HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS)

A BILL FOR

An Act excluding from the computation of net income capital gains realized from the sale of all or substantially all of the equity interests in certain businesses 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, subparagraph (1), Code 2011, is amended to read as follows:
   (1)
  (a)  Net capital gain from the sale of real property used in a business, in which the taxpayer materially participated for ten years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten years, or from the sale of a business, as defined in section 423.1, in which the taxpayer materially participated for ten years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten years. The sale of a business means the sale of all or substantially all of the tangible personal property, intangible property, or service of the business. “Sale of a business” includes the sale of all or substantially all of the stock or equity interests in the business, whether the business is held as a proprietorship, corporation, partnership, joint venture, trust, limited liability company, or another business entity.
   (b)  However, where If 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.

   (c)  However, in In lieu of the net capital gain deduction in this paragraph and paragraphs “b”, “c”, and “d”, where if 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.
   Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2011, for tax years beginning on or after that date.
EXPLANATION
   This bill relates to the taxation of capital gains on the sale of assets held in a business.
   Current law provides an exclusion from the computation of net income for any capital gains realized from the sale of all or substantially all of the tangible personal property or service of a business if the taxpayer materially participated in the business and held the assets for at least 10 years. This exclusion, however, does not extend to the sale of stock or other equity interests in the business. The bill applies the exclusion to the sale of intangible property of the business, including stock or other equity interests in the business.
   The bill applies retroactively to January 1, 2011, for tax years beginning on or after that date.