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House File 2317 - IntroducedA Bill ForAn Act 1relating to state revenue and finance by modifying the
2individual income tax, making appropriations, and including
3effective date and applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2SALE OF CERTAIN QUALIFIED STOCK — NET CAPITAL GAIN EXCLUSION
3 Section 1. Section 422.7, Code 2022, is amended by adding
4the following new subsection:
5 NEW SUBSECTION. 63. a. Subtract the following percentage
6of the net capital gain from the sale or exchange of capital
7stock of a qualified corporation for which an election is made
8by an employee-owner:
9(1) For the tax year beginning in the 2023 calendar year,
10thirty-three percent.
11(2) For the tax year beginning in the 2024 calendar year,
12sixty-six percent.
13(3) For tax years beginning on or after January 1, 2025, one
14hundred percent.
15b. (1) An employee-owner is entitled to make one
16irrevocable lifetime election to exclude the net capital gain
17from the sale or exchange of capital stock of one qualified
18corporation which capital stock was acquired by the employee-
19owner while employed and on account of employment by such
20qualified corporation.
21(2) The election shall apply to all subsequent sales
22or exchanges of qualifying capital stock of the elected
23corporation within fifteen years of the date of the election,
24provided that the subsequent sales or exchanges were of capital
25stock in the same qualified corporation and were acquired by
26the employee-owner while employed and on account of employment
27by such qualified corporation.
28(3) The election shall apply to qualifying capital stock
29that has been transferred by inter vivos gift from the
30employee-owner to the employee-owner’s spouse or to a trust
31for the benefit of the employee-owner’s spouse following the
32transfer. This subparagraph (3) shall apply to a spouse
33only if the spouse was married to the employee-owner on the
34date of the sale or exchange or the date of death of the
35employee-owner.
-1- 1(4) If the employee-owner dies after having sold or
2exchanged qualifying capital stock without having made an
3election under this subsection, the surviving spouse or, if
4there is no surviving spouse, the personal representative of
5the employee-owner’s estate, may make the election that would
6have qualified under this subsection.
7(5) The election shall be made in the manner and form
8prescribed by the department and shall be included with the
9taxpayer’s state income tax return for the taxable year in
10which the election is made.
11c. For purposes of this subsection:
12(1) “Capital stock” means common or preferred stock, either
13voting or nonvoting. “Capital stock” does not include stock
14rights, stock warrants, stock options, or debt securities.
15(2) “Employee-owner” means an individual who owns capital
16stock in a qualified corporation for at least ten years, which
17capital stock was acquired by the individual while employed and
18on account of employment by such corporation for at least ten
19cumulative years.
20(3) “Personal representative” means the same as defined in
21section 633.3, or if there is no such personal representative
22appointed, then the person legally authorized to perform
23substantially the same functions.
24(4) (a) “Qualified corporation” means, with respect to an
25employee-owner, a corporation which, at the time of the first
26sale or exchange for which an election is made by the employee-
27owner under this subsection, meets all of the following
28conditions:
29(i) The corporation employed individuals in this state for
30at least ten years.
31(ii) The corporation has had at least five shareholders for
32the ten years prior to the first sale or exchange under this
33subsection.
34(iii) The corporation has had at least two shareholders or
35groups of shareholders who are not related for the ten years
-2-1prior to the first sale or exchange under this subsection.
2Two persons are considered related when, under section 318 of
3the Internal Revenue Code, one is a person who owns, directly
4or indirectly, capital stock that if directly owned would be
5attributed to the other person, or is the brother, sister,
6aunt, uncle, cousin, niece, or nephew of the other person who
7owns capital stock either directly or indirectly.
8(b) “Qualified corporation” includes any member of an Iowa
9affiliated group if the Iowa affiliated group includes a member
10that has employed individuals in this state for at least ten
11years. For purposes of this subparagraph division, “Iowa
12affiliated group” means an affiliated group that has made a
13valid election to file an Iowa consolidated income tax return
14under section 422.37 in the year in which the deduction under
15this subsection is claimed. “Member” includes any entity
16included in the consolidated return under section 422.37,
17subsection 2, for the tax year in which the deduction is
18claimed.
19(c) “Qualified corporation” also includes any corporation
20that was a party to a reorganization that was entirely or
21substantially tax free if such reorganization occurred during
22or after the employment of the employee-owner.
23 Sec. 2. EFFECTIVE DATE. This division of this Act takes
24effect January 1, 2023.
25 Sec. 3. APPLICABILITY. This division of this Act applies to
26tax years beginning on or after January 1, 2023.
27DIVISION II
28RETIRED FARMER LEASE INCOME EXCLUSION
29 Sec. 4. Section 422.7, Code 2022, is amended by adding the
30following new subsection:
31 NEW SUBSECTION. 21A. a. Subtract, to the extent included,
32net income received by an eligible individual pursuant to a
33farm tenancy agreement covering real property held by the
34eligible individual for ten or more years, if the eligible
35individual materially participated in a farming business for
-3-1ten or more years.
2b. An individual who elects to exclude income received
3pursuant to a farm tenancy agreement under this subsection
4shall not claim any of the following in the tax year in which
5the election is made or in any succeeding year:
6(1) The capital gain exclusion under section 422.7,
7subsection 21.
8(2) The beginning farmer tax credit under section 422.11E.
9c. Married individuals who file separate state income tax
10returns shall allocate their combined annual exclusion limit
11to each spouse in the proportion that each spouse’s respective
12net income from a farm tenancy agreement bears to the total net
13income from a farm tenancy agreement.
14d. The department shall establish criteria, by rule,
15relating to whether and how a surviving spouse may claim the
16income exclusion for which a deceased eligible individual would
17have been eligible under this subsection.
18e. Net income from a farm tenancy agreement earned,
19received, or reported by an entity taxed as a partnership
20for federal tax purposes, an S corporation, or a trust or
21estate is not eligible for the election and deduction in this
22subsection, even if such net income ultimately passes through
23to an eligible individual.
24f. For purposes of this subsection:
25(1) “Eligible individual” means an individual who is
26disabled or who is fifty-five years of age or older at the time
27the election is made, who no longer materially participates in
28a farming business at the time the election is made, and who,
29as an owner-lessor, is party to a farm tenancy agreement.
30(2) “Farm tenancy agreement” means a written agreement
31outlining the rights and obligations of an owner-lessor and a
32tenant-lessee where the tenant-lessee has a farm tenancy as
33defined in section 562.1A. A “farm tenancy agreement” includes
34cash leases, crop share leases, or livestock share leases.
35(3) “Farming business” means the production, care, growing,
-4-1harvesting, preservation, handling, or storage of crops
2or forest or fruit trees; the production, care, feeding,
3management, and housing of livestock; or horticulture, all
4intended for profit.
5(4) “Livestock” means the same as defined in section 717.1.
6(5) “Materially participated” means the same as “material
7participation” in section 469(h) of the Internal Revenue Code.
8 Sec. 5. EFFECTIVE DATE. This division of this Act takes
9effect January 1, 2023.
10 Sec. 6. APPLICABILITY. This division of this Act applies to
11tax years beginning on or after January 1, 2023.
12DIVISION III
13RETIRED FARMER CAPITAL GAIN EXCLUSION
14 Sec. 7. Section 422.7, subsection 21, Code 2022, is amended
15by striking the subsection and inserting in lieu thereof the
16following:
1721. a. For purposes of this subsection:
18(1) “Farming business” means the production, care, growing,
19harvesting, preservation, handling, or storage of crops
20or forest or fruit trees; the production, care, feeding,
21management, and housing of livestock; or horticulture, all for
22intended profit.
23(2) “Held” shall be determined with reference to the holding
24period provisions of section 1223 of the Internal Revenue Code
25and the federal regulations pursuant thereto.
26(3) “Livestock” means the same as defined in section 717.1.
27(4) “Materially participated” means the same as “material
28participation” in section 469(h) of the Internal Revenue Code.
29(5) (a) “Real property used in a farming business” means
30all tracts of land and the improvements and structures located
31on such tracts which are in good faith used primarily for
32a farming business. Buildings which are primarily used or
33intended for human habitation are deemed to be used in a
34farming business when the building is located on or adjacent
35to the parcel used in the farming business. Land and the
-5-1nonresidential improvements and structures located on such land
2that shall be considered to be used primarily in a farming
3business include but are not limited to land, improvements
4or structures used for the storage or maintenance of farm
5machinery or equipment, for the drying, storage, handling,
6or preservation of agricultural crops, or for the storage of
7farm inputs, feed, or manure. Real property used in a farming
8business shall also include woodland, wasteland, pastureland,
9and idled land used for the conservation of natural resources
10including soil and water.
11(b) Real property classified as agricultural property for
12Iowa property tax purposes, except real property described
13in section 441.21, subsection 12, paragraph “a” or “b”,
14shall be presumed to be real property used in a farming
15business. This presumption is rebuttable by the department by
16a preponderance of evidence that the real property did not meet
17the requirements of subparagraph division (a).
18(6) “Relative” means a person that satisfies one or more of
19the following conditions:
20(a) The individual is related to the taxpayer by
21consanguinity or affinity within the second degree as
22determined by common law.
23(b) The individual is a lineal descendent of the taxpayer.
24For purposes of this subparagraph division, “lineal descendent”
25means children of the taxpayer, including legally adopted
26children and biological children, stepchildren, grandchildren,
27great-grandchildren, and any other lineal descendent of the
28taxpayer.
29(c) An entity in which an individual who satisfies the
30conditions of either subparagraph division (a) or (b) has a
31legal or equitable interest as an owner, member, partner, or
32beneficiary.
33(7) “Retired farmer” means an individual who is disabled
34or who is fifty-five years of age or older and who no longer
35materially participates in a farming business when an exclusion
-6-1and deduction is claimed under this subsection.
2b. Subtract the net capital gain from the sale of real
3property used in a farming business if one of the following
4conditions are satisfied:
5(1) The taxpayer has materially participated in a farming
6business for a minimum of ten years and has held the real
7property used in a farming business for a minimum of ten years.
8If the taxpayer is a retired farmer, the taxpayer is considered
9to meet the material participation requirement if the taxpayer
10materially participated in a farming business for ten years or
11more in the aggregate, prior to making an election under this
12subsection.
13(2) The taxpayer has held the real property used in a
14farming business which is sold to a relative of the taxpayer.
