iowa for the entire tax year, or an individual who is an Iowa resident for a portion of the tax year, is allowed a credit against the individual’s Iowa income tax liability for the Iowa income tax on the portion of the individual’s income which was earned outside Iowa while the person was a nonresident of Iowa. This credit is computed on Schedule IA 126 which is included in the Iowa individual income tax booklet. The following subrules clarify how the nonresident and part-year resident credit is computed for nonresidents of Iowa and taxpayers who are part-year residents of Iowa during the tax year.
	 42.3(1) Nonresident/part-year resident credit for nonresidents of Iowa. A nonresident of Iowa is to complete the Iowa individual return by reporting the individual’s total net income, including incomes earned outside Iowa, on the front of the IA 1040 return form similar to the way an Iowa resident completes the return form. A nonresident individual is allowed the same deduction for federal income tax and the same itemized deductions as an Iowa resident taxpayer with identical deductions for these expenditures. Thus, a nonresident with a taxable income of $40,000 would have the same initial Iowa income tax liability as a resident taxpayer with a taxable income of $40,000 before the nonresident/part-year resident credit is computed.
The nonresident/part-year resident credit is computed on Schedule IA 126. The lines referred to in this subrule are from Schedule IA 126 and Form IA 1040 for the 1997 tax year. Similar lines on the schedule and form may apply for subsequent tax years. The individual’s Iowa source net income from lines 1 through 25 of the schedule is totaled on line 26 of the schedule. If the nonresident’s Iowa source net income is less than $1,000, the taxpayer is not subject to Iowa income tax and is not required to file an Iowa income tax return for the tax year. However, if the Iowa source net income amount is $1,000 or more, the Iowa source net income is then divided by the person’s all source net income on line 27 of Schedule IA 126 to determine the percentage of the Iowa net income to all source net income. This Iowa income percentage is inserted on line 28 of the schedule, and this percentage is then subtracted from 100 percent to arrive at the nonresident/part-year resident credit percentage or the percentage of the individual’s total income which was earned outside Iowa. The nonresident/part-year resident credit percentage is entered on line 29 of Schedule IA 126. The Iowa income tax on total income from line 43 of the IA 1040 is entered on line 30 of Schedule IA 126. The total of nonrefundable credits from line 50 of the IA 1040 is then shown on line 31 of Schedule IA 126. The amount on line 31 is subtracted from the amount on line 30 which leaves the Iowa total tax after nonrefundable credits on line 32. This Iowa tax after credits amount is multiplied by the nonresident/part-year resident credit percentage from line 29 to compute the nonresident/part-year resident credit. The amount of the credit is inserted on line 33 of Schedule IA 126 and on line 52 of the IA 1040.
Example A.  A single resident of Nebraska had Iowa source net income of $15,000 in 1997 from wages earned from employment in Iowa. The rest of this person’s income was attributable to sources outside Iowa. This nonresident of Iowa had an all source net income of $40,000 and a taxable income of $30,000 due to a federal tax deduction of $7,000 and itemized deductions of $3,000. The Iowa income percentage is computed by dividing the Iowa source net income of $15,000 by the taxpayer’s all source net income of $40,000, which results in a percentage of 37.5. This percentage is subtracted from 100 percent which leaves a nonresident/part-year resident credit percentage of 62.5.
The Iowa tax from line 43 of the IA 1040 is $1,789. The total nonrefundable credit from line 50 is $20, which leaves a tax amount of $1,769 when the credit is subtracted from $1,789. When $1,769 is multiplied by the nonresident/part-year resident credit percentage of 62.5 percent, a nonresident credit of $1,106 is computed which is entered on line 33 of Schedule IA 126 as well as on line 52 of the IA 1040 for 1997.
Example B.  A California resident, who was married, had $20,000 of Iowa source income in 1997 from an Iowa farm. This individual had an additional $80,000 in income that was attributable to sources outside Iowa, but the individual’s spouse had no income. The taxpayers had paid $18,000 in federal income tax in 1997 and had itemized deductions of $12,000 in 1997.
The taxpayers’ taxable income on their joint Iowa return was $70,000. The taxpayers had an Iowa income tax liability of $5,422 after application of the personal exemption credits of $40. The taxpayers had an Iowa source income of $20,000 and an all source net income of $100,000. Therefore, the Iowa income percentage was 20 percent. Subtracting the Iowa income percentage of 20 percent from 100 percent leaves a nonresident/part-year resident credit percentage of 80 percent.
When the Iowa income tax liability of $5,422 is multiplied by 80 percent, this results in a nonresident/part-year resident credit of $4,338. This credit amount is entered on line 33 of the Schedule IA 126 and on line 52 of Form IA 1040.
	 42.3(2) Nonresident/part-year resident credit for part-year residents of Iowa. An individual who is a resident of Iowa for part of the tax year is to complete the front of the IA 1040 income tax return form as a resident taxpayer by showing the taxpayer’s total income, including income earned outside Iowa, on the front of the IA 1040 return form. A part-year resident of Iowa is allowed the same federal tax deduction and itemized deductions as a resident taxpayer who has paid the same amount of federal income tax and has paid for the same deductions that can be claimed on Schedule A in the tax year. Therefore, a part-year resident would have the same initial Iowa income tax liability as an Iowa resident with the same taxable income before computation of the nonresident/part-year resident credit.
