Senate File 192 - IntroducedA Bill ForAn Act 1relating to taking a capital gain deduction for the sale
2of real property used in a farming business.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1   Section 1.  2018 Iowa Acts, chapter 1161, section 113, is
2amended by striking the section and inserting in lieu thereof
3the following:
   4SEC. 113.  Section 422.7, subsection 21, Code 2018, is
5amended by striking the subsection and inserting in lieu
6thereof the following;
   721.  a.  For purposes of this subsection:
   8(1)  “Farming business” means the production, care, growing,
9harvesting, preservation, handling, or storage of crops
10or forest or fruit trees; the production, care, feeding,
11management, and housing of livestock; or horticulture, all for
12intended profit.
   13(2)  “Held” shall be determined with reference to the holding
14period provisions of section 1223 of the Internal Revenue Code
15and the federal regulations pursuant thereto.
   16(3)  “Livestock” means the same as defined in section 717.1.
   17(4)  “Materially participated” means the same as “material
18participation”
in section 469(h) of the Internal Revenue Code.
   19(5)  (a)  “Real property used in a farming business” means
20all tracts of land and the improvements and structures located
21on them which are in good faith used primarily for a farming
22business. Buildings which are primarily used or intended for
23human habitation are deemed to be used in a farming business
24when the building is located on or adjacent to the parcel
25used in the farming business. Land and the nonresidential
26improvements and structures located on it shall be considered
27to be used primarily in a farming business include but are
28not limited to land, improvements or structures used for the
29storage or maintenance of farm machinery or equipment, for the
30drying, storage, handling, or preservation of agricultural
31crops, or for the storage of farm inputs, feed, or manure.
32Real property used in a farming business shall also include
33woodland, wasteland, pastureland, and idled land used for the
34conservation of natural resources including soil and water.
   35(b)  Real property classified as agricultural property for
-1-1Iowa property tax purposes, except real property described
2in section 441.21, subsection 12, paragraph “a” or “b”,
3shall be presumed to be real property used in a farming
4business. This presumption is rebuttable by the department by
5a preponderance of evidence that the real property did not meet
6the requirements of subparagraph division (a).
   7(6)  “Relative” means a person that satisfies one or more of
8the following conditions:
   9(a)  The individual is related to the taxpayer by
10consanguinity or affinity within the second degree as
11determined by common law.
   12(b)  The individual is a lineal descendent of the taxpayer.
13For purposes of this subparagraph division, “lineal descendent”
14means children of the taxpayer, including legally adopted
15children and biological children, stepchildren, grandchildren,
16great-grandchildren, and any other lineal descendent of the
17taxpayer.
   18(c)  An entity in which an individual who satisfies the
19conditions of either subparagraph division (a) or (b) has a
20legal or equitable interest as an owner, member, partner, or
21beneficiary.
   22b.  Subtract the net capital gain from the sale of real
23property used in a farming business if one of the following
24conditions are satisfied:
   25(1)  The taxpayer has materially participated in a farming
26business for a minimum of ten years and has held the real
27property used in a farming business for a minimum of ten years.
   28(2)  The taxpayer has held the real property used in a
29farming business which is sold to a relative of the taxpayer.
30EXPLANATION
31The inclusion of this explanation does not constitute agreement with
32the explanation’s substance by the members of the general assembly.
   33This bill modifies the capital gain deduction for the sale of
34real property used in a farming business enacted in 2018 Iowa
35Acts, chapter 1161, section 113. The capital gain deduction
-2-1for the sale of real property used in a farming business is set
2to begin in tax year 2023 or in a later tax year, contingent
3upon the satisfaction of certain net general fund revenue
4amount and growth targets.
   5Currently, the capital gain deduction for the sale of real
6property used in a “farming business” set to go into effect
7in 2023 or a later tax year restricts the deduction to the
8sale of “real property used in a farming business”, provided
9the taxpayer “materially participated” in the farming business
10for at least 10 years, held the real property for at least
1110 years, and sold the real property to a “relative”, all as
12defined in 2018 Iowa Acts, chapter 1161.
   13The bill modifies the restrictions relating to the deduction
14for the sale of real property used in farming business by
15permitting the taxpayer to take the deduction if one of the
16following apply: the taxpayer “materially participated” in
17the farming business for at least 10 years and held the real
18property for at least 10 years; or the taxpayer sold the real
19property to a “relative”. The bill expands the definition of
20“relative” to include an entity in which a relative of the
21taxpayer has a legal or equitable interest in the entity as an
22owner, member, partner, or beneficiary.
   23The bill also modifies the definitions of “farming business”
24and “real property used in a farming business”. The bill
25defines “livestock” to mean the same as defined in Code section
26717.1, which is used in the definition of farming business.
   27The bill strikes provisions related to restricting the
28capital gain deduction for the sale of real property used in a
29farming business if the relative sells or transfers the real
30property used in a farming business within five years of the
31original sale.
   32The bill also strikes a provision providing that to the
33extent otherwise allowed, the capital gain deduction for the
34sale of real property used in a “farming business” shall not be
35allowed for purposes of computing income for the taxable year
-3-1or years for which a net operating loss is deducted under the
2Internal Revenue Code or under Code section 422.9 (deductions
3from net income).
   4The bill does not change the future effective date of the
5capital gain deduction for the sale of real property used in a
6farming business.
-4-
jm/jh