H.F. 2317 DIVISION I 1 SALE OF CERTAIN QUALIFIED STOCK —— NET CAPITAL GAIN EXCLUSION 2 Section 1. Section 422.7, Code 2022, is amended by adding 3 the following new subsection: 4 NEW SUBSECTION . 63. a. Subtract the following percentage 5 of the net capital gain from the sale or exchange of capital 6 stock of a qualified corporation for which an election is made 7 by an employee-owner: 8 (1) For the tax year beginning in the 2023 calendar year, 9 thirty-three percent. 10 (2) For the tax year beginning in the 2024 calendar year, 11 sixty-six percent. 12 (3) For tax years beginning on or after January 1, 2025, one 13 hundred percent. 14 b. (1) An employee-owner is entitled to make one 15 irrevocable lifetime election to exclude the net capital gain 16 from the sale or exchange of capital stock of one qualified 17 corporation which capital stock was acquired by the employee- 18 owner while employed and on account of employment by such 19 qualified corporation. 20 (2) The election shall apply to all subsequent sales 21 or exchanges of qualifying capital stock of the elected 22 corporation within fifteen years of the date of the election, 23 provided that the subsequent sales or exchanges were of capital 24 stock in the same qualified corporation and were acquired by 25 the employee-owner while employed and on account of employment 26 by such qualified corporation. 27 (3) The election shall apply to qualifying capital stock 28 that has been transferred by inter vivos gift from the 29 employee-owner to the employee-owner’s spouse or to a trust 30 for the benefit of the employee-owner’s spouse following the 31 transfer. This subparagraph (3) shall apply to a spouse 32 only if the spouse was married to the employee-owner on the 33 date of the sale or exchange or the date of death of the 34 employee-owner. 35 -1- LSB 5798HV (1) 89 jm/jh 1/ 26

H.F. 2317 (4) If the employee-owner dies after having sold or 1 exchanged qualifying capital stock without having made an 2 election under this subsection, the surviving spouse or, if 3 there is no surviving spouse, the personal representative of 4 the employee-owner’s estate, may make the election that would 5 have qualified under this subsection. 6 (5) The election shall be made in the manner and form 7 prescribed by the department and shall be included with the 8 taxpayer’s state income tax return for the taxable year in 9 which the election is made. 10 c. For purposes of this subsection: 11 (1) “Capital stock” means common or preferred stock, either 12 voting or nonvoting. “Capital stock” does not include stock 13 rights, stock warrants, stock options, or debt securities. 14 (2) “Employee-owner” means an individual who owns capital 15 stock in a qualified corporation for at least ten years, which 16 capital stock was acquired by the individual while employed and 17 on account of employment by such corporation for at least ten 18 cumulative years. 19 (3) “Personal representative” means the same as defined in 20 section 633.3, or if there is no such personal representative 21 appointed, then the person legally authorized to perform 22 substantially the same functions. 23 (4) (a) “Qualified corporation” means, with respect to an 24 employee-owner, a corporation which, at the time of the first 25 sale or exchange for which an election is made by the employee- 26 owner under this subsection, meets all of the following 27 conditions: 28 (i) The corporation employed individuals in this state for 29 at least ten years. 30 (ii) The corporation has had at least five shareholders for 31 the ten years prior to the first sale or exchange under this 32 subsection. 33 (iii) The corporation has had at least two shareholders or 34 groups of shareholders who are not related for the ten years 35 -2- LSB 5798HV (1) 89 jm/jh 2/ 26

H.F. 2317 prior to the first sale or exchange under this subsection. 1 Two persons are considered related when, under section 318 of 2 the Internal Revenue Code, one is a person who owns, directly 3 or indirectly, capital stock that if directly owned would be 4 attributed to the other person, or is the brother, sister, 5 aunt, uncle, cousin, niece, or nephew of the other person who 6 owns capital stock either directly or indirectly. 7 (b) “Qualified corporation” includes any member of an Iowa 8 affiliated group if the Iowa affiliated group includes a member 9 that has employed individuals in this state for at least ten 10 years. For purposes of this subparagraph division, “Iowa 11 affiliated group” means an affiliated group that has made a 12 valid election to file an Iowa consolidated income tax return 13 under section 422.37 in the year in which the deduction under 14 this subsection is claimed. “Member” includes any entity 15 included in the consolidated return under section 422.37, 16 subsection 2, for the tax year in which the deduction is 17 claimed. 18 (c) “Qualified corporation” also includes any corporation 19 that was a party to a reorganization that was entirely or 20 substantially tax free if such reorganization occurred during 21 or after the employment of the employee-owner. 22 Sec. 2. EFFECTIVE DATE. This division of this Act takes 23 effect January 1, 2023. 24 Sec. 3. APPLICABILITY. This division of this Act applies to 25 tax years beginning on or after January 1, 2023. 26 DIVISION II 27 RETIRED FARMER LEASE INCOME EXCLUSION 28 Sec. 4. Section 422.7, Code 2022, is amended by adding the 29 following new subsection: 30 NEW SUBSECTION . 21A. a. Subtract, to the extent included, 31 net income received by an eligible individual pursuant to a 32 farm tenancy agreement covering real property held by the 33 eligible individual for ten or more years, if the eligible 34 individual materially participated in a farming business for 35 -3- LSB 5798HV (1) 89 jm/jh 3/ 26

