House File 2440 - Introduced HOUSE FILE 2440 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 2129) (SUCCESSOR TO HSB 502) A BILL FOR An Act relating to the exclusion from the computation of net 1 income for the individual income tax of net capital gains 2 from the sale of a business and including retroactive 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5083HZ (2) 85 mm/sc

H.F. 2440 Section 1. Section 422.7, subsection 21, paragraph a, Code 1 2014, is amended to read as follows: 2 a. (1) (a) Net capital gain from the sale of a business or 3 from the sale of real property used in a business , in which the 4 taxpayer materially participated for a minimum of ten years , 5 as defined in section 469(h) of the Internal Revenue Code, and 6 which if, in the case of the sale of real property used in a 7 business, the real property has been held for a minimum of ten 8 years or from the sale of a business, as defined in section 9 423.1 , in which the taxpayer materially participated for ten 10 years, as defined in section 469(h) of the Internal Revenue 11 Code, and which has been held for a minimum of ten years. The 12 sale of a business means the sale of all or substantially all 13 of the tangible personal property or service of the business 14 if, in the case of the sale of a business, the taxpayer has 15 held stock or an equity interest in the business for a minimum 16 of ten years . 17 (b) However, where the business is sold If the sale of the 18 business in subparagraph division (a) is made to individuals 19 who are all lineal descendants of the taxpayer, the taxpayer 20 does not have to have materially participated in the business 21 in order for the net capital gain from the sale to be excluded 22 from taxation. 23 (2) However, in In lieu of the net capital gain deduction 24 in this paragraph and paragraphs “b” , “c” , and “d” , where the 25 business is sold if the sale of the business in subparagraph 26 (1) is made to individuals who are all lineal descendants of 27 the taxpayer, the amount of capital gain from each capital 28 asset may be subtracted in determining net income. 29 (2) (3) For purposes of this paragraph, unless the context 30 otherwise requires: 31 (a) “Business” means the same as defined in section 423.1. 32 (b) “lineal “Lineal descendant” means children of the 33 taxpayer, including legally adopted children and biological 34 children, stepchildren, grandchildren, great-grandchildren, and 35 -1- LSB 5083HZ (2) 85 mm/sc 1/ 3

H.F. 2440 any other lineal descendants of the taxpayer. 1 (c) “Materially participated” means the same as defined in 2 section 469(h) of the Internal Revenue Code. 3 (d) “Sale of a business” means either of the following: 4 (i) The sale of all or substantially all of the tangible 5 personal property or service of the business. 6 (ii) The sale of all or substantially all of the taxpayer’s 7 stock or equity interest in the business, whether the proceeds 8 from the sale are received by the taxpayer in one payment or 9 several payments, and whether the business is held as a sole 10 proprietorship, corporation, partnership, joint venture, trust, 11 limited liability company, or another business entity. 12 Sec. 2. RETROACTIVE APPLICABILITY. This Act applies 13 retroactively to January 1, 2014, for tax years beginning on 14 or after that date. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to the taxation of net capital gains from 19 the sale of a business. 20 This state provides an exclusion from the computation of net 21 income for the individual income tax of any net capital gains 22 realized from the sale of a business if the taxpayer held the 23 business for at least 10 years and materially participated in 24 the business for at least 10 years. 25 The bill modifies the requirement that the taxpayer hold the 26 business for a minimum of 10 years to require that the taxpayer 27 hold stock or an equity interest in the business for a minimum 28 of 10 years. 29 Under current law, “sale of a business” is defined as the 30 sale of all or substantially all of the tangible personal 31 property or service of the business. The bill modifies the 32 definition to include the sale of all or substantially all of a 33 taxpayer’s stock or equity interest in the business, whether 34 the proceeds from the sale are received in one payment or 35 -2- LSB 5083HZ (2) 85 mm/sc 2/ 3

H.F. 2440 several payments, and whether the business is held as a sole 1 proprietorship, corporation, partnership, joint venture, trust, 2 limited liability company, or another business entity. 3 The bill applies retroactively to January 1, 2014, for tax 4 years beginning on or after that date. 5 -3- LSB 5083HZ (2) 85 mm/sc 3/ 3