15c. For a taxpayer who is a retired farmer, subtract the
16net capital gain from the sale of cattle or horses held by
17the taxpayer for breeding, draft, dairy, or sporting purposes
18for a period of twenty-four months or more from the date of
19acquisition; but only if the taxpayer materially participated
20in the farming business for five of the eight years preceding
21the farmer’s retirement or disability and who has sold all or
22substantially all of the taxpayer’s interest in the farming
23business by the time the election under this paragraph is made.
24d. For a taxpayer who is a retired farmer, subtract the net
25capital gain from the sale of breeding livestock, other than
26cattle and horses, if the livestock is held by the taxpayer for
27a period of twelve months or more from the date of acquisition;
28but only if the taxpayer materially participated in the farming
29business for five of the eight years preceding the farmer’s
30retirement or disability and who has sold all or substantially
31all of the taxpayer’s interest in the farming business by the
32time the election under this paragraph is made.
33e. A taxpayer who is a retired farmer may make, subject to
34the limitations described in paragraphs “f” and “g”, a single,
35lifetime election to exclude all qualifying capital gains under
-7-1paragraphs “b”, “c”, and “d”.
2f. A taxpayer who is a retired farmer who elects to exclude
3capital gains under paragraph “b”, “c”, or “d” shall not claim
4the beginning farmer tax credit under section 422.11E or the
5exclusion for net income received pursuant to a farm tenancy
6agreement in section 422.7, subsection 21A, in the tax year in
7which this election is made or in any subsequent year.
8g. A taxpayer who is a retired farmer who claims the
9beginning farmer tax credit under section 422.11E shall not,
10in the same year, make an election under this subsection. A
11taxpayer who is a retired farmer and who elects to exclude
12the net income received from a farm tenancy agreement under
13section 422.7, subsection 21A, shall not, in the same tax year
14or in any subsequent tax year, make the election under this
15subsection.
16h. Married individuals who file separate state income tax
17returns shall allocate their combined annual net capital gain
18exclusion under paragraphs “b”, “c”, and “d” to each spouse in
19the proportion that each spouse’s respective net capital gain
20bears to the total net capital gain.
21i. The department shall establish criteria, by rule,
22relating to whether and how a surviving spouse may claim the
23income exclusion for which a deceased retired farmer would have
24been eligible under this subsection.
25 Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113,
26is repealed.
27 Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is
28repealed.
29 Sec. 10. EFFECTIVE DATE. This division of this Act takes
30effect January 1, 2023.
31 Sec. 11. APPLICABILITY.
321. This division of this Act applies to tax years beginning
33on or after January 1, 2023.
342. This division of this Act applies to sales consummated on
35or after the effective date of this division of this Act, and
-8-1sales consummated prior to the effective date of this division
2of this Act shall be governed by the law as it existed prior to
3the effective date of this division of this Act.
4DIVISION IV
5INDIVIDUAL INCOME TAX RATES — tax years 2023-2025
6 Sec. 12. Section 422.5, subsection 3, paragraph b, Code
72022, is amended to read as follows:
8b. (1) In lieu of the computation in subsection 1 or
92, or in paragraph “a” of this subsection, if the married
10persons’, filing jointly or filing separately on a combined
11return, head of household’s, or surviving spouse’s net income
12exceeds thirteen thousand five hundred dollars, the regular
13tax imposed under this subchapter shall be the lesser of the
14maximum alternate state individual income tax rate specified in
15subparagraph (2) times the portion of the net income in excess
16of thirteen thousand five hundred dollars or the regular tax
17liability computed without regard to this sentence. Taxpayers
18electing to file separately shall compute the alternate tax
19described in this paragraph using the total net income of the
20husband and wife spouses. The alternate tax described in this
21paragraph does not apply if one spouse elects to carry back or
22carry forward the loss as provided in section 422.9, subsection
233.
24(2) (a) (i) (A) For the tax year beginning on or after
25January 1, 2023, but before January 1, 2024, the alternate tax
26rate is 6.00 percent.
27(B) For the tax year beginning on or after January 1, 2024,
28but before January 1, 2025, the alternate tax rate is 5.70
29percent.
30(C) For the tax year beginning on or after January 1, 2025,
31but before January 1, 2026, the alternate tax rate is 5.20
32percent.
33(ii) This subparagraph division (a) is repealed January 1,
342026.
35(b) For tax years beginning on or after January 1, 2026, the
-9-1alternate tax rate is 4.50 percent.
2 Sec. 13. Section 422.5, subsection 3B, paragraph b, Code
32022, is amended to read as follows:
4b. (1) In lieu of the computation in subsection 1, 2, or 3,
5if the married persons’, filing jointly or filing separately on
6a combined return, head of household’s, or surviving spouse’s
7net income exceeds thirty-two thousand dollars, the regular
8tax imposed under this subchapter shall be the lesser of the
9maximum alternate state individual income tax rate specified in
10subparagraph (2) times the portion of the net income in excess
11of thirty-two thousand dollars or the regular tax liability
12computed without regard to this sentence. Taxpayers electing
13to file separately shall compute the alternate tax described in
14this paragraph using the total net income of the husband and
15wife spouses. The alternate tax described in this paragraph
16does not apply if one spouse elects to carry back or carry
17forward the loss as provided in section 422.9, subsection 3.
18(2) (a) (i) (A) For the tax year beginning on or after
19January 1, 2023, but before January 1, 2024, the alternate tax
20rate is 6.00 percent.
21(B) For the tax year beginning on or after January 1, 2024,
22but before January 1, 2025, the alternate tax rate is 5.70
23percent.
24(C) For the tax year beginning on or after January 1, 2025,
25but before January 1, 2026, the alternate tax rate is 5.20
26percent.
27(ii) This subparagraph division (a) is repealed January 1,
282026.
29(b) For tax years beginning on or after January 1, 2026, the
30alternate tax rate is 4.50 percent.
31 Sec. 14. Section 422.5, subsection 6, Code 2022, is amended
32to read as follows:
336. a. Upon determination of the latest cumulative inflation
34factor, the director shall multiply each dollar amount set
35forth in section 422.5A by this cumulative inflation factor,
-10-1shall round off the resulting product to the nearest one
2dollar, and shall incorporate the result into the income tax
3forms and instructions for each tax year.
4b. This subsection is repealed on January 1, 2026.
5 Sec. 15. Section 422.5A, Code 2022, is amended by striking
6the section and inserting in lieu thereof the following:
7422.5A Tax rates.
81. a. The tax imposed in section 422.5 shall be calculated
9using the following rates in the following tax years in the
10case of married persons filing jointly:
11(1) For the tax year beginning on or after January 1, 2023,
12but before January 1, 2024:
13(a) On taxable income from 0 through $12,000, the rate of
144.40 percent.
15(b) On taxable income exceeding $12,000 but not exceeding
16$60,000, the rate of 4.82 percent.
17(c) On taxable income exceeding $60,000 but not exceeding
18$150,000, the rate of 5.70 percent.
19(d) On taxable income exceeding $150,000, the rate of 6.00
20percent.
21(2) For the tax year beginning on or after January 1, 2024,
22but before January 1, 2025:
23(a) On taxable income from 0 through $12,000, the rate of
244.40 percent.
25(b) On taxable income exceeding $12,000 but not exceeding
26$60,000, the rate of 4.82 percent.
27(c) On taxable income exceeding $60,000, the rate of 5.70
28percent.
29(3) For the tax year beginning on or after January 1, 2025,
30but before January 1, 2026:
31(a) On taxable income from 0 through $12,000, the rate of
324.40 percent.
33(b) On taxable income exceeding $12,000, the rate of 4.82
34percent.
35b. The tax imposed in section 422.5 shall be calculated
-11-1using the following rates in the following tax years in the
2case of any other taxpayer other than married persons filing
3jointly:
4(1) For the tax year beginning on or after January 1, 2023,
5but before January 1, 2024:
6(a) On taxable income from 0 through $6,000, the rate of
74.40 percent.
8(b) On taxable income exceeding $6,000 but not exceeding
9$30,000, the rate of 4.82 percent.
10(c) On taxable income exceeding $30,000 but not exceeding
11$75,000, the rate of 5.70 percent.
12(d) On taxable income exceeding $75,000, the rate of 6.00
13percent.
14(2) For the tax year beginning on or after January 1, 2024,
15but before January 1, 2025:
16(a) On taxable income from 0 through $6,000, the rate of
174.40 percent.
18(b) On taxable income exceeding $6,000 but not exceeding
19$30,000, the rate of 4.82 percent.
20(c) On taxable income exceeding $30,000, the rate of 5.70
21percent.
22(3) For the tax year beginning on or after January 1, 2025,
23but before January 1, 2026:
24(a) On taxable income from 0 through $6,000, the rate of
254.40 percent.
26(b) On taxable income exceeding $6,000, the rate of 4.82
27percent.
282. This section is repealed January 1, 2026.
29 Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107,
30is repealed.
31 Sec. 17. EFFECTIVE DATE. This division of this Act takes
32effect January 1, 2023.
33 Sec. 18. APPLICABILITY. This division of this Act applies
34to tax years beginning on or after January 1, 2023.
35DIVISION V
-12-1INDIVIDUAL INCOME TAX — FLAT RATE
2 Sec. 19. Section 421.27, subsection 9, paragraph a,
3subparagraph (3), Code 2022, is amended to read as follows:
4(3) In the case of all other entities, including
5corporations described in section 422.36, subsection 5, and all
6other entities required to file an information return under
7section 422.15, subsection 2, the entity’s Iowa net income
8after the application of the Iowa business activity ratio,
9if applicable, multiplied by the top income tax rate imposed
10under section 422.5A 422.5 for the tax year, less any Iowa tax
11credits available to the entity.
12 Sec. 20. Section 422.5, subsection 1, paragraph a, Code
132022, is amended to read as follows:
14a. A tax is imposed upon every resident and nonresident
15of the state which tax shall be levied, collected, and paid
16annually upon and with respect to the entire taxable income
17as defined in this subchapter at rates as provided in section
18422.5A a rate of four percent.
19 Sec. 21. Section 422.16B, subsection 2, paragraph a, Code
202022, is amended to read as follows:
21a. (1) A pass-through entity shall file a composite return
22on behalf of all nonresident members and shall report and pay
23the income or franchise tax imposed under this chapter at the
24maximum state income or franchise tax rate applicable to the
25member under section 422.5A 422.5, 422.33, or 422.63 on the
26nonresident members’ distributive shares of the income from the
27pass-through entity.
28(2) The tax rate applicable to a tiered pass-through entity
29shall be the maximum state income tax rate under section 422.5A
30 422.5.