H.F. 2317 ten or more years. 1 b. An individual who elects to exclude income received 2 pursuant to a farm tenancy agreement under this subsection 3 shall not claim any of the following in the tax year in which 4 the election is made or in any succeeding year: 5 (1) The capital gain exclusion under section 422.7, 6 subsection 21. 7 (2) The beginning farmer tax credit under section 422.11E. 8 c. Married individuals who file separate state income tax 9 returns shall allocate their combined annual exclusion limit 10 to each spouse in the proportion that each spouse’s respective 11 net income from a farm tenancy agreement bears to the total net 12 income from a farm tenancy agreement. 13 d. The department shall establish criteria, by rule, 14 relating to whether and how a surviving spouse may claim the 15 income exclusion for which a deceased eligible individual would 16 have been eligible under this subsection. 17 e. Net income from a farm tenancy agreement earned, 18 received, or reported by an entity taxed as a partnership 19 for federal tax purposes, an S corporation, or a trust or 20 estate is not eligible for the election and deduction in this 21 subsection, even if such net income ultimately passes through 22 to an eligible individual. 23 f. For purposes of this subsection: 24 (1) “Eligible individual” means an individual who is 25 disabled or who is fifty-five years of age or older at the time 26 the election is made, who no longer materially participates in 27 a farming business at the time the election is made, and who, 28 as an owner-lessor, is party to a farm tenancy agreement. 29 (2) “Farm tenancy agreement” means a written agreement 30 outlining the rights and obligations of an owner-lessor and a 31 tenant-lessee where the tenant-lessee has a farm tenancy as 32 defined in section 562.1A. A “farm tenancy agreement” includes 33 cash leases, crop share leases, or livestock share leases. 34 (3) “Farming business” means the production, care, growing, 35 -4- LSB 5798HV (1) 89 jm/jh 4/ 26

H.F. 2317 harvesting, preservation, handling, or storage of crops 1 or forest or fruit trees; the production, care, feeding, 2 management, and housing of livestock; or horticulture, all 3 intended for profit. 4 (4) “Livestock” means the same as defined in section 717.1. 5 (5) “Materially participated” means the same as “material 6 participation” in section 469(h) of the Internal Revenue Code. 7 Sec. 5. EFFECTIVE DATE. This division of this Act takes 8 effect January 1, 2023. 9 Sec. 6. APPLICABILITY. This division of this Act applies to 10 tax years beginning on or after January 1, 2023. 11 DIVISION III 12 RETIRED FARMER CAPITAL GAIN EXCLUSION 13 Sec. 7. Section 422.7, subsection 21, Code 2022, is amended 14 by striking the subsection and inserting in lieu thereof the 15 following: 16 21. a. For purposes of this subsection: 17 (1) “Farming business” means the production, care, growing, 18 harvesting, preservation, handling, or storage of crops 19 or forest or fruit trees; the production, care, feeding, 20 management, and housing of livestock; or horticulture, all for 21 intended profit. 22 (2) “Held” shall be determined with reference to the holding 23 period provisions of section 1223 of the Internal Revenue Code 24 and the federal regulations pursuant thereto. 25 (3) “Livestock” means the same as defined in section 717.1. 26 (4) “Materially participated” means the same as “material 27 participation” in section 469(h) of the Internal Revenue Code. 28 (5) (a) “Real property used in a farming business” means 29 all tracts of land and the improvements and structures located 30 on such tracts which are in good faith used primarily for 31 a farming business. Buildings which are primarily used or 32 intended for human habitation are deemed to be used in a 33 farming business when the building is located on or adjacent 34 to the parcel used in the farming business. Land and the 35 -5- LSB 5798HV (1) 89 jm/jh 5/ 26

H.F. 2317 nonresidential improvements and structures located on such land 1 that shall be considered to be used primarily in a farming 2 business include but are not limited to land, improvements 3 or structures used for the storage or maintenance of farm 4 machinery or equipment, for the drying, storage, handling, 5 or preservation of agricultural crops, or for the storage of 6 farm inputs, feed, or manure. Real property used in a farming 7 business shall also include woodland, wasteland, pastureland, 8 and idled land used for the conservation of natural resources 9 including soil and water. 10 (b) Real property classified as agricultural property for 11 Iowa property tax purposes, except real property described 12 in section 441.21, subsection 12, paragraph “a” or “b” , 13 shall be presumed to be real property used in a farming 14 business. This presumption is rebuttable by the department by 15 a preponderance of evidence that the real property did not meet 16 the requirements of subparagraph division (a). 17 (6) “Relative” means a person that satisfies one or more of 18 the following conditions: 19 (a) The individual is related to the taxpayer by 20 consanguinity or affinity within the second degree as 21 determined by common law. 22 (b) The individual is a lineal descendent of the taxpayer. 23 For purposes of this subparagraph division, “lineal descendent” 24 means children of the taxpayer, including legally adopted 25 children and biological children, stepchildren, grandchildren, 26 great-grandchildren, and any other lineal descendent of the 27 taxpayer. 28 (c) An entity in which an individual who satisfies the 29 conditions of either subparagraph division (a) or (b) has a 30 legal or equitable interest as an owner, member, partner, or 31 beneficiary. 32 (7) “Retired farmer” means an individual who is disabled 33 or who is fifty-five years of age or older and who no longer 34 materially participates in a farming business when an exclusion 35 -6- LSB 5798HV (1) 89 jm/jh 6/ 26

H.F. 2317 and deduction is claimed under this subsection. 1 b. Subtract the net capital gain from the sale of real 2 property used in a farming business if one of the following 3 conditions are satisfied: 4 (1) The taxpayer has materially participated in a farming 5 business for a minimum of ten years and has held the real 6 property used in a farming business for a minimum of ten years. 7 If the taxpayer is a retired farmer, the taxpayer is considered 8 to meet the material participation requirement if the taxpayer 9 materially participated in a farming business for ten years or 10 more in the aggregate, prior to making an election under this 11 subsection. 12 (2) The taxpayer has held the real property used in a 13 farming business which is sold to a relative of the taxpayer. 14 c. For a taxpayer who is a retired farmer, subtract the 15 net capital gain from the sale of cattle or horses held by 16 the taxpayer for breeding, draft, dairy, or sporting purposes 17 for a period of twenty-four months or more from the date of 18 acquisition; but only if the taxpayer materially participated 19 in the farming business for five of the eight years preceding 20 the farmer’s retirement or disability and who has sold all or 21 substantially all of the taxpayer’s interest in the farming 22 business by the time the election under this paragraph is made. 23 d. For a taxpayer who is a retired farmer, subtract the net 24 capital gain from the sale of breeding livestock, other than 25 cattle and horses, if the livestock is held by the taxpayer for 26 a period of twelve months or more from the date of acquisition; 27 but only if the taxpayer materially participated in the farming 28 business for five of the eight years preceding the farmer’s 29 retirement or disability and who has sold all or substantially 30 all of the taxpayer’s interest in the farming business by the 31 time the election under this paragraph is made. 32 e. A taxpayer who is a retired farmer may make, subject to 33 the limitations described in paragraphs “f” and “g” , a single, 34 lifetime election to exclude all qualifying capital gains under 35 -7- LSB 5798HV (1) 89 jm/jh 7/ 26