The nonresident/part-year resident credit for a part-year resident is computed on Schedule IA 126. The lines referred to in this subrule are from the IA 1040 income tax return form and the Schedule IA 126 for 1997. Similar lines may apply for tax years after 1997. The individual’s Iowa source income is totaled on line 26 of this form and includes all the individual’s income received while the taxpayer was a resident of Iowa and all the Iowa source income received during the period of the tax year when the individual was a resident of a state other than Iowa. Iowa source income includes, but is not limited to, wages earned in Iowa while a resident of another state as well as incomes from Iowa farms and other Iowa businesses that were earned during the portion of the year that the taxpayer was a nonresident of Iowa. In the case of interest from a part-year resident’s account at an Iowa financial institution, only interest earned during the period of the individual’s Iowa residence is Iowa source income unless the account is for an Iowa business. If the part-year resident’s account at a financial institution is for an Iowa business, all interest earned in the year by the part-year resident from the account is taxable to Iowa.
Income earned outside Iowa by the part-year resident during the portion of the year the individual was an Iowa resident is taxable to Iowa and is part of the individual’s Iowa source income. To compute the nonresident/part-year resident credit for a part-year resident, the taxpayer’s Iowa source income on Schedule IA 126 is totaled. If the Iowa source income is less than $1,000, the taxpayer is not subject to Iowa income tax and is not required to file an Iowa return. If the Iowa source income is $1,000 or more, it is divided by the taxpayer’s all source net income on line 27 of Schedule IA 126. The percentage computed by this procedure is the Iowa income percentage and is entered on line 28 of the IA 126. The Iowa income percentage is then subtracted from 100 percent to arrive at the nonresident/part-year resident credit percentage which is entered on line 29 of Schedule IA 126. The Iowa tax from line 43 of the IA 1040 is then shown on line 30 of Schedule IA 126. The total of the Iowa nonrefundable credits from line 50 of the IA 1040 is entered on line 31 of Schedule IA 126 and is subtracted from the Iowa tax amount on line 30. The tax after credits amount on line 32 is next multiplied by the nonresident/part-year resident credit percentage from line 28. The amount calculated from this procedure is the nonresident/part-year resident credit which is shown on line 33 of Schedule IA 126 and on line 52 of Form IA 1040.
Example A.  A single individual was a resident of Nebraska for the first half of 1997 and moved to Iowa on July 1, 1997, to accept a job in Des Moines. This individual earned $20,000 from wages, $200 from interest, and $4,000 from a ranch in Nebraska from January 1, 1997, through June 30, 1997. In the last half of 1997, this person had wages of $30,000, interest income of $300, and $4,000 from the Nebraska ranch. This part-year resident had federal income tax paid in 1997 of $11,000 and had itemized deductions of $3,000.
The part-year resident’s all source net income was $58,500 and the Iowa source net income was $34,300, which includes the Iowa wages, the Nebraska ranch income of $4,000 earned during the individual’s period of Iowa residence, as well as the interest income of $300 earned in that time of the tax year. The Iowa taxable income for the part-year resident for 1997 was $44,500, which considered the federal income tax deduction of $11,000 and itemized deductions of $3,000. The individual’s Iowa income percentage was 58.6 which was determined by dividing the Iowa source income of $34,300 by the all source income of $58,500. Subtracting the Iowa income percentage of 58.6 from 100 percent results in a nonresident/part-year resident credit percentage of 41.4 percent. The Iowa tax on total income was $3,023 which was reduced to $3,003 after subtraction of the personal exemption credit of $20.
When $3,003 is multiplied by the nonresident/part-year resident percentage of 41.4, a nonresident/part-year resident credit of $1,243 is computed for this part-year resident.
Example B.  A single individual moved from Minnesota to Iowa on July 1, 1997. This person had received $5,000 in income from an Iowa farm in March of the tax year and another $10,000 from this farm in September of 1997. This person had $10,000 in wages from employment in Minnesota in the first half of the year and another $15,000 in wages from employment in Iowa in the last half of 1997. This person had $2,000 in interest from a Minnesota bank in the first half of the year and $2,000 in interest from an Iowa bank in the last six months of 1997. This taxpayer had $8,000 in federal income tax withheld from wages in 1997 and claimed the standard deduction on both the Iowa and federal income tax returns.
The part-year resident’s all source income was $44,000 and the Iowa source income was $32,000 which consisted of $15,000 in wages, $2,000 in interest income, and $15,000 in income from the Iowa farm. Since the farm was in Iowa, the farm income received in the first half of 1997 was taxable to Iowa as well as the farm income received while the individual was an Iowa resident. The individual’s Iowa taxable income was $34,590 which was computed after subtracting the federal income tax deduction of $8,000 and a standard deduction of $1,410. The taxpayer’s Iowa income tax liability was $2,132 after subtraction of a personal exemption credit of $20.
The taxpayer’s Iowa income percentage was 72.7 percent which was computed by dividing the Iowa source income of $32,000 by the all source income of $44,000. The nonresident/part-year resident credit percentage was 27.3 percent which was arrived at by subtracting the Iowa income percentage of 72.7 percent from 100 percent. The taxpayer’s nonresident/part-year resident credit is $582. This was determined by multiplying the Iowa income tax liability after personal exemption credit amount of $2,132 by the nonresident/part-year resident percentage of 27.3 percent.
This rule is intended to implement Iowa Code section 422.5.