31 Sec. 22. Section 422.25A, subsection 5, paragraph c,
32subparagraphs (3), (4), and (5), Code 2022, are amended to read
33as follows:
34(3) Determine the total distributive share of all final
35federal partnership adjustments and positive reallocation
-13-1adjustments as modified by this title that are reported to
2nonresident individual partners and nonresident fiduciary
3partners and allocate and apportion such adjustments as
4provided in section 422.33 at the partnership or tiered
5partner level, and multiply the resulting amount by the maximum
6 individual income tax rate pursuant to section 422.5A 422.5 for
7the reviewed year.
8(4) For the total distributive share of all final federal
9partnership adjustments and positive reallocation adjustments
10as modified by this title that are reported to tiered partners:
11(a) Determine the amount of such adjustments which are of a
12type that would be subject to sourcing to Iowa under section
13422.8, subsection 2, paragraph “a”, as a nonresident, and then
14determine the portion of this amount that would be sourced to
15Iowa under those provisions as if the tiered partner were a
16nonresident.
17(b) Determine the amount of such adjustments which are of
18a type that would not be subject to sourcing to Iowa under
19section 422.8, subsection 2, paragraph “a”, as a nonresident.
20(c) Determine the portion of the amount in subparagraph
21division (b) that can be established, as prescribed by the
22department by rule, to be properly allocable to indirect
23partners that are nonresident partners or other partners not
24subject to tax on the adjustments.
25(d) Multiply the total of the amounts determined in
26subparagraph divisions (a) and (b), reduced by any amount
27determined in subparagraph division (c), by the highest
28 individual income tax rate pursuant to section 422.5A 422.5 for
29the reviewed year.
30(5) For the total distributive share of all final federal
31partnership adjustments and positive reallocation adjustments
32as modified by this title that are reported to resident
33individual partners and resident fiduciary partners, multiply
34that amount by the highest individual income tax rate pursuant
35to section 422.5A 422.5 for the reviewed year.
-14-1 Sec. 23. EFFECTIVE DATE. This division of this Act takes
2effect January 1, 2026.
3 Sec. 24. APPLICABILITY. This division of this Act applies
4to tax years beginning on or after January 1, 2026.
5DIVISION VI
6Retirement Income
7 Sec. 25. Section 8.57E, subsection 2, Code 2022, is amended
8to read as follows:
92. Moneys in the taxpayer relief fund shall only be used
10pursuant to appropriations or transfers made by the general
11assembly for tax relief, including but not limited to increases
12in the general retirement income exclusion under section 422.7,
13subsection 31, or reductions in income tax rates.
14 Sec. 26. Section 422.5, subsection 3, paragraph a, Code
152022, is amended to read as follows:
16a. The tax shall not be imposed on a resident or nonresident
17whose net income, as defined in section 422.7, is thirteen
18thousand five hundred dollars or less in the case of married
19persons filing jointly or filing separately on a combined
20return, heads of household, and surviving spouses or nine
21thousand dollars or less in the case of all other persons; but
22in the event that the payment of tax under this subchapter
23would reduce the net income to less than thirteen thousand five
24hundred dollars or nine thousand dollars as applicable, then
25the tax shall be reduced to that amount which would result
26in allowing the taxpayer to retain a net income of thirteen
27thousand five hundred dollars or nine thousand dollars as
28applicable. The preceding sentence does not apply to estates
29or trusts. For the purpose of this subsection, the entire net
30income, including any part of the net income not allocated
31to Iowa, shall be taken into account. For purposes of this
32subsection, net income includes all amounts of pensions or
33other retirement income, except for military retirement pay
34excluded under section 422.7, subsection 31A, paragraph “a”, or
35section 422.7, subsection 31B, paragraph “a”, received from any
-15-1source which is not taxable under this subchapter as a result
2of the government pension exclusions in section 422.7, or any
3other state law. If the combined net income of a husband and
4wife exceeds thirteen thousand five hundred dollars, neither
5of them shall receive the benefit of this subsection, and it
6is immaterial whether they file a joint return or separate
7returns. However, if a husband and wife file separate returns
8and have a combined net income of thirteen thousand five
9hundred dollars or less, neither spouse shall receive the
10benefit of this paragraph, if one spouse has a net operating
11loss and elects to carry back or carry forward the loss as
12provided in section 422.9, subsection 3. A person who is
13claimed as a dependent by another person as defined in section
14422.12 shall not receive the benefit of this subsection if
15the person claiming the dependent has net income exceeding
16thirteen thousand five hundred dollars or nine thousand dollars
17as applicable or the person claiming the dependent and the
18person’s spouse have combined net income exceeding thirteen
19thousand five hundred dollars or nine thousand dollars as
20applicable.
21 Sec. 27. Section 422.5, subsection 3B, paragraph a, Code
222022, is amended to read as follows:
23a. The tax shall not be imposed on a resident or nonresident
24who is at least sixty-five years old on December 31 of
25the tax year and whose net income, as defined in section
26422.7, is thirty-two thousand dollars or less in the case
27of married persons filing jointly or filing separately on a
28combined return, heads of household, and surviving spouses or
29twenty-four thousand dollars or less in the case of all other
30persons; but in the event that the payment of tax under this
31subchapter would reduce the net income to less than thirty-two
32thousand dollars or twenty-four thousand dollars as applicable,
33then the tax shall be reduced to that amount which would result
34in allowing the taxpayer to retain a net income of thirty-two
35thousand dollars or twenty-four thousand dollars as applicable.
-16-1The preceding sentence does not apply to estates or trusts.
2For the purpose of this subsection, the entire net income,
3including any part of the net income not allocated to Iowa,
4shall be taken into account. For purposes of this subsection,
5net income includes all amounts of pensions or other retirement
6income, except for military retirement pay excluded under
7section 422.7, subsection 31A, paragraph “a”, or section 422.7,
8subsection 31B, paragraph “a”, received from any source which is
9not taxable under this subchapter as a result of the government
10pension exclusions in section 422.7, or any other state law.
11 If the combined net income of a husband and wife exceeds
12thirty-two thousand dollars, neither of them shall receive the
13benefit of this subsection, and it is immaterial whether they
14file a joint return or separate returns. However, if a husband
15and wife file separate returns and have a combined net income
16of thirty-two thousand dollars or less, neither spouse shall
17receive the benefit of this paragraph, if one spouse has a net
18operating loss and elects to carry back or carry forward the
19loss as provided in section 422.9, subsection 3. A person
20who is claimed as a dependent by another person as defined in
21section 422.12 shall not receive the benefit of this subsection
22if the person claiming the dependent has net income exceeding
23thirty-two thousand dollars or twenty-four thousand dollars
24as applicable or the person claiming the dependent and the
25person’s spouse have combined net income exceeding thirty-two
26thousand dollars or twenty-four thousand dollars as applicable.
27 Sec. 28. Section 422.7, subsection 31, Code 2022, is amended
28to read as follows:
2931. a. For a person who is disabled, or is fifty-five years
30of age or older, or is the surviving spouse of an individual or
31a survivor having an insurable interest in an individual who
32would have qualified for the exemption under this subsection
33 for the tax year, subtract Subtract, to the extent included,
34the total amount of received from a governmental or other
35pension or retirement pay plan, including, but not limited
-17-1to, defined benefit or defined contribution plans, annuities,
2individual retirement accounts, plans maintained or contributed
3to by an employer, or maintained or contributed to by a
4self-employed person as an employer, and deferred compensation
5plans or any earnings attributable to the deferred compensation
6plans, up to a maximum of six thousand dollars for a person,
7other than a husband or wife, who files a separate state income
8tax return and up to a maximum of twelve thousand dollars
9for a husband and wife who file a joint state income tax
10return. However, a surviving spouse who is not disabled or
11fifty-five years of age or older can only exclude the amount
12of pension or retirement pay received as a result of the death
13of the other spouse. A husband and wife filing separate state
14income tax returns or separately on a combined state return
15are allowed a combined maximum exclusion under this subsection
16 of up to twelve thousand dollars. The twelve thousand dollar
17exclusion shall be allocated to the husband or wife in the
18proportion that each spouse’s respective pension and retirement
19pay received bears to total combined pension and retirement
20pay received received by a person who is disabled, or is
21fifty-five years of age or older, or is the surviving spouse of
22an individual or is a survivor having an insurable interest in
23an individual who would have qualified for the exemption under
24this subsection for the tax year.
25b. Married taxpayers who file separate state income tax
26returns shall allocate their combined annual exclusion amount
27to each spouse in the proportion that each spouse’s respective
28income received from a pension or retirement plan bears to the
29total combined pension or retirement pay received.
30c. A taxpayer who is not disabled or fifty-five years of
31age or older and who receives pension or retirement pay as a
32surviving spouse or as a survivor with an insurable interest
33in an individual who would have qualified for the exemption
34for the tax year may only exclude the amount received from a
35pension or retirement plan in the tax year as a result of the
-18-1death of the decedent.
2 Sec. 29. EFFECTIVE DATE. This division of this Act takes
3effect January 1, 2023.
4 Sec. 30. APPLICABILITY. This division of this Act applies
5to tax years beginning on or after January 1, 2023.
6DIVISION VII
7taxpayer relief fund
8 Sec. 31. Section 8.57E, Code 2022, is amended by adding the
9following new subsection:
10 NEW SUBSECTION. 5. a. For the purposes of tax relief
11provided in this Act, the following amounts shall be
12transferred from the taxpayer relief fund to the general fund
13of the state for the following fiscal years:
14(1) For the fiscal year beginning July 1, 2022, and ending
15June 30, 2023, one hundred thirteen million dollars.
16(2) For the fiscal year beginning July 1, 2023, and ending
17June 30, 2024, one hundred fifty-nine million one hundred
18thousand dollars.
19(3) For the fiscal year beginning July 1, 2024, and ending
20June 30, 2025, ninety-two million three hundred thousand
21dollars.
22(4) For the fiscal year beginning July 1, 2025, and ending
23June 30, 2026, two hundred fifty-nine million four hundred
24thousand dollars.
25(5) For the fiscal year beginning July 1, 2026, and ending
26June 30, 2027, one hundred ninety-five million six hundred
27thousand dollars.
28(6) For the fiscal year beginning July 1, 2027, and ending
29June 30, 2028, nine million six hundred thousand dollars.
30b. This subsection is repealed July 1, 2028.
31EXPLANATION
32The inclusion of this explanation does not constitute agreement with
33the explanation’s substance by the members of the general assembly.
34This bill relates to state revenue and finance by modifying
35the individual income tax and making appropriations.