H.F. 2317 paragraphs “b” , “c” , and “d” . 1 f. A taxpayer who is a retired farmer who elects to exclude 2 capital gains under paragraph “b” , “c” , or “d” shall not claim 3 the beginning farmer tax credit under section 422.11E or the 4 exclusion for net income received pursuant to a farm tenancy 5 agreement in section 422.7, subsection 21A, in the tax year in 6 which this election is made or in any subsequent year. 7 g. A taxpayer who is a retired farmer who claims the 8 beginning farmer tax credit under section 422.11E shall not, 9 in the same year, make an election under this subsection. A 10 taxpayer who is a retired farmer and who elects to exclude 11 the net income received from a farm tenancy agreement under 12 section 422.7, subsection 21A, shall not, in the same tax year 13 or in any subsequent tax year, make the election under this 14 subsection. 15 h. Married individuals who file separate state income tax 16 returns shall allocate their combined annual net capital gain 17 exclusion under paragraphs “b” , “c” , and “d” to each spouse in 18 the proportion that each spouse’s respective net capital gain 19 bears to the total net capital gain. 20 i. The department shall establish criteria, by rule, 21 relating to whether and how a surviving spouse may claim the 22 income exclusion for which a deceased retired farmer would have 23 been eligible under this subsection. 24 Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113, 25 is repealed. 26 Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is 27 repealed. 28 Sec. 10. EFFECTIVE DATE. This division of this Act takes 29 effect January 1, 2023. 30 Sec. 11. APPLICABILITY. 31 1. This division of this Act applies to tax years beginning 32 on or after January 1, 2023. 33 2. This division of this Act applies to sales consummated on 34 or after the effective date of this division of this Act, and 35 -8- LSB 5798HV (1) 89 jm/jh 8/ 26

H.F. 2317 sales consummated prior to the effective date of this division 1 of this Act shall be governed by the law as it existed prior to 2 the effective date of this division of this Act. 3 DIVISION IV 4 INDIVIDUAL INCOME TAX RATES —— TAX YEARS 2023-2025 5 Sec. 12. Section 422.5, subsection 3, paragraph b, Code 6 2022, is amended to read as follows: 7 b. (1) In lieu of the computation in subsection 1 or 8 2 , or in paragraph “a” of this subsection , if the married 9 persons’, filing jointly or filing separately on a combined 10 return , head of household’s, or surviving spouse’s net income 11 exceeds thirteen thousand five hundred dollars, the regular 12 tax imposed under this subchapter shall be the lesser of the 13 maximum alternate state individual income tax rate specified in 14 subparagraph (2) times the portion of the net income in excess 15 of thirteen thousand five hundred dollars or the regular tax 16 liability computed without regard to this sentence. Taxpayers 17 electing to file separately shall compute the alternate tax 18 described in this paragraph using the total net income of the 19 husband and wife spouses . The alternate tax described in this 20 paragraph does not apply if one spouse elects to carry back or 21 carry forward the loss as provided in section 422.9, subsection 22 3 . 23 (2) (a) (i) (A) For the tax year beginning on or after 24 January 1, 2023, but before January 1, 2024, the alternate tax 25 rate is 6.00 percent. 26 (B) For the tax year beginning on or after January 1, 2024, 27 but before January 1, 2025, the alternate tax rate is 5.70 28 percent. 29 (C) For the tax year beginning on or after January 1, 2025, 30 but before January 1, 2026, the alternate tax rate is 5.20 31 percent. 32 (ii) This subparagraph division (a) is repealed January 1, 33 2026. 34 (b) For tax years beginning on or after January 1, 2026, the 35 -9- LSB 5798HV (1) 89 jm/jh 9/ 26

H.F. 2317 alternate tax rate is 4.50 percent. 1 Sec. 13. Section 422.5, subsection 3B, paragraph b, Code 2 2022, is amended to read as follows: 3 b. (1) In lieu of the computation in subsection 1, 2, or 3 , 4 if the married persons’, filing jointly or filing separately on 5 a combined return , head of household’s, or surviving spouse’s 6 net income exceeds thirty-two thousand dollars, the regular 7 tax imposed under this subchapter shall be the lesser of the 8 maximum alternate state individual income tax rate specified in 9 subparagraph (2) times the portion of the net income in excess 10 of thirty-two thousand dollars or the regular tax liability 11 computed without regard to this sentence. Taxpayers electing 12 to file separately shall compute the alternate tax described in 13 this paragraph using the total net income of the husband and 14 wife spouses . The alternate tax described in this paragraph 15 does not apply if one spouse elects to carry back or carry 16 forward the loss as provided in section 422.9, subsection 3 . 17 (2) (a) (i) (A) For the tax year beginning on or after 18 January 1, 2023, but before January 1, 2024, the alternate tax 19 rate is 6.00 percent. 20 (B) For the tax year beginning on or after January 1, 2024, 21 but before January 1, 2025, the alternate tax rate is 5.70 22 percent. 23 (C) For the tax year beginning on or after January 1, 2025, 24 but before January 1, 2026, the alternate tax rate is 5.20 25 percent. 26 (ii) This subparagraph division (a) is repealed January 1, 27 2026. 28 (b) For tax years beginning on or after January 1, 2026, the 29 alternate tax rate is 4.50 percent. 30 Sec. 14. Section 422.5, subsection 6, Code 2022, is amended 31 to read as follows: 32 6. a. Upon determination of the latest cumulative inflation 33 factor, the director shall multiply each dollar amount set 34 forth in section 422.5A by this cumulative inflation factor, 35 -10- LSB 5798HV (1) 89 jm/jh 10/ 26

