HSB 229 (LSB 1230YC (2) 91)

HOUSE FILE _____ 

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

A BILL FOR

An Act relating to deducting excess business losses for purposes of the individual income tax, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 3, Code 2025, is amended to read as follows:
   3.  a.  Add Except as provided in paragraph “b”, add any federal net operating loss deduction carried over from a taxable year beginning prior to January 1, 2023.
   b.  For tax years beginning on or after January 1, 2021, but before January 1, 2023, subtract, to the extent included, the amount the taxpayer’s federal adjusted gross income was increased during the applicable tax year by reason of the application of section 461(l) of the Internal Revenue Code.
    Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to tax years beginning on or after January 1, 2021, but before January 1, 2023.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   Currently, section 461(l) of the Internal Revenue Code (IRC), limits excess business loss deductions for purposes of federal individual income tax calculations, but allows the taxpayer to carry forward any business loss amount disallowed due to the limitations in section 461(l) of the IRC. For the 2024 tax year, any business loss exceeding $305,000 for a single filer and $610,000 for married filers is disallowed but the excess over the threshold amounts may be carried forward.
   Federal net operating loss deductions carried over from a taxable year beginning prior to January 1, 2023, are disallowed for state individual income tax purposes. This bill specifies that for tax years beginning on or after January 1, 2021, but before January 1, 2023, a taxpayer may deduct any business loss disallowed during the applicable tax year due to the limitations in section 461(l) of the IRC.
   The bill applies retroactively to tax years beginning on or after January 1, 2021, but before January 1, 2023.