-19- 1DIVISION I — SALE OF CERTAIN QUALIFIED STOCK — NET
2CAPITAL GAIN EXCLUSION. The bill grants an employee-owner one
3irrevocable lifetime election to exclude from state individual
4income tax the net capital gain from the state of the capital
5stock on one qualified corporation. The election applies to
6all subsequent sales or exchanges of capital stock.
7The bill phases in over a three-year period the complete
8exclusion from the individual income tax the net capital gain
9from the sale of capital stock on one qualified corporation.
10The percentage of the capital gain that is excluded for tax
11years beginning in 2023, 2024, and 2025 and beyond is 33
12percent, 66 percent, and 100 percent, respectively. Several
13requirements must be met for the capital stock to qualify
14as capital stock of a qualified corporation. The qualified
15corporation must have employed individuals in this state for
16at least 10 years. The qualified corporation must have had at
17least five shareholders for the 10 years prior to the first
18sale or exchange pursuant to the bill, and the corporation must
19have had at least two shareholders or groups of shareholders
20who are not related for the 10 years prior to the sale or
21exchange. The bill requires the capital stock to be common or
22preferred stock, and may be either voting or nonvoting, but
23does not include warrants, stock options, or debt securities.
24The bill provides that the election applies to transfers of
25the capital stock by inter vivos gift from the employee-owner
26to a spouse, or to a trust for the benefit of the
27employee-owner’s spouse. The election will apply to a spouse
28only if the spouse was married to the employee-owner on the
29date of the sale or the date of the employee-owner’s death.
30If, after making a valid inter vivos gift of stock that meets
31all the requirements for an election, an employee-owner dies
32without making an election, the surviving spouse, or if there
33is no surviving spouse, the personal representative of the
34employee-owner’s estate, may make the election.
35An election under the bill is made on a form prescribed by
-20-1the department of revenue and included with the taxpayer’s
2state income tax return for the taxable year in which the
3election is made.
4The division takes effect January 1, 2023, and applies to tax
5years beginning on or after that date.
6DIVISION II — RETIRED FARMER LEASE INCOME EXCLUSION.
7 Commencing with tax years beginning on or after January 1,
82023, the bill excludes from the individual income tax a
9retired farmer’s total net income received pursuant to a
10farm tenancy agreement covering real property held by the
11retired farmer for 10 or more years, if the farmer materially
12participated in a farming business for 10 or more years.
13Net income from a farm tenancy agreement earned by an
14entity taxed as a partnership for federal tax purposes, an S
15corporation, or a trust or estate is not eligible for the lease
16income exclusion, even if the net income passes through to a
17retired farmer.
18A retired farmer is not eligible for the lease income
19exclusion unless the farmer is at least 55 years of age and no
20longer materially participating in farming.
21A retired farmer who elects to claim the lease income
22exclusion is not eligible, in the tax year the election is made
23or in succeeding tax years, to claim the capital gain exclusion
24under Code section 422.7(21), as amended by another division of
25the bill, or the beginning farmer tax credit.
26The division takes effect January 1, 2023, and applies to tax
27years beginning on or after that date.
28DIVISION III — RETIRED FARMER CAPITAL GAIN EXCLUSION. The
29bill modifies the individual income tax capital gain exclusion
30for the sale of real property used in a farming business which
31otherwise would have gone into effect in tax year 2023, which
32was enacted in 2018 Iowa Acts, chapter 1161, section 113,
33and later modified in 2019 Iowa Acts, chapter 162. The bill
34repeals both 2018 Iowa Acts, chapter 1161, section 113, and
352019 Iowa Acts, chapter 162, and creates a new capital gain
-21-1exclusion provision based upon the 2019 Iowa Acts, chapter
2162 provisions, effective for tax years beginning on or after
3January 1, 2023.
4Under the provisions in 2019 Iowa Acts, chapter 162, section
51, which otherwise would have gone into effect during the 2023
6tax year, a taxpayer who materially participates in a farming
7business for at least 10 years and held real property used
8in such a business for at least 10 years, may make a single
9lifetime exclusion election from the individual income tax of
10the capital gain of the sale of such property.
11The bill modifies the term “materially participated” in a
12farming business to include a retired farmer if the retired
13farmer materially participated in a farming business for 10
14years or more, in the aggregate, prior to making the election
15to exclude the capital gain of the sale of real property used
16in a farming business.
17In addition to a single lifetime exclusion of the capital
18gain from the sale of real property used in a farming business,
19the bill also allows a retired farmer to make a single lifetime
20exclusion of the net capital gain from the sale of cattle
21or horses if held by the retired farmer for breeding, draft,
22dairy, or sporting purposes for more than 24 months, and
23only if the retired farmer materially participated in the
24farming business for five of the eight years preceding the
25retired farmer’s retirement or disability, and who sold all
26or substantially all of the retired farmer’s interest in the
27farming business by the time the election to exclude capital
28gain of the sale of livestock from the individual income tax
29is made.
30Additionally, the bill allows a retired farmer to make a
31single lifetime exclusion of the net capital gain from the
32sale of breeding livestock, other than cattle and horses, if
33the livestock is held by the retired farmer for more than 12
34months, and only if the retired farmer materially participated
35in the farming business for five of the eight years preceding
-22-1the retired farmer’s retirement or disability, and who sold all
2or substantially all of the retired farmer’s interest in the
3farming business by the time the election to exclude capital
4gain of the sale of livestock from the individual income tax
5is made.
6Under the bill, a retired farmer is not eligible for the
7capital gain exclusion if the retired farmer claims the
8beginning farmer tax credit in the same tax year. A retired
9farmer electing the capital gain exclusion is not eligible to
10elect to exclude retired farmer lease income in the same tax
11year or any succeeding tax year.
12The division takes effect January 1, 2023, and applies to
13sales consummated on or after that date.
14For sales consummated prior to January 1, 2023, the existing
15law in Code section 422.7(21) shall govern.
16DIVISION IV — INDIVIDUAL INCOME TAX — TAX YEARS 2023-2025.
17 The bill repeals the individual income tax rates and brackets
18described in 2018 Iowa Acts, chapter 1161, section 107, which
19otherwise would have gone into effect January 1, 2023, and
20strikes and replaces the individual income tax rates and
21brackets for the tax year beginning January 1, 2023, in Code
22section 422.5A. The bill reduces individual income tax rates
23beginning with the 2023 tax year, and reduces the number of
24individual income tax brackets beginning with the 2024 tax
25year. The modified individual income tax rates and brackets
26are as follows:
27For the 2023 tax year:
28Married filing jointly
29Income over:But not over: Tax Rate:
301) $0$12,000 4.40%
312) $12,000$60,000 4.82%
323) $60,000$150,000 5.70%
334) $150,0006.00%
34All other filers other than married filing jointly
35Income over:But not over: Tax Rate:
-23- 11) $0$6,000 4.40%
22) $6,000$30,000 4.82%
33) $30,000$75,000 5.70%
44) $75,0006.00%
5For the 2024 tax year:
6Married filing jointly
7Income over:But not over: Tax Rate:
81) $0$12,000 4.40%
92) $12,000$60,000 4.82%
103) $60,0005.70%
11All other filers other than married filing jointly
12Income over:But not over: Tax Rate:
131) $0$6,000 4.40%
142) $6,000$30,000 4.82%
153) $30,0005.70%
16For the 2025 tax year:
17Married filing jointly
18Income over:But not over: Tax Rate:
191) $0$12,000 4.40%
202) $12,0004.82%
21All other filers other than married filing jointly
22Income over:But not over: Tax Rate:
231) $0$6,000 4.40%
242) $6,0004.82%
25Currently, an alternate income tax calculation exists
26in Code section 422.5. The alternate income tax is an
27alternate method of calculating income tax liability in lieu
28of the regular income tax calculation. The alternate method
29multiplies the taxpayer’s taxable income above the income tax
30filing thresholds in Code section 422.5(3)(b) or 422.5(3B)(b)
31by the highest existing individual income tax rate until
32the taxpayer’s tax liability is equal to the tax liability
33that would have been calculated under the regular income tax
34calculation method, then after such point the regular income
35tax calculation with the regular income tax rates are used.
-24-1The bill phases in changes to the alternate tax rate until the
2rate is set at 4.50 percent commencing with tax years beginning
3on or after January 1, 2026.
4The division takes effect January 1, 2023, and applies to tax
5years beginning on or after that date.
6DIVISION V — INDIVIDUAL INCOME TAX — FLAT RATE. Commencing
7with tax years beginning on or after January 1, 2026, the
8bill establishes a flat 4.00 percent individual income tax
9rate on all taxable income and moves the individual income
10tax rate from Code section 422.5A to Code section 422.5. The
11division takes effect January 1, 2026, and applies to tax years
12beginning on or after that date.
13DIVISION VI — RETIREMENT INCOME EXCLUSION. Under current
14law, a taxpayer who is disabled, who is at least 55 years of
15age, or who is the surviving spouse or other specified survivor
16of that qualifying taxpayer, may exclude a maximum of $6,000 of
17other retirement income ($12,000 for married persons).
18Commencing with tax years beginning January 1, 2023, the
19bill excludes retirement income from the computation of net
20income for purposes of the individual income tax. In order
21to be eligible for the retirement income exclusion, a person
22must be disabled, at least 55 years of age, or be the surviving
23spouse of an individual or be a survivor having an insurable
24interest in an individual who would have qualified for the
25retirement income exclusion.
26The bill does not change current law allowing a taxpayer
27to exclude all retirement pay, including certain survivor
28benefits, received from the federal government for military
29service performed in the armed forces, the armed forces
30military reserve, or national guard.
31The bill strikes a provision permitting moneys in the
32taxpayer relief fund to be used for increases in the general
33retirement income exclusions in Code section 422.7(31) because
34the bill provides for the complete exclusion of such retirement
35income.
-25- 1The bill also excludes this retirement income from the
2calculation of net income for purposes of determining whether
3or not a taxpayer’s net income exceeds the amount at which the
4individual income tax will not be imposed pursuant to Code
5section 422.5(3) or 422.5(3B), and for which an individual
6income tax return is not required to be filed, and for purposes
7of calculating the alternate tax in Code section 422.5, and
8further provides that any retirement income excluded from
9the individual income tax will not be added back to these
10calculations for tax years beginning in 2023 or later.
11The division takes effect January 1, 2023, and applies to tax
12years beginning on or after that date.
13DIVISION VII — TAXPAYER RELIEF FUND. For each of the next
14six fiscal years, the bill transfers from the taxpayer relief
15fund to the general fund of the state the following amounts:
16for FY 2022-2023, $113 million; for FY 2023-2024, $159.1
17million; for FY 2024-2025, $92.3 million; for FY 2025-2026,
18$259.4 million; for FY 2026-2027, $195.6 million; for FY
192027-2028, $9.6 million.