H.F. 2317 shall round off the resulting product to the nearest one 1 dollar, and shall incorporate the result into the income tax 2 forms and instructions for each tax year. 3 b. This subsection is repealed on January 1, 2026. 4 Sec. 15. Section 422.5A, Code 2022, is amended by striking 5 the section and inserting in lieu thereof the following: 6 422.5A Tax rates. 7 1. a. The tax imposed in section 422.5 shall be calculated 8 using the following rates in the following tax years in the 9 case of married persons filing jointly: 10 (1) For the tax year beginning on or after January 1, 2023, 11 but before January 1, 2024: 12 (a) On taxable income from 0 through $12,000, the rate of 13 4.40 percent. 14 (b) On taxable income exceeding $12,000 but not exceeding 15 $60,000, the rate of 4.82 percent. 16 (c) On taxable income exceeding $60,000 but not exceeding 17 $150,000, the rate of 5.70 percent. 18 (d) On taxable income exceeding $150,000, the rate of 6.00 19 percent. 20 (2) For the tax year beginning on or after January 1, 2024, 21 but before January 1, 2025: 22 (a) On taxable income from 0 through $12,000, the rate of 23 4.40 percent. 24 (b) On taxable income exceeding $12,000 but not exceeding 25 $60,000, the rate of 4.82 percent. 26 (c) On taxable income exceeding $60,000, the rate of 5.70 27 percent. 28 (3) For the tax year beginning on or after January 1, 2025, 29 but before January 1, 2026: 30 (a) On taxable income from 0 through $12,000, the rate of 31 4.40 percent. 32 (b) On taxable income exceeding $12,000, the rate of 4.82 33 percent. 34 b. The tax imposed in section 422.5 shall be calculated 35 -11- LSB 5798HV (1) 89 jm/jh 11/ 26

H.F. 2317 using the following rates in the following tax years in the 1 case of any other taxpayer other than married persons filing 2 jointly: 3 (1) For the tax year beginning on or after January 1, 2023, 4 but before January 1, 2024: 5 (a) On taxable income from 0 through $6,000, the rate of 6 4.40 percent. 7 (b) On taxable income exceeding $6,000 but not exceeding 8 $30,000, the rate of 4.82 percent. 9 (c) On taxable income exceeding $30,000 but not exceeding 10 $75,000, the rate of 5.70 percent. 11 (d) On taxable income exceeding $75,000, the rate of 6.00 12 percent. 13 (2) For the tax year beginning on or after January 1, 2024, 14 but before January 1, 2025: 15 (a) On taxable income from 0 through $6,000, the rate of 16 4.40 percent. 17 (b) On taxable income exceeding $6,000 but not exceeding 18 $30,000, the rate of 4.82 percent. 19 (c) On taxable income exceeding $30,000, the rate of 5.70 20 percent. 21 (3) For the tax year beginning on or after January 1, 2025, 22 but before January 1, 2026: 23 (a) On taxable income from 0 through $6,000, the rate of 24 4.40 percent. 25 (b) On taxable income exceeding $6,000, the rate of 4.82 26 percent. 27 2. This section is repealed January 1, 2026. 28 Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107, 29 is repealed. 30 Sec. 17. EFFECTIVE DATE. This division of this Act takes 31 effect January 1, 2023. 32 Sec. 18. APPLICABILITY. This division of this Act applies 33 to tax years beginning on or after January 1, 2023. 34 DIVISION V 35 -12- LSB 5798HV (1) 89 jm/jh 12/ 26

H.F. 2317 INDIVIDUAL INCOME TAX —— FLAT RATE 1 Sec. 19. Section 421.27, subsection 9, paragraph a, 2 subparagraph (3), Code 2022, is amended to read as follows: 3 (3) In the case of all other entities, including 4 corporations described in section 422.36, subsection 5 , and all 5 other entities required to file an information return under 6 section 422.15, subsection 2 , the entity’s Iowa net income 7 after the application of the Iowa business activity ratio, 8 if applicable, multiplied by the top income tax rate imposed 9 under section 422.5A 422.5 for the tax year, less any Iowa tax 10 credits available to the entity. 11 Sec. 20. Section 422.5, subsection 1, paragraph a, Code 12 2022, is amended to read as follows: 13 a. A tax is imposed upon every resident and nonresident 14 of the state which tax shall be levied, collected, and paid 15 annually upon and with respect to the entire taxable income 16 as defined in this subchapter at rates as provided in section 17 422.5A a rate of four percent . 18 Sec. 21. Section 422.16B, subsection 2, paragraph a, Code 19 2022, is amended to read as follows: 20 a. (1) A pass-through entity shall file a composite return 21 on behalf of all nonresident members and shall report and pay 22 the income or franchise tax imposed under this chapter at the 23 maximum state income or franchise tax rate applicable to the 24 member under section 422.5A 422.5 , 422.33 , or 422.63 on the 25 nonresident members’ distributive shares of the income from the 26 pass-through entity. 27 (2) The tax rate applicable to a tiered pass-through entity 28 shall be the maximum state income tax rate under section 422.5A 29 422.5 . 30 Sec. 22. Section 422.25A, subsection 5, paragraph c, 31 subparagraphs (3), (4), and (5), Code 2022, are amended to read 32 as follows: 33 (3) Determine the total distributive share of all final 34 federal partnership adjustments and positive reallocation 35 -13- LSB 5798HV (1) 89 jm/jh 13/ 26

