HOUSE FILE 318

BY  ALONS, CHAMBERS, WATTS, SHAW, LUKAN, WAGNER, DRAKE, RAYHONS, DE BOEF, PEARSON, VAN ENGELENHOVEN, RASMUSSEN, and IVERSON

A BILL FOR

An Act excluding from the computation of net income the net capital gain from the sale of certain business property and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

   Section 1.  Section 422.7, subsection 21, paragraph a, Code 2011, is amended to read as follows:
   a.
  (1)  Net capital gain from the sale of real property or equipment used in a business, in which the taxpayer materially participated for ten three years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten three years, or from the sale of a business, as defined in section 423.1, in which the taxpayer materially participated for ten three years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten three years. The sale of a business means the sale of all or substantially all of the tangible personal property or service of the business.
   (a)  However, where the business is sold to individuals who are all lineal descendants of the taxpayer, the taxpayer does not have to have materially participated in the business in order for the net capital gain from the sale to be excluded from taxation.
   (b)  However, in lieu of the net capital gain deduction in this paragraph and paragraphs “b”, “c”, and “d”, where the business is sold to individuals who are all lineal descendants of the taxpayer, the amount of capital gain from each capital asset may be subtracted in determining net income.
   (2)  For purposes of this paragraph “a”,“lineal descendant”means children of the taxpayer, including legally adopted children and biological children, stepchildren, grandchildren, great-grandchildren, and any other lineal descendants of the taxpayer.
   Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2011, for assets acquired, and for tax years beginning, on or after that date.
EXPLANATION
   Current law provides an exclusion from the computation of net income for the net capital gain from the sale of real property used in a business if the taxpayer materially participated in the business for 10 years and if the property is held for 10 years or more.
   This bill applies the exclusion to the sale of business equipment as well as real property and reduces the required holding and participation periods for such property to three years.
   The bill applies retroactively to January 1, 2011, for assets acquired and for tax years beginning on or after that date.