-26-jm/jh
2individual income tax, making appropriations, and including
3effective date and applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2SALE OF CERTAIN QUALIFIED STOCK — NET CAPITAL GAIN EXCLUSION
3 Section 1. Section 422.7, Code 2022, is amended by adding
4the following new subsection:
5 NEW SUBSECTION. 63. a. Subtract the following percentage
6of the net capital gain from the sale or exchange of capital
7stock of a qualified corporation for which an election is made
8by an employee-owner:
9(1) For the tax year beginning in the 2023 calendar year,
10thirty-three percent.
11(2) For the tax year beginning in the 2024 calendar year,
12sixty-six percent.
13(3) For tax years beginning on or after January 1, 2025, one
14hundred percent.
15b. (1) An employee-owner is entitled to make one
16irrevocable lifetime election to exclude the net capital gain
17from the sale or exchange of capital stock of one qualified
18corporation which capital stock was acquired by the employee-
19owner while employed and on account of employment by such
20qualified corporation.
21(2) The election shall apply to all subsequent sales
22or exchanges of qualifying capital stock of the elected
23corporation within fifteen years of the date of the election,
24provided that the subsequent sales or exchanges were of capital
25stock in the same qualified corporation and were acquired by
26the employee-owner while employed and on account of employment
27by such qualified corporation.
28(3) The election shall apply to qualifying capital stock
29that has been transferred by inter vivos gift from the
30employee-owner to the employee-owner’s spouse or to a trust
31for the benefit of the employee-owner’s spouse following the
32transfer. This subparagraph (3) shall apply to a spouse
33only if the spouse was married to the employee-owner on the
34date of the sale or exchange or the date of death of the
35employee-owner.
-1- 1(4) If the employee-owner dies after having sold or
2exchanged qualifying capital stock without having made an
3election under this subsection, the surviving spouse or, if
4there is no surviving spouse, the personal representative of
5the employee-owner’s estate, may make the election that would
6have qualified under this subsection.
7(5) The election shall be made in the manner and form
8prescribed by the department and shall be included with the
9taxpayer’s state income tax return for the taxable year in
10which the election is made.
11c. For purposes of this subsection:
12(1) “Capital stock” means common or preferred stock, either
13voting or nonvoting. “Capital stock” does not include stock
14rights, stock warrants, stock options, or debt securities.
15(2) “Employee-owner” means an individual who owns capital
16stock in a qualified corporation for at least ten years, which
17capital stock was acquired by the individual while employed and
18on account of employment by such corporation for at least ten
19cumulative years.
20(3) “Personal representative” means the same as defined in
21section 633.3, or if there is no such personal representative
22appointed, then the person legally authorized to perform
23substantially the same functions.
24(4) (a) “Qualified corporation” means, with respect to an
25employee-owner, a corporation which, at the time of the first
26sale or exchange for which an election is made by the employee-
27owner under this subsection, meets all of the following
28conditions:
29(i) The corporation employed individuals in this state for
30at least ten years.
31(ii) The corporation has had at least five shareholders for
32the ten years prior to the first sale or exchange under this
33subsection.
34(iii) The corporation has had at least two shareholders or
35groups of shareholders who are not related for the ten years
-2-1prior to the first sale or exchange under this subsection.
2Two persons are considered related when, under section 318 of
3the Internal Revenue Code, one is a person who owns, directly
4or indirectly, capital stock that if directly owned would be
5attributed to the other person, or is the brother, sister,
6aunt, uncle, cousin, niece, or nephew of the other person who
7owns capital stock either directly or indirectly.
8(b) “Qualified corporation” includes any member of an Iowa
9affiliated group if the Iowa affiliated group includes a member
10that has employed individuals in this state for at least ten
11years. For purposes of this subparagraph division, “Iowa
12affiliated group” means an affiliated group that has made a
13valid election to file an Iowa consolidated income tax return
14under section 422.37 in the year in which the deduction under
15this subsection is claimed. “Member” includes any entity
16included in the consolidated return under section 422.37,
17subsection 2, for the tax year in which the deduction is
18claimed.
19(c) “Qualified corporation” also includes any corporation
20that was a party to a reorganization that was entirely or
21substantially tax free if such reorganization occurred during
22or after the employment of the employee-owner.
23 Sec. 2. EFFECTIVE DATE. This division of this Act takes
24effect January 1, 2023.
25 Sec. 3. APPLICABILITY. This division of this Act applies to
26tax years beginning on or after January 1, 2023.
27DIVISION II
28RETIRED FARMER LEASE INCOME EXCLUSION
29 Sec. 4. Section 422.7, Code 2022, is amended by adding the
30following new subsection:
31 NEW SUBSECTION. 21A. a. Subtract, to the extent included,
32net income received by an eligible individual pursuant to a
33farm tenancy agreement covering real property held by the
34eligible individual for ten or more years, if the eligible
35individual materially participated in a farming business for
-3-1ten or more years.
2b. An individual who elects to exclude income received
3pursuant to a farm tenancy agreement under this subsection
4shall not claim any of the following in the tax year in which
5the election is made or in any succeeding year:
6(1) The capital gain exclusion under section 422.7,
7subsection 21.
8(2) The beginning farmer tax credit under section 422.11E.
9c. Married individuals who file separate state income tax
10returns shall allocate their combined annual exclusion limit
11to each spouse in the proportion that each spouse’s respective
12net income from a farm tenancy agreement bears to the total net
13income from a farm tenancy agreement.
14d. The department shall establish criteria, by rule,
15relating to whether and how a surviving spouse may claim the
16income exclusion for which a deceased eligible individual would
17have been eligible under this subsection.
18e. Net income from a farm tenancy agreement earned,
19received, or reported by an entity taxed as a partnership
20for federal tax purposes, an S corporation, or a trust or
21estate is not eligible for the election and deduction in this
22subsection, even if such net income ultimately passes through
23to an eligible individual.
24f. For purposes of this subsection:
25(1) “Eligible individual” means an individual who is
26disabled or who is fifty-five years of age or older at the time
27the election is made, who no longer materially participates in
28a farming business at the time the election is made, and who,
29as an owner-lessor, is party to a farm tenancy agreement.
30(2) “Farm tenancy agreement” means a written agreement
31outlining the rights and obligations of an owner-lessor and a
32tenant-lessee where the tenant-lessee has a farm tenancy as
33defined in section 562.1A. A “farm tenancy agreement” includes
34cash leases, crop share leases, or livestock share leases.
35(3) “Farming business” means the production, care, growing,
-4-1harvesting, preservation, handling, or storage of crops
2or forest or fruit trees; the production, care, feeding,
3management, and housing of livestock; or horticulture, all
4intended for profit.
5(4) “Livestock” means the same as defined in section 717.1.
6(5) “Materially participated” means the same as “material
7participation” in section 469(h) of the Internal Revenue Code.
8 Sec. 5. EFFECTIVE DATE. This division of this Act takes
9effect January 1, 2023.
10 Sec. 6. APPLICABILITY. This division of this Act applies to
11tax years beginning on or after January 1, 2023.
12DIVISION III
13RETIRED FARMER CAPITAL GAIN EXCLUSION
14 Sec. 7. Section 422.7, subsection 21, Code 2022, is amended
15by striking the subsection and inserting in lieu thereof the
16following:
1721. a. For purposes of this subsection:
18(1) “Farming business” means the production, care, growing,
19harvesting, preservation, handling, or storage of crops
20or forest or fruit trees; the production, care, feeding,
21management, and housing of livestock; or horticulture, all for
22intended profit.
23(2) “Held” shall be determined with reference to the holding
24period provisions of section 1223 of the Internal Revenue Code
25and the federal regulations pursuant thereto.
26(3) “Livestock” means the same as defined in section 717.1.
27(4) “Materially participated” means the same as “material
28participation” in section 469(h) of the Internal Revenue Code.
29(5) (a) “Real property used in a farming business” means
30all tracts of land and the improvements and structures located
31on such tracts which are in good faith used primarily for
32a farming business. Buildings which are primarily used or
33intended for human habitation are deemed to be used in a
34farming business when the building is located on or adjacent
35to the parcel used in the farming business. Land and the
-5-1nonresidential improvements and structures located on such land
2that shall be considered to be used primarily in a farming
3business include but are not limited to land, improvements
4or structures used for the storage or maintenance of farm
5machinery or equipment, for the drying, storage, handling,
6or preservation of agricultural crops, or for the storage of
7farm inputs, feed, or manure. Real property used in a farming
8business shall also include woodland, wasteland, pastureland,
9and idled land used for the conservation of natural resources
10including soil and water.
11(b) Real property classified as agricultural property for
12Iowa property tax purposes, except real property described
13in section 441.21, subsection 12, paragraph “a” or “b”,
14shall be presumed to be real property used in a farming
15business. This presumption is rebuttable by the department by
16a preponderance of evidence that the real property did not meet
17the requirements of subparagraph division (a).
18(6) “Relative” means a person that satisfies one or more of
19the following conditions:
20(a) The individual is related to the taxpayer by
21consanguinity or affinity within the second degree as
22determined by common law.
23(b) The individual is a lineal descendent of the taxpayer.
24For purposes of this subparagraph division, “lineal descendent”
25means children of the taxpayer, including legally adopted
26children and biological children, stepchildren, grandchildren,
27great-grandchildren, and any other lineal descendent of the
28taxpayer.
29(c) An entity in which an individual who satisfies the
30conditions of either subparagraph division (a) or (b) has a
31legal or equitable interest as an owner, member, partner, or
32beneficiary.
33(7) “Retired farmer” means an individual who is disabled
34or who is fifty-five years of age or older and who no longer
35materially participates in a farming business when an exclusion
-6-1and deduction is claimed under this subsection.
2b. Subtract the net capital gain from the sale of real
3property used in a farming business if one of the following
4conditions are satisfied:
5(1) The taxpayer has materially participated in a farming
6business for a minimum of ten years and has held the real
7property used in a farming business for a minimum of ten years.
8If the taxpayer is a retired farmer, the taxpayer is considered
9to meet the material participation requirement if the taxpayer
10materially participated in a farming business for ten years or
11more in the aggregate, prior to making an election under this
12subsection.
13(2) The taxpayer has held the real property used in a
14farming business which is sold to a relative of the taxpayer.