H.F. 2317 adjustments as modified by this title that are reported to 1 nonresident individual partners and nonresident fiduciary 2 partners and allocate and apportion such adjustments as 3 provided in section 422.33 at the partnership or tiered 4 partner level, and multiply the resulting amount by the maximum 5 individual income tax rate pursuant to section 422.5A 422.5 for 6 the reviewed year. 7 (4) For the total distributive share of all final federal 8 partnership adjustments and positive reallocation adjustments 9 as modified by this title that are reported to tiered partners: 10 (a) Determine the amount of such adjustments which are of a 11 type that would be subject to sourcing to Iowa under section 12 422.8, subsection 2 , paragraph “a” , as a nonresident, and then 13 determine the portion of this amount that would be sourced to 14 Iowa under those provisions as if the tiered partner were a 15 nonresident. 16 (b) Determine the amount of such adjustments which are of 17 a type that would not be subject to sourcing to Iowa under 18 section 422.8, subsection 2 , paragraph “a” , as a nonresident. 19 (c) Determine the portion of the amount in subparagraph 20 division (b) that can be established, as prescribed by the 21 department by rule, to be properly allocable to indirect 22 partners that are nonresident partners or other partners not 23 subject to tax on the adjustments. 24 (d) Multiply the total of the amounts determined in 25 subparagraph divisions (a) and (b), reduced by any amount 26 determined in subparagraph division (c), by the highest 27 individual income tax rate pursuant to section 422.5A 422.5 for 28 the reviewed year. 29 (5) For the total distributive share of all final federal 30 partnership adjustments and positive reallocation adjustments 31 as modified by this title that are reported to resident 32 individual partners and resident fiduciary partners, multiply 33 that amount by the highest individual income tax rate pursuant 34 to section 422.5A 422.5 for the reviewed year. 35 -14- LSB 5798HV (1) 89 jm/jh 14/ 26

H.F. 2317 Sec. 23. EFFECTIVE DATE. This division of this Act takes 1 effect January 1, 2026. 2 Sec. 24. APPLICABILITY. This division of this Act applies 3 to tax years beginning on or after January 1, 2026. 4 DIVISION VI 5 RETIREMENT INCOME 6 Sec. 25. Section 8.57E, subsection 2, Code 2022, is amended 7 to read as follows: 8 2. Moneys in the taxpayer relief fund shall only be used 9 pursuant to appropriations or transfers made by the general 10 assembly for tax relief , including but not limited to increases 11 in the general retirement income exclusion under section 422.7, 12 subsection 31 , or reductions in income tax rates. 13 Sec. 26. Section 422.5, subsection 3, paragraph a, Code 14 2022, is amended to read as follows: 15 a. The tax shall not be imposed on a resident or nonresident 16 whose net income, as defined in section 422.7 , is thirteen 17 thousand five hundred dollars or less in the case of married 18 persons filing jointly or filing separately on a combined 19 return, heads of household, and surviving spouses or nine 20 thousand dollars or less in the case of all other persons; but 21 in the event that the payment of tax under this subchapter 22 would reduce the net income to less than thirteen thousand five 23 hundred dollars or nine thousand dollars as applicable, then 24 the tax shall be reduced to that amount which would result 25 in allowing the taxpayer to retain a net income of thirteen 26 thousand five hundred dollars or nine thousand dollars as 27 applicable. The preceding sentence does not apply to estates 28 or trusts. For the purpose of this subsection , the entire net 29 income, including any part of the net income not allocated 30 to Iowa, shall be taken into account. For purposes of this 31 subsection , net income includes all amounts of pensions or 32 other retirement income, except for military retirement pay 33 excluded under section 422.7, subsection 31A , paragraph “a” , or 34 section 422.7, subsection 31B , paragraph “a” , received from any 35 -15- LSB 5798HV (1) 89 jm/jh 15/ 26

H.F. 2317 source which is not taxable under this subchapter as a result 1 of the government pension exclusions in section 422.7 , or any 2 other state law. If the combined net income of a husband and 3 wife exceeds thirteen thousand five hundred dollars, neither 4 of them shall receive the benefit of this subsection , and it 5 is immaterial whether they file a joint return or separate 6 returns. However, if a husband and wife file separate returns 7 and have a combined net income of thirteen thousand five 8 hundred dollars or less, neither spouse shall receive the 9 benefit of this paragraph, if one spouse has a net operating 10 loss and elects to carry back or carry forward the loss as 11 provided in section 422.9, subsection 3 . A person who is 12 claimed as a dependent by another person as defined in section 13 422.12 shall not receive the benefit of this subsection if 14 the person claiming the dependent has net income exceeding 15 thirteen thousand five hundred dollars or nine thousand dollars 16 as applicable or the person claiming the dependent and the 17 person’s spouse have combined net income exceeding thirteen 18 thousand five hundred dollars or nine thousand dollars as 19 applicable. 20 Sec. 27. Section 422.5, subsection 3B, paragraph a, Code 21 2022, is amended to read as follows: 22 a. The tax shall not be imposed on a resident or nonresident 23 who is at least sixty-five years old on December 31 of 24 the tax year and whose net income, as defined in section 25 422.7 , is thirty-two thousand dollars or less in the case 26 of married persons filing jointly or filing separately on a 27 combined return, heads of household, and surviving spouses or 28 twenty-four thousand dollars or less in the case of all other 29 persons; but in the event that the payment of tax under this 30 subchapter would reduce the net income to less than thirty-two 31 thousand dollars or twenty-four thousand dollars as applicable, 32 then the tax shall be reduced to that amount which would result 33 in allowing the taxpayer to retain a net income of thirty-two 34 thousand dollars or twenty-four thousand dollars as applicable. 35 -16- LSB 5798HV (1) 89 jm/jh 16/ 26

