HF 2503 (LSB 5832YH (2) 90)

HOUSE FILE 2503

BY  GUSTOFF

A BILL FOR

An Act relating to the farm tenancy net income exclusion available against the individual income tax, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 14, paragraph e, Code 2024, is amended by striking the paragraph and inserting in lieu thereof the following:
   e.  Net income from a farm tenancy agreement earned, received, or reported by an entity taxed as a disregarded entity, partnership for federal tax purposes, an S corporation, a trust, or estate is eligible for the election and deduction in this subsection for the portion of net income derived from a farm tenancy agreement if the eligible individual receives or is entitled to receive the portion of net income through distributions from an entity taxed as a disregarded entity, a partnership, an S corporation, a trust, or an estate, to the same extent that an eligible individual could subtract net income received directly from the farm tenant rather than passing to the eligible individual through an entity taxed as a disregarded entity, a partnership, an S corporation, a trust, or an estate. For purposes of this paragraph, net income accruing to a grantor trust or to a business entity that is a disregarded entity shall be deemed to have been distributed to its sole owner to the extent the sole owner of such disregarded entity or trust has the right to withdraw or compel distribution of such net income.
    Sec. 2.  EFFECTIVE DATE.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 3.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2023, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   Current law excludes from the individual income tax a retired farmer’s total net income received pursuant to a farm tenancy agreement covering real property held by the retired farmer for 10 or more years, if the farmer materially participated in a farming business for 10 or more years. Under current law, net income from a farm tenancy agreement earned by an entity taxed as a partnership for federal tax purposes, an S corporation, or a trust or estate is not eligible for the farm tenancy lease income exclusion.
   This bill allows the net income from a farm tenancy agreement earned, received, or reported by an entity taxed as a disregarded entity, partnership for federal tax purposes, an S corporation, a trust, or estate to be eligible for the farm tenancy lease income exclusion in the same manner as if the net income received pursuant to a farm tenancy passes directly from the farm tenant to the eligible individual rather than passing to the eligible individual through an entity taxed as a disregarded entity, a partnership, an S corporation, a trust, or an estate. The bill allows net income accruing to a grantor trust or to a business entity that is a disregarded entity to be deemed to have been distributed to its sole owner to the extent the sole owner of such disregarded entity or trust has the right to withdraw or compel distribution of such net income.
   The bill takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2023.