15c. For a taxpayer who is a retired farmer, subtract the
16net capital gain from the sale of cattle or horses held by
17the taxpayer for breeding, draft, dairy, or sporting purposes
18for a period of twenty-four months or more from the date of
19acquisition; but only if the taxpayer materially participated
20in the farming business for five of the eight years preceding
21the farmer’s retirement or disability and who has sold all or
22substantially all of the taxpayer’s interest in the farming
23business by the time the election under this paragraph is made.
24d. For a taxpayer who is a retired farmer, subtract the net
25capital gain from the sale of breeding livestock, other than
26cattle and horses, if the livestock is held by the taxpayer for
27a period of twelve months or more from the date of acquisition;
28but only if the taxpayer materially participated in the farming
29business for five of the eight years preceding the farmer’s
30retirement or disability and who has sold all or substantially
31all of the taxpayer’s interest in the farming business by the
32time the election under this paragraph is made.
33e. A taxpayer who is a retired farmer may make, subject to
34the limitations described in paragraphs “f” and “g”, a single,
35lifetime election to exclude all qualifying capital gains under
-7-1paragraphs “b”, “c”, and “d”.
2f. A taxpayer who is a retired farmer who elects to exclude
3capital gains under paragraph “b”, “c”, or “d” shall not claim
4the beginning farmer tax credit under section 422.11E or the
5exclusion for net income received pursuant to a farm tenancy
6agreement in section 422.7, subsection 21A, in the tax year in
7which this election is made or in any subsequent year.
8g. A taxpayer who is a retired farmer who claims the
9beginning farmer tax credit under section 422.11E shall not,
10in the same year, make an election under this subsection. A
11taxpayer who is a retired farmer and who elects to exclude
12the net income received from a farm tenancy agreement under
13section 422.7, subsection 21A, shall not, in the same tax year
14or in any subsequent tax year, make the election under this
15subsection.
16h. Married individuals who file separate state income tax
17returns shall allocate their combined annual net capital gain
18exclusion under paragraphs “b”, “c”, and “d” to each spouse in
19the proportion that each spouse’s respective net capital gain
20bears to the total net capital gain.
21i. The department shall establish criteria, by rule,
22relating to whether and how a surviving spouse may claim the
23income exclusion for which a deceased retired farmer would have
24been eligible under this subsection.
25 Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113,
26is repealed.
27 Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is
28repealed.
29 Sec. 10. EFFECTIVE DATE. This division of this Act takes
30effect January 1, 2023.
31 Sec. 11. APPLICABILITY.
321. This division of this Act applies to tax years beginning
33on or after January 1, 2023.
342. This division of this Act applies to sales consummated on
35or after the effective date of this division of this Act, and
-8-1sales consummated prior to the effective date of this division
2of this Act shall be governed by the law as it existed prior to
3the effective date of this division of this Act.
4DIVISION IV
5INDIVIDUAL INCOME TAX RATES — tax years 2023-2025
6 Sec. 12. Section 422.5, subsection 3, paragraph b, Code
72022, is amended to read as follows:
8b. (1) In lieu of the computation in subsection 1 or
92, or in paragraph “a” of this subsection, if the married
10persons’, filing jointly or filing separately on a combined
11return, head of household’s, or surviving spouse’s net income
12exceeds thirteen thousand five hundred dollars, the regular
13tax imposed under this subchapter shall be the lesser of the
14maximum alternate state individual income tax rate specified in
15subparagraph (2) times the portion of the net income in excess
16of thirteen thousand five hundred dollars or the regular tax
17liability computed without regard to this sentence. Taxpayers
18electing to file separately shall compute the alternate tax
19described in this paragraph using the total net income of the
20husband and wife spouses. The alternate tax described in this
21paragraph does not apply if one spouse elects to carry back or
22carry forward the loss as provided in section 422.9, subsection
233.
24(2) (a) (i) (A) For the tax year beginning on or after
25January 1, 2023, but before January 1, 2024, the alternate tax
26rate is 6.00 percent.
27(B) For the tax year beginning on or after January 1, 2024,
28but before January 1, 2025, the alternate tax rate is 5.70
29percent.
30(C) For the tax year beginning on or after January 1, 2025,
31but before January 1, 2026, the alternate tax rate is 5.20
32percent.
33(ii) This subparagraph division (a) is repealed January 1,
342026.
35(b) For tax years beginning on or after January 1, 2026, the
-9-1alternate tax rate is 4.50 percent.
2 Sec. 13. Section 422.5, subsection 3B, paragraph b, Code
32022, is amended to read as follows:
4b. (1) In lieu of the computation in subsection 1, 2, or 3,
5if the married persons’, filing jointly or filing separately on
6a combined return, head of household’s, or surviving spouse’s
7net income exceeds thirty-two thousand dollars, the regular
8tax imposed under this subchapter shall be the lesser of the
9maximum alternate state individual income tax rate specified in
10subparagraph (2) times the portion of the net income in excess
11of thirty-two thousand dollars or the regular tax liability
12computed without regard to this sentence. Taxpayers electing
13to file separately shall compute the alternate tax described in
14this paragraph using the total net income of the husband and
15wife spouses. The alternate tax described in this paragraph
16does not apply if one spouse elects to carry back or carry
17forward the loss as provided in section 422.9, subsection 3.
18(2) (a) (i) (A) For the tax year beginning on or after
19January 1, 2023, but before January 1, 2024, the alternate tax
20rate is 6.00 percent.
21(B) For the tax year beginning on or after January 1, 2024,
22but before January 1, 2025, the alternate tax rate is 5.70
23percent.
24(C) For the tax year beginning on or after January 1, 2025,
25but before January 1, 2026, the alternate tax rate is 5.20
26percent.
27(ii) This subparagraph division (a) is repealed January 1,
282026.
29(b) For tax years beginning on or after January 1, 2026, the
30alternate tax rate is 4.50 percent.
31 Sec. 14. Section 422.5, subsection 6, Code 2022, is amended
32to read as follows:
336. a. Upon determination of the latest cumulative inflation
34factor, the director shall multiply each dollar amount set
35forth in section 422.5A by this cumulative inflation factor,
-10-1shall round off the resulting product to the nearest one
2dollar, and shall incorporate the result into the income tax
3forms and instructions for each tax year.
4b. This subsection is repealed on January 1, 2026.
5 Sec. 15. Section 422.5A, Code 2022, is amended by striking
6the section and inserting in lieu thereof the following:
7422.5A Tax rates.
81. a. The tax imposed in section 422.5 shall be calculated
9using the following rates in the following tax years in the
10case of married persons filing jointly:
11(1) For the tax year beginning on or after January 1, 2023,
12but before January 1, 2024:
13(a) On taxable income from 0 through $12,000, the rate of
144.40 percent.
15(b) On taxable income exceeding $12,000 but not exceeding
16$60,000, the rate of 4.82 percent.
17(c) On taxable income exceeding $60,000 but not exceeding
18$150,000, the rate of 5.70 percent.
19(d) On taxable income exceeding $150,000, the rate of 6.00
20percent.
21(2) For the tax year beginning on or after January 1, 2024,
22but before January 1, 2025:
23(a) On taxable income from 0 through $12,000, the rate of
244.40 percent.
25(b) On taxable income exceeding $12,000 but not exceeding
26$60,000, the rate of 4.82 percent.
27(c) On taxable income exceeding $60,000, the rate of 5.70
28percent.
29(3) For the tax year beginning on or after January 1, 2025,
30but before January 1, 2026:
31(a) On taxable income from 0 through $12,000, the rate of
324.40 percent.
33(b) On taxable income exceeding $12,000, the rate of 4.82
34percent.
35b. The tax imposed in section 422.5 shall be calculated
-11-1using the following rates in the following tax years in the
2case of any other taxpayer other than married persons filing
3jointly:
4(1) For the tax year beginning on or after January 1, 2023,
5but before January 1, 2024:
6(a) On taxable income from 0 through $6,000, the rate of
74.40 percent.
8(b) On taxable income exceeding $6,000 but not exceeding
9$30,000, the rate of 4.82 percent.
10(c) On taxable income exceeding $30,000 but not exceeding
11$75,000, the rate of 5.70 percent.
12(d) On taxable income exceeding $75,000, the rate of 6.00
13percent.
14(2) For the tax year beginning on or after January 1, 2024,
15but before January 1, 2025:
16(a) On taxable income from 0 through $6,000, the rate of
174.40 percent.
18(b) On taxable income exceeding $6,000 but not exceeding
19$30,000, the rate of 4.82 percent.
20(c) On taxable income exceeding $30,000, the rate of 5.70
21percent.
22(3) For the tax year beginning on or after January 1, 2025,
23but before January 1, 2026:
24(a) On taxable income from 0 through $6,000, the rate of
254.40 percent.
26(b) On taxable income exceeding $6,000, the rate of 4.82
27percent.
282. This section is repealed January 1, 2026.
29 Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107,
30is repealed.
31 Sec. 17. EFFECTIVE DATE. This division of this Act takes
32effect January 1, 2023.
33 Sec. 18. APPLICABILITY. This division of this Act applies
34to tax years beginning on or after January 1, 2023.
35DIVISION V
-12-1INDIVIDUAL INCOME TAX — FLAT RATE
2 Sec. 19. Section 421.27, subsection 9, paragraph a,
3subparagraph (3), Code 2022, is amended to read as follows:
4(3) In the case of all other entities, including
5corporations described in section 422.36, subsection 5, and all
6other entities required to file an information return under
7section 422.15, subsection 2, the entity’s Iowa net income
8after the application of the Iowa business activity ratio,
9if applicable, multiplied by the top income tax rate imposed
10under section 422.5A 422.5 for the tax year, less any Iowa tax
11credits available to the entity.
12 Sec. 20. Section 422.5, subsection 1, paragraph a, Code
132022, is amended to read as follows:
14a. A tax is imposed upon every resident and nonresident
15of the state which tax shall be levied, collected, and paid
16annually upon and with respect to the entire taxable income
17as defined in this subchapter at rates as provided in section
18422.5A a rate of four percent.
19 Sec. 21. Section 422.16B, subsection 2, paragraph a, Code
202022, is amended to read as follows:
21a. (1) A pass-through entity shall file a composite return
22on behalf of all nonresident members and shall report and pay
23the income or franchise tax imposed under this chapter at the
24maximum state income or franchise tax rate applicable to the
25member under section 422.5A 422.5, 422.33, or 422.63 on the
26nonresident members’ distributive shares of the income from the
27pass-through entity.
28(2) The tax rate applicable to a tiered pass-through entity
29shall be the maximum state income tax rate under section 422.5A
30 422.5.