H.F. 2317 The preceding sentence does not apply to estates or trusts. 1 For the purpose of this subsection , the entire net income, 2 including any part of the net income not allocated to Iowa, 3 shall be taken into account. For purposes of this subsection , 4 net income includes all amounts of pensions or other retirement 5 income, except for military retirement pay excluded under 6 section 422.7, subsection 31A , paragraph “a” , or section 422.7, 7 subsection 31B , paragraph “a” , received from any source which is 8 not taxable under this subchapter as a result of the government 9 pension exclusions in section 422.7 , or any other state law. 10 If the combined net income of a husband and wife exceeds 11 thirty-two thousand dollars, neither of them shall receive the 12 benefit of this subsection , and it is immaterial whether they 13 file a joint return or separate returns. However, if a husband 14 and wife file separate returns and have a combined net income 15 of thirty-two thousand dollars or less, neither spouse shall 16 receive the benefit of this paragraph, if one spouse has a net 17 operating loss and elects to carry back or carry forward the 18 loss as provided in section 422.9, subsection 3 . A person 19 who is claimed as a dependent by another person as defined in 20 section 422.12 shall not receive the benefit of this subsection 21 if the person claiming the dependent has net income exceeding 22 thirty-two thousand dollars or twenty-four thousand dollars 23 as applicable or the person claiming the dependent and the 24 person’s spouse have combined net income exceeding thirty-two 25 thousand dollars or twenty-four thousand dollars as applicable. 26 Sec. 28. Section 422.7, subsection 31, Code 2022, is amended 27 to read as follows: 28 31. a. For a person who is disabled, or is fifty-five years 29 of age or older, or is the surviving spouse of an individual or 30 a survivor having an insurable interest in an individual who 31 would have qualified for the exemption under this subsection 32 for the tax year, subtract Subtract , to the extent included, 33 the total amount of received from a governmental or other 34 pension or retirement pay plan , including , but not limited 35 -17- LSB 5798HV (1) 89 jm/jh 17/ 26

H.F. 2317 to, defined benefit or defined contribution plans, annuities, 1 individual retirement accounts, plans maintained or contributed 2 to by an employer, or maintained or contributed to by a 3 self-employed person as an employer, and deferred compensation 4 plans or any earnings attributable to the deferred compensation 5 plans , up to a maximum of six thousand dollars for a person, 6 other than a husband or wife, who files a separate state income 7 tax return and up to a maximum of twelve thousand dollars 8 for a husband and wife who file a joint state income tax 9 return. However, a surviving spouse who is not disabled or 10 fifty-five years of age or older can only exclude the amount 11 of pension or retirement pay received as a result of the death 12 of the other spouse. A husband and wife filing separate state 13 income tax returns or separately on a combined state return 14 are allowed a combined maximum exclusion under this subsection 15 of up to twelve thousand dollars. The twelve thousand dollar 16 exclusion shall be allocated to the husband or wife in the 17 proportion that each spouse’s respective pension and retirement 18 pay received bears to total combined pension and retirement 19 pay received received by a person who is disabled, or is 20 fifty-five years of age or older, or is the surviving spouse of 21 an individual or is a survivor having an insurable interest in 22 an individual who would have qualified for the exemption under 23 this subsection for the tax year . 24 b. Married taxpayers who file separate state income tax 25 returns shall allocate their combined annual exclusion amount 26 to each spouse in the proportion that each spouse’s respective 27 income received from a pension or retirement plan bears to the 28 total combined pension or retirement pay received. 29 c. A taxpayer who is not disabled or fifty-five years of 30 age or older and who receives pension or retirement pay as a 31 surviving spouse or as a survivor with an insurable interest 32 in an individual who would have qualified for the exemption 33 for the tax year may only exclude the amount received from a 34 pension or retirement plan in the tax year as a result of the 35 -18- LSB 5798HV (1) 89 jm/jh 18/ 26

H.F. 2317 death of the decedent. 1 Sec. 29. EFFECTIVE DATE. This division of this Act takes 2 effect January 1, 2023. 3 Sec. 30. APPLICABILITY. This division of this Act applies 4 to tax years beginning on or after January 1, 2023. 5 DIVISION VII 6 TAXPAYER RELIEF FUND 7 Sec. 31. Section 8.57E, Code 2022, is amended by adding the 8 following new subsection: 9 NEW SUBSECTION . 5. a. For the purposes of tax relief 10 provided in this Act, the following amounts shall be 11 transferred from the taxpayer relief fund to the general fund 12 of the state for the following fiscal years: 13 (1) For the fiscal year beginning July 1, 2022, and ending 14 June 30, 2023, one hundred thirteen million dollars. 15 (2) For the fiscal year beginning July 1, 2023, and ending 16 June 30, 2024, one hundred fifty-nine million one hundred 17 thousand dollars. 18 (3) For the fiscal year beginning July 1, 2024, and ending 19 June 30, 2025, ninety-two million three hundred thousand 20 dollars. 21 (4) For the fiscal year beginning July 1, 2025, and ending 22 June 30, 2026, two hundred fifty-nine million four hundred 23 thousand dollars. 24 (5) For the fiscal year beginning July 1, 2026, and ending 25 June 30, 2027, one hundred ninety-five million six hundred 26 thousand dollars. 27 (6) For the fiscal year beginning July 1, 2027, and ending 28 June 30, 2028, nine million six hundred thousand dollars. 29 b. This subsection is repealed July 1, 2028. 30 EXPLANATION 31 The inclusion of this explanation does not constitute agreement with 32 the explanation’s substance by the members of the general assembly. 33 This bill relates to state revenue and finance by modifying 34 the individual income tax and making appropriations. 35 -19- LSB 5798HV (1) 89 jm/jh 19/ 26

