Senate Study Bill 1142 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON FEENSTRA) A BILL FOR An Act exempting from the individual income tax the amount of 1 income resulting from the discharge of certain student loan 2 debt on account of death or total and permanent disability 3 and including retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2127XC (2) 87 mm/rn/sc

S.F. _____ Section 1. Section 422.7, Code 2017, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 18. a. Subtract, to the extent included, 3 the amount of income resulting from a discharge of qualified 4 student loan debt under either of the following circumstances: 5 (1) The discharge occurs pursuant to the provisions of 20 6 U.S.C. ch. 28, subch. IV, on account of the death or total and 7 permanent disability of the student or borrower. 8 (2) The discharge occurs on account of the death or total 9 and permanent disability of the student or borrower. For 10 purposes of this subparagraph, “total and permanent disability” 11 has the same meaning as “totally and permanently disabled” in 34 12 C.F.R. §685.102(b), and shall be proven by the taxpayer using 13 the documentation described in 34 C.F.R. §685.213(b)(2), or 34 14 C.F.R. §685.213(c)(1), as applicable, and pursuant to rules 15 prescribed by the director. 16 b. For purposes of this subsection, “qualified student loan” 17 means a student loan as defined in section 108(f)(2) of the 18 Internal Revenue Code or a private education loan as defined in 19 15 U.S.C. §1650(a)(7). 20 Sec. 2. RETROACTIVE APPLICABILITY. This Act applies 21 retroactively to January 1, 2017, for tax years beginning on 22 or after that date. 23 EXPLANATION 24 The inclusion of this explanation does not constitute agreement with 25 the explanation’s substance by the members of the general assembly. 26 Under current law for federal income tax purposes and Iowa 27 income tax purposes, a discharge (cancellation) of student 28 loan debt on account of death or permanent disability results 29 in taxable income to the debtor for the amount of the debt 30 discharged. This bill exempts, for Iowa individual income 31 tax purposes, income resulting from a discharge of qualified 32 student loan debt on account of the death or total and 33 permanent disability of the student or borrower. 34 “Qualified student loan” is defined in the bill, but 35 -1- LSB 2127XC (2) 87 mm/rn/sc 1/ 2

S.F. _____ generally includes postsecondary education student loans made 1 by the United States or a federal agency or instrumentality, a 2 state or political subdivision of a state, a tax-exempt public 3 benefit corporation controlling a hospital, certain educational 4 organizations, or private educational lenders. 5 The exemption applies to qualified student loans discharged 6 on account of the death or total and permanent disability of 7 the student or borrower pursuant to provisions of title IV 8 of the federal Higher Education Act of 1965 (federal student 9 financial aid programs). 10 Alternatively, the exemption applies to qualified student 11 loans otherwise discharged on account of the death or total and 12 permanent disability of the student or borrower. For purposes 13 of the bill, “total and permanent disability” is defined to 14 mean the same as it does for purposes of the federal student 15 financial aid programs, which generally include individuals who 16 are unable to engage in substantial gainful activity by reason 17 of a physical or mental impairment that can be expected to 18 result in death and that has lasted or will last for at least 60 19 months, or individuals who are determined by the secretary of 20 veterans affairs to be unemployable due to a service-connected 21 disability. For this alternative, the bill requires total and 22 permanent disability to be proven using the same documentation 23 required for purposes of the federal student financial 24 aid programs, which require a physician certification, a 25 social security administration disability determination, or 26 documentation from the department of veterans affairs. 27 The bill applies retroactively to January 1, 2017, for tax 28 years beginning on or after that date. 29 -2- LSB 2127XC (2) 87 mm/rn/sc 2/ 2