31 Sec. 22. Section 422.25A, subsection 5, paragraph c,
32subparagraphs (3), (4), and (5), Code 2022, are amended to read
33as follows:
34(3) Determine the total distributive share of all final
35federal partnership adjustments and positive reallocation
-13-1adjustments as modified by this title that are reported to
2nonresident individual partners and nonresident fiduciary
3partners and allocate and apportion such adjustments as
4provided in section 422.33 at the partnership or tiered
5partner level, and multiply the resulting amount by the maximum
6 individual income tax rate pursuant to section 422.5A 422.5 for
7the reviewed year.
8(4) For the total distributive share of all final federal
9partnership adjustments and positive reallocation adjustments
10as modified by this title that are reported to tiered partners:
11(a) Determine the amount of such adjustments which are of a
12type that would be subject to sourcing to Iowa under section
13422.8, subsection 2, paragraph “a”, as a nonresident, and then
14determine the portion of this amount that would be sourced to
15Iowa under those provisions as if the tiered partner were a
16nonresident.
17(b) Determine the amount of such adjustments which are of
18a type that would not be subject to sourcing to Iowa under
19section 422.8, subsection 2, paragraph “a”, as a nonresident.
20(c) Determine the portion of the amount in subparagraph
21division (b) that can be established, as prescribed by the
22department by rule, to be properly allocable to indirect
23partners that are nonresident partners or other partners not
24subject to tax on the adjustments.
25(d) Multiply the total of the amounts determined in
26subparagraph divisions (a) and (b), reduced by any amount
27determined in subparagraph division (c), by the highest
28 individual income tax rate pursuant to section 422.5A 422.5 for
29the reviewed year.
30(5) For the total distributive share of all final federal
31partnership adjustments and positive reallocation adjustments
32as modified by this title that are reported to resident
33individual partners and resident fiduciary partners, multiply
34that amount by the highest individual income tax rate pursuant
35to section 422.5A 422.5 for the reviewed year.
-14-1 Sec. 23. EFFECTIVE DATE. This division of this Act takes
2effect January 1, 2026.
3 Sec. 24. APPLICABILITY. This division of this Act applies
4to tax years beginning on or after January 1, 2026.
5DIVISION VI
6Retirement Income
7 Sec. 25. Section 8.57E, subsection 2, Code 2022, is amended
8to read as follows:
92. Moneys in the taxpayer relief fund shall only be used
10pursuant to appropriations or transfers made by the general
11assembly for tax relief, including but not limited to increases
12in the general retirement income exclusion under section 422.7,
13subsection 31, or reductions in income tax rates.
14 Sec. 26. Section 422.5, subsection 3, paragraph a, Code
152022, is amended to read as follows:
16a. The tax shall not be imposed on a resident or nonresident
17whose net income, as defined in section 422.7, is thirteen
18thousand five hundred dollars or less in the case of married
19persons filing jointly or filing separately on a combined
20return, heads of household, and surviving spouses or nine
21thousand dollars or less in the case of all other persons; but
22in the event that the payment of tax under this subchapter
23would reduce the net income to less than thirteen thousand five
24hundred dollars or nine thousand dollars as applicable, then
25the tax shall be reduced to that amount which would result
26in allowing the taxpayer to retain a net income of thirteen
27thousand five hundred dollars or nine thousand dollars as
28applicable. The preceding sentence does not apply to estates
29or trusts. For the purpose of this subsection, the entire net
30income, including any part of the net income not allocated
31to Iowa, shall be taken into account. For purposes of this
32subsection, net income includes all amounts of pensions or
33other retirement income, except for military retirement pay
34excluded under section 422.7, subsection 31A, paragraph “a”, or
35section 422.7, subsection 31B, paragraph “a”, received from any
-15-1source which is not taxable under this subchapter as a result
2of the government pension exclusions in section 422.7, or any
3other state law. If the combined net income of a husband and
4wife exceeds thirteen thousand five hundred dollars, neither
5of them shall receive the benefit of this subsection, and it
6is immaterial whether they file a joint return or separate
7returns. However, if a husband and wife file separate returns
8and have a combined net income of thirteen thousand five
9hundred dollars or less, neither spouse shall receive the
10benefit of this paragraph, if one spouse has a net operating
11loss and elects to carry back or carry forward the loss as
12provided in section 422.9, subsection 3. A person who is
13claimed as a dependent by another person as defined in section
14422.12 shall not receive the benefit of this subsection if
15the person claiming the dependent has net income exceeding
16thirteen thousand five hundred dollars or nine thousand dollars
17as applicable or the person claiming the dependent and the
18person’s spouse have combined net income exceeding thirteen
19thousand five hundred dollars or nine thousand dollars as
20applicable.
21 Sec. 27. Section 422.5, subsection 3B, paragraph a, Code
222022, is amended to read as follows:
23a. The tax shall not be imposed on a resident or nonresident
24who is at least sixty-five years old on December 31 of
25the tax year and whose net income, as defined in section
26422.7, is thirty-two thousand dollars or less in the case
27of married persons filing jointly or filing separately on a
28combined return, heads of household, and surviving spouses or
29twenty-four thousand dollars or less in the case of all other
30persons; but in the event that the payment of tax under this
31subchapter would reduce the net income to less than thirty-two
32thousand dollars or twenty-four thousand dollars as applicable,
33then the tax shall be reduced to that amount which would result
34in allowing the taxpayer to retain a net income of thirty-two
35thousand dollars or twenty-four thousand dollars as applicable.
-16-1The preceding sentence does not apply to estates or trusts.
2For the purpose of this subsection, the entire net income,
3including any part of the net income not allocated to Iowa,
4shall be taken into account. For purposes of this subsection,
5net income includes all amounts of pensions or other retirement
6income, except for military retirement pay excluded under
7section 422.7, subsection 31A, paragraph “a”, or section 422.7,
8subsection 31B, paragraph “a”, received from any source which is
9not taxable under this subchapter as a result of the government
10pension exclusions in section 422.7, or any other state law.
11 If the combined net income of a husband and wife exceeds
12thirty-two thousand dollars, neither of them shall receive the
13benefit of this subsection, and it is immaterial whether they
14file a joint return or separate returns. However, if a husband
15and wife file separate returns and have a combined net income
16of thirty-two thousand dollars or less, neither spouse shall
17receive the benefit of this paragraph, if one spouse has a net
18operating loss and elects to carry back or carry forward the
19loss as provided in section 422.9, subsection 3. A person
20who is claimed as a dependent by another person as defined in
21section 422.12 shall not receive the benefit of this subsection
22if the person claiming the dependent has net income exceeding
23thirty-two thousand dollars or twenty-four thousand dollars
24as applicable or the person claiming the dependent and the
25person’s spouse have combined net income exceeding thirty-two
26thousand dollars or twenty-four thousand dollars as applicable.
27 Sec. 28. Section 422.7, subsection 31, Code 2022, is amended
28to read as follows:
2931. a. For a person who is disabled, or is fifty-five years
30of age or older, or is the surviving spouse of an individual or
31a survivor having an insurable interest in an individual who
32would have qualified for the exemption under this subsection
33 for the tax year, subtract Subtract, to the extent included,
34the total amount of received from a governmental or other
35pension or retirement pay plan, including, but not limited
-17-1to, defined benefit or defined contribution plans, annuities,
2individual retirement accounts, plans maintained or contributed
3to by an employer, or maintained or contributed to by a
4self-employed person as an employer, and deferred compensation
5plans or any earnings attributable to the deferred compensation
6plans, up to a maximum of six thousand dollars for a person,
7other than a husband or wife, who files a separate state income
8tax return and up to a maximum of twelve thousand dollars
9for a husband and wife who file a joint state income tax
10return. However, a surviving spouse who is not disabled or
11fifty-five years of age or older can only exclude the amount
12of pension or retirement pay received as a result of the death
13of the other spouse. A husband and wife filing separate state
14income tax returns or separately on a combined state return
15are allowed a combined maximum exclusion under this subsection
16 of up to twelve thousand dollars. The twelve thousand dollar
17exclusion shall be allocated to the husband or wife in the
18proportion that each spouse’s respective pension and retirement
19pay received bears to total combined pension and retirement
20pay received received by a person who is disabled, or is
21fifty-five years of age or older, or is the surviving spouse of
22an individual or is a survivor having an insurable interest in
23an individual who would have qualified for the exemption under
24this subsection for the tax year.
25b. Married taxpayers who file separate state income tax
26returns shall allocate their combined annual exclusion amount
27to each spouse in the proportion that each spouse’s respective
28income received from a pension or retirement plan bears to the
29total combined pension or retirement pay received.
30c. A taxpayer who is not disabled or fifty-five years of
31age or older and who receives pension or retirement pay as a
32surviving spouse or as a survivor with an insurable interest
33in an individual who would have qualified for the exemption
34for the tax year may only exclude the amount received from a
35pension or retirement plan in the tax year as a result of the
-18-1death of the decedent.
2 Sec. 29. EFFECTIVE DATE. This division of this Act takes
3effect January 1, 2023.
4 Sec. 30. APPLICABILITY. This division of this Act applies
5to tax years beginning on or after January 1, 2023.
6DIVISION VII
7taxpayer relief fund
8 Sec. 31. Section 8.57E, Code 2022, is amended by adding the
9following new subsection:
10 NEW SUBSECTION. 5. a. For the purposes of tax relief
11provided in this Act, the following amounts shall be
12transferred from the taxpayer relief fund to the general fund
13of the state for the following fiscal years:
14(1) For the fiscal year beginning July 1, 2022, and ending
15June 30, 2023, one hundred thirteen million dollars.
16(2) For the fiscal year beginning July 1, 2023, and ending
17June 30, 2024, one hundred fifty-nine million one hundred
18thousand dollars.
19(3) For the fiscal year beginning July 1, 2024, and ending
20June 30, 2025, ninety-two million three hundred thousand
21dollars.
22(4) For the fiscal year beginning July 1, 2025, and ending
23June 30, 2026, two hundred fifty-nine million four hundred
24thousand dollars.
25(5) For the fiscal year beginning July 1, 2026, and ending
26June 30, 2027, one hundred ninety-five million six hundred
27thousand dollars.
28(6) For the fiscal year beginning July 1, 2027, and ending
29June 30, 2028, nine million six hundred thousand dollars.
30b. This subsection is repealed July 1, 2028.
31EXPLANATION
32The inclusion of this explanation does not constitute agreement with
33the explanation’s substance by the members of the general assembly.
34This bill relates to state revenue and finance by modifying
35the individual income tax and making appropriations.