H.F. 2317 DIVISION I —— SALE OF CERTAIN QUALIFIED STOCK —— NET 1 CAPITAL GAIN EXCLUSION. The bill grants an employee-owner one 2 irrevocable lifetime election to exclude from state individual 3 income tax the net capital gain from the state of the capital 4 stock on one qualified corporation. The election applies to 5 all subsequent sales or exchanges of capital stock. 6 The bill phases in over a three-year period the complete 7 exclusion from the individual income tax the net capital gain 8 from the sale of capital stock on one qualified corporation. 9 The percentage of the capital gain that is excluded for tax 10 years beginning in 2023, 2024, and 2025 and beyond is 33 11 percent, 66 percent, and 100 percent, respectively. Several 12 requirements must be met for the capital stock to qualify 13 as capital stock of a qualified corporation. The qualified 14 corporation must have employed individuals in this state for 15 at least 10 years. The qualified corporation must have had at 16 least five shareholders for the 10 years prior to the first 17 sale or exchange pursuant to the bill, and the corporation must 18 have had at least two shareholders or groups of shareholders 19 who are not related for the 10 years prior to the sale or 20 exchange. The bill requires the capital stock to be common or 21 preferred stock, and may be either voting or nonvoting, but 22 does not include warrants, stock options, or debt securities. 23 The bill provides that the election applies to transfers of 24 the capital stock by inter vivos gift from the employee-owner 25 to a spouse, or to a trust for the benefit of the 26 employee-owner’s spouse. The election will apply to a spouse 27 only if the spouse was married to the employee-owner on the 28 date of the sale or the date of the employee-owner’s death. 29 If, after making a valid inter vivos gift of stock that meets 30 all the requirements for an election, an employee-owner dies 31 without making an election, the surviving spouse, or if there 32 is no surviving spouse, the personal representative of the 33 employee-owner’s estate, may make the election. 34 An election under the bill is made on a form prescribed by 35 -20- LSB 5798HV (1) 89 jm/jh 20/ 26

H.F. 2317 the department of revenue and included with the taxpayer’s 1 state income tax return for the taxable year in which the 2 election is made. 3 The division takes effect January 1, 2023, and applies to tax 4 years beginning on or after that date. 5 DIVISION II —— RETIRED FARMER LEASE INCOME EXCLUSION. 6 Commencing with tax years beginning on or after January 1, 7 2023, the bill excludes from the individual income tax a 8 retired farmer’s total net income received pursuant to a 9 farm tenancy agreement covering real property held by the 10 retired farmer for 10 or more years, if the farmer materially 11 participated in a farming business for 10 or more years. 12 Net income from a farm tenancy agreement earned by an 13 entity taxed as a partnership for federal tax purposes, an S 14 corporation, or a trust or estate is not eligible for the lease 15 income exclusion, even if the net income passes through to a 16 retired farmer. 17 A retired farmer is not eligible for the lease income 18 exclusion unless the farmer is at least 55 years of age and no 19 longer materially participating in farming. 20 A retired farmer who elects to claim the lease income 21 exclusion is not eligible, in the tax year the election is made 22 or in succeeding tax years, to claim the capital gain exclusion 23 under Code section 422.7(21), as amended by another division of 24 the bill, or the beginning farmer tax credit. 25 The division takes effect January 1, 2023, and applies to tax 26 years beginning on or after that date. 27 DIVISION III —— RETIRED FARMER CAPITAL GAIN EXCLUSION. The 28 bill modifies the individual income tax capital gain exclusion 29 for the sale of real property used in a farming business which 30 otherwise would have gone into effect in tax year 2023, which 31 was enacted in 2018 Iowa Acts, chapter 1161, section 113, 32 and later modified in 2019 Iowa Acts, chapter 162. The bill 33 repeals both 2018 Iowa Acts, chapter 1161, section 113, and 34 2019 Iowa Acts, chapter 162, and creates a new capital gain 35 -21- LSB 5798HV (1) 89 jm/jh 21/ 26

H.F. 2317 exclusion provision based upon the 2019 Iowa Acts, chapter 1 162 provisions, effective for tax years beginning on or after 2 January 1, 2023. 3 Under the provisions in 2019 Iowa Acts, chapter 162, section 4 1, which otherwise would have gone into effect during the 2023 5 tax year, a taxpayer who materially participates in a farming 6 business for at least 10 years and held real property used 7 in such a business for at least 10 years, may make a single 8 lifetime exclusion election from the individual income tax of 9 the capital gain of the sale of such property. 10 The bill modifies the term “materially participated” in a 11 farming business to include a retired farmer if the retired 12 farmer materially participated in a farming business for 10 13 years or more, in the aggregate, prior to making the election 14 to exclude the capital gain of the sale of real property used 15 in a farming business. 16 In addition to a single lifetime exclusion of the capital 17 gain from the sale of real property used in a farming business, 18 the bill also allows a retired farmer to make a single lifetime 19 exclusion of the net capital gain from the sale of cattle 20 or horses if held by the retired farmer for breeding, draft, 21 dairy, or sporting purposes for more than 24 months, and 22 only if the retired farmer materially participated in the 23 farming business for five of the eight years preceding the 24 retired farmer’s retirement or disability, and who sold all 25 or substantially all of the retired farmer’s interest in the 26 farming business by the time the election to exclude capital 27 gain of the sale of livestock from the individual income tax 28 is made. 29 Additionally, the bill allows a retired farmer to make a 30 single lifetime exclusion of the net capital gain from the 31 sale of breeding livestock, other than cattle and horses, if 32 the livestock is held by the retired farmer for more than 12 33 months, and only if the retired farmer materially participated 34 in the farming business for five of the eight years preceding 35 -22- LSB 5798HV (1) 89 jm/jh 22/ 26

H.F. 2317 the retired farmer’s retirement or disability, and who sold all 1 or substantially all of the retired farmer’s interest in the 2 farming business by the time the election to exclude capital 3 gain of the sale of livestock from the individual income tax 4 is made. 5 Under the bill, a retired farmer is not eligible for the 6 capital gain exclusion if the retired farmer claims the 7 beginning farmer tax credit in the same tax year. A retired 8 farmer electing the capital gain exclusion is not eligible to 9 elect to exclude retired farmer lease income in the same tax 10 year or any succeeding tax year. 11 The division takes effect January 1, 2023, and applies to 12 sales consummated on or after that date. 13 For sales consummated prior to January 1, 2023, the existing 14 law in Code section 422.7(21) shall govern. 15 DIVISION IV —— INDIVIDUAL INCOME TAX —— TAX YEARS 2023-2025. 16 The bill repeals the individual income tax rates and brackets 17 described in 2018 Iowa Acts, chapter 1161, section 107, which 18 otherwise would have gone into effect January 1, 2023, and 19 strikes and replaces the individual income tax rates and 20 brackets for the tax year beginning January 1, 2023, in Code 21 section 422.5A. The bill reduces individual income tax rates 22 beginning with the 2023 tax year, and reduces the number of 23 individual income tax brackets beginning with the 2024 tax 24 year. The modified individual income tax rates and brackets 25 are as follows: 26 For the 2023 tax year: 27 Married filing jointly 28 Income over: But not over: Tax Rate: 29 1) $0 $12,000 4.40% 30 2) $12,000 $60,000 4.82% 31 3) $60,000 $150,000 5.70% 32 4) $150,000 6.00% 33 All other filers other than married filing jointly 34 Income over: But not over: Tax Rate: 35 -23- LSB 5798HV (1) 89 jm/jh 23/ 26

H.F. 2317 1) $0 $6,000 4.40% 1 2) $6,000 $30,000 4.82% 2 3) $30,000 $75,000 5.70% 3 4) $75,000 6.00% 4 For the 2024 tax year: 5 Married filing jointly 6 Income over: But not over: Tax Rate: 7 1) $0 $12,000 4.40% 8 2) $12,000 $60,000 4.82% 9 3) $60,000 5.70% 10 All other filers other than married filing jointly 11 Income over: But not over: Tax Rate: 12 1) $0 $6,000 4.40% 13 2) $6,000 $30,000 4.82% 14 3) $30,000 5.70% 15 For the 2025 tax year: 16 Married filing jointly 17 Income over: But not over: Tax Rate: 18 1) $0 $12,000 4.40% 19 2) $12,000 4.82% 20 All other filers other than married filing jointly 21 Income over: But not over: Tax Rate: 22 1) $0 $6,000 4.40% 23 2) $6,000 4.82% 24 Currently, an alternate income tax calculation exists 25 in Code section 422.5. The alternate income tax is an 26 alternate method of calculating income tax liability in lieu 27 of the regular income tax calculation. The alternate method 28 multiplies the taxpayer’s taxable income above the income tax 29 filing thresholds in Code section 422.5(3)(b) or 422.5(3B)(b) 30 by the highest existing individual income tax rate until 31 the taxpayer’s tax liability is equal to the tax liability 32 that would have been calculated under the regular income tax 33 calculation method, then after such point the regular income 34 tax calculation with the regular income tax rates are used. 35 -24- LSB 5798HV (1) 89 jm/jh 24/ 26

H.F. 2317 The bill phases in changes to the alternate tax rate until the 1 rate is set at 4.50 percent commencing with tax years beginning 2 on or after January 1, 2026. 3 The division takes effect January 1, 2023, and applies to tax 4 years beginning on or after that date. 5 DIVISION V —— INDIVIDUAL INCOME TAX —— FLAT RATE. Commencing 6 with tax years beginning on or after January 1, 2026, the 7 bill establishes a flat 4.00 percent individual income tax 8 rate on all taxable income and moves the individual income 9 tax rate from Code section 422.5A to Code section 422.5. The 10 division takes effect January 1, 2026, and applies to tax years 11 beginning on or after that date. 12 DIVISION VI —— RETIREMENT INCOME EXCLUSION. Under current 13 law, a taxpayer who is disabled, who is at least 55 years of 14 age, or who is the surviving spouse or other specified survivor 15 of that qualifying taxpayer, may exclude a maximum of $6,000 of 16 other retirement income ($12,000 for married persons). 17 Commencing with tax years beginning January 1, 2023, the 18 bill excludes retirement income from the computation of net 19 income for purposes of the individual income tax. In order 20 to be eligible for the retirement income exclusion, a person 21 must be disabled, at least 55 years of age, or be the surviving 22 spouse of an individual or be a survivor having an insurable 23 interest in an individual who would have qualified for the 24 retirement income exclusion. 25 The bill does not change current law allowing a taxpayer 26 to exclude all retirement pay, including certain survivor 27 benefits, received from the federal government for military 28 service performed in the armed forces, the armed forces 29 military reserve, or national guard. 30 The bill strikes a provision permitting moneys in the 31 taxpayer relief fund to be used for increases in the general 32 retirement income exclusions in Code section 422.7(31) because 33 the bill provides for the complete exclusion of such retirement 34 income. 35 -25- LSB 5798HV (1) 89 jm/jh 25/ 26

H.F. 2317 The bill also excludes this retirement income from the 1 calculation of net income for purposes of determining whether 2 or not a taxpayer’s net income exceeds the amount at which the 3 individual income tax will not be imposed pursuant to Code 4 section 422.5(3) or 422.5(3B), and for which an individual 5 income tax return is not required to be filed, and for purposes 6 of calculating the alternate tax in Code section 422.5, and 7 further provides that any retirement income excluded from 8 the individual income tax will not be added back to these 9 calculations for tax years beginning in 2023 or later. 10 The division takes effect January 1, 2023, and applies to tax 11 years beginning on or after that date. 12 DIVISION VII —— TAXPAYER RELIEF FUND. For each of the next 13 six fiscal years, the bill transfers from the taxpayer relief 14 fund to the general fund of the state the following amounts: 15 for FY 2022-2023, $113 million; for FY 2023-2024, $159.1 16 million; for FY 2024-2025, $92.3 million; for FY 2025-2026, 17 $259.4 million; for FY 2026-2027, $195.6 million; for FY 18 2027-2028, $9.6 million. 19 -26- LSB 5798HV (1) 89 jm/jh 26/ 26