-19- 1DIVISION I — SALE OF CERTAIN QUALIFIED STOCK — NET
2CAPITAL GAIN EXCLUSION. The bill grants an employee-owner one
3irrevocable lifetime election to exclude from state individual
4income tax the net capital gain from the state of the capital
5stock on one qualified corporation. The election applies to
6all subsequent sales or exchanges of capital stock.
7The bill phases in over a three-year period the complete
8exclusion from the individual income tax the net capital gain
9from the sale of capital stock on one qualified corporation.
10The percentage of the capital gain that is excluded for tax
11years beginning in 2023, 2024, and 2025 and beyond is 33
12percent, 66 percent, and 100 percent, respectively. Several
13requirements must be met for the capital stock to qualify
14as capital stock of a qualified corporation. The qualified
15corporation must have employed individuals in this state for
16at least 10 years. The qualified corporation must have had at
17least five shareholders for the 10 years prior to the first
18sale or exchange pursuant to the bill, and the corporation must
19have had at least two shareholders or groups of shareholders
20who are not related for the 10 years prior to the sale or
21exchange. The bill requires the capital stock to be common or
22preferred stock, and may be either voting or nonvoting, but
23does not include warrants, stock options, or debt securities.
24The bill provides that the election applies to transfers of
25the capital stock by inter vivos gift from the employee-owner
26to a spouse, or to a trust for the benefit of the
27employee-owner’s spouse. The election will apply to a spouse
28only if the spouse was married to the employee-owner on the
29date of the sale or the date of the employee-owner’s death.
30If, after making a valid inter vivos gift of stock that meets
31all the requirements for an election, an employee-owner dies
32without making an election, the surviving spouse, or if there
33is no surviving spouse, the personal representative of the
34employee-owner’s estate, may make the election.
35An election under the bill is made on a form prescribed by
-20-1the department of revenue and included with the taxpayer’s
2state income tax return for the taxable year in which the
3election is made.
4The division takes effect January 1, 2023, and applies to tax
5years beginning on or after that date.
6DIVISION II — RETIRED FARMER LEASE INCOME EXCLUSION.
7 Commencing with tax years beginning on or after January 1,
82023, the bill excludes from the individual income tax a
9retired farmer’s total net income received pursuant to a
10farm tenancy agreement covering real property held by the
11retired farmer for 10 or more years, if the farmer materially
12participated in a farming business for 10 or more years.
13Net income from a farm tenancy agreement earned by an
14entity taxed as a partnership for federal tax purposes, an S
15corporation, or a trust or estate is not eligible for the lease
16income exclusion, even if the net income passes through to a
17retired farmer.
18A retired farmer is not eligible for the lease income
19exclusion unless the farmer is at least 55 years of age and no
20longer materially participating in farming.
21A retired farmer who elects to claim the lease income
22exclusion is not eligible, in the tax year the election is made
23or in succeeding tax years, to claim the capital gain exclusion
24under Code section 422.7(21), as amended by another division of
25the bill, or the beginning farmer tax credit.
26The division takes effect January 1, 2023, and applies to tax
27years beginning on or after that date.
28DIVISION III — RETIRED FARMER CAPITAL GAIN EXCLUSION. The
29bill modifies the individual income tax capital gain exclusion
30for the sale of real property used in a farming business which
31otherwise would have gone into effect in tax year 2023, which
32was enacted in 2018 Iowa Acts, chapter 1161, section 113,
33and later modified in 2019 Iowa Acts, chapter 162. The bill
34repeals both 2018 Iowa Acts, chapter 1161, section 113, and
352019 Iowa Acts, chapter 162, and creates a new capital gain
-21-1exclusion provision based upon the 2019 Iowa Acts, chapter
2162 provisions, effective for tax years beginning on or after
3January 1, 2023.
4Under the provisions in 2019 Iowa Acts, chapter 162, section
51, which otherwise would have gone into effect during the 2023
6tax year, a taxpayer who materially participates in a farming
7business for at least 10 years and held real property used
8in such a business for at least 10 years, may make a single
9lifetime exclusion election from the individual income tax of
10the capital gain of the sale of such property.
11The bill modifies the term “materially participated” in a
12farming business to include a retired farmer if the retired
13farmer materially participated in a farming business for 10
14years or more, in the aggregate, prior to making the election
15to exclude the capital gain of the sale of real property used
16in a farming business.
17In addition to a single lifetime exclusion of the capital
18gain from the sale of real property used in a farming business,
19the bill also allows a retired farmer to make a single lifetime
20exclusion of the net capital gain from the sale of cattle
21or horses if held by the retired farmer for breeding, draft,
22dairy, or sporting purposes for more than 24 months, and
23only if the retired farmer materially participated in the
24farming business for five of the eight years preceding the
25retired farmer’s retirement or disability, and who sold all
26or substantially all of the retired farmer’s interest in the
27farming business by the time the election to exclude capital
28gain of the sale of livestock from the individual income tax
29is made.
30Additionally, the bill allows a retired farmer to make a
31single lifetime exclusion of the net capital gain from the
32sale of breeding livestock, other than cattle and horses, if
33the livestock is held by the retired farmer for more than 12
34months, and only if the retired farmer materially participated
35in the farming business for five of the eight years preceding
-22-1the retired farmer’s retirement or disability, and who sold all
2or substantially all of the retired farmer’s interest in the
3farming business by the time the election to exclude capital
4gain of the sale of livestock from the individual income tax
5is made.
6Under the bill, a retired farmer is not eligible for the
7capital gain exclusion if the retired farmer claims the
8beginning farmer tax credit in the same tax year. A retired
9farmer electing the capital gain exclusion is not eligible to
10elect to exclude retired farmer lease income in the same tax
11year or any succeeding tax year.
12The division takes effect January 1, 2023, and applies to
13sales consummated on or after that date.
14For sales consummated prior to January 1, 2023, the existing
15law in Code section 422.7(21) shall govern.
16DIVISION IV — INDIVIDUAL INCOME TAX — TAX YEARS 2023-2025.
17 The bill repeals the individual income tax rates and brackets
18described in 2018 Iowa Acts, chapter 1161, section 107, which
19otherwise would have gone into effect January 1, 2023, and
20strikes and replaces the individual income tax rates and
21brackets for the tax year beginning January 1, 2023, in Code
22section 422.5A. The bill reduces individual income tax rates
23beginning with the 2023 tax year, and reduces the number of
24individual income tax brackets beginning with the 2024 tax
25year. The modified individual income tax rates and brackets
26are as follows:
27For the 2023 tax year:
28Married filing jointly
29Income over:But not over: Tax Rate:
301) $0$12,000 4.40%
312) $12,000$60,000 4.82%
323) $60,000$150,000 5.70%
334) $150,0006.00%
34All other filers other than married filing jointly
35Income over:But not over: Tax Rate:
-23- 11) $0$6,000 4.40%
22) $6,000$30,000 4.82%
33) $30,000$75,000 5.70%
44) $75,0006.00%
5For the 2024 tax year:
6Married filing jointly
7Income over:But not over: Tax Rate:
81) $0$12,000 4.40%
92) $12,000$60,000 4.82%
103) $60,0005.70%
11All other filers other than married filing jointly
12Income over:But not over: Tax Rate:
131) $0$6,000 4.40%
142) $6,000$30,000 4.82%
153) $30,0005.70%
16For the 2025 tax year:
17Married filing jointly
18Income over:But not over: Tax Rate:
191) $0$12,000 4.40%
202) $12,0004.82%
21All other filers other than married filing jointly
22Income over:But not over: Tax Rate:
231) $0$6,000 4.40%
242) $6,0004.82%
25Currently, an alternate income tax calculation exists
26in Code section 422.5. The alternate income tax is an
27alternate method of calculating income tax liability in lieu
28of the regular income tax calculation. The alternate method
29multiplies the taxpayer’s taxable income above the income tax
30filing thresholds in Code section 422.5(3)(b) or 422.5(3B)(b)
31by the highest existing individual income tax rate until
32the taxpayer’s tax liability is equal to the tax liability
33that would have been calculated under the regular income tax
34calculation method, then after such point the regular income
35tax calculation with the regular income tax rates are used.
-24-1The bill phases in changes to the alternate tax rate until the
2rate is set at 4.50 percent commencing with tax years beginning
3on or after January 1, 2026.
4The division takes effect January 1, 2023, and applies to tax
5years beginning on or after that date.
6DIVISION V — INDIVIDUAL INCOME TAX — FLAT RATE. Commencing
7with tax years beginning on or after January 1, 2026, the
8bill establishes a flat 4.00 percent individual income tax
9rate on all taxable income and moves the individual income
10tax rate from Code section 422.5A to Code section 422.5. The
11division takes effect January 1, 2026, and applies to tax years
12beginning on or after that date.
13DIVISION VI — RETIREMENT INCOME EXCLUSION. Under current
14law, a taxpayer who is disabled, who is at least 55 years of
15age, or who is the surviving spouse or other specified survivor
16of that qualifying taxpayer, may exclude a maximum of $6,000 of
17other retirement income ($12,000 for married persons).
18Commencing with tax years beginning January 1, 2023, the
19bill excludes retirement income from the computation of net
20income for purposes of the individual income tax. In order
21to be eligible for the retirement income exclusion, a person
22must be disabled, at least 55 years of age, or be the surviving
23spouse of an individual or be a survivor having an insurable
24interest in an individual who would have qualified for the
25retirement income exclusion.
26The bill does not change current law allowing a taxpayer
27to exclude all retirement pay, including certain survivor
28benefits, received from the federal government for military
29service performed in the armed forces, the armed forces
30military reserve, or national guard.
31The bill strikes a provision permitting moneys in the
32taxpayer relief fund to be used for increases in the general
33retirement income exclusions in Code section 422.7(31) because
34the bill provides for the complete exclusion of such retirement
35income.
-25- 1The bill also excludes this retirement income from the
2calculation of net income for purposes of determining whether
3or not a taxpayer’s net income exceeds the amount at which the
4individual income tax will not be imposed pursuant to Code
5section 422.5(3) or 422.5(3B), and for which an individual
6income tax return is not required to be filed, and for purposes
7of calculating the alternate tax in Code section 422.5, and
8further provides that any retirement income excluded from
9the individual income tax will not be added back to these
10calculations for tax years beginning in 2023 or later.
11The division takes effect January 1, 2023, and applies to tax
12years beginning on or after that date.
13DIVISION VII — TAXPAYER RELIEF FUND. For each of the next
14six fiscal years, the bill transfers from the taxpayer relief
15fund to the general fund of the state the following amounts:
16for FY 2022-2023, $113 million; for FY 2023-2024, $159.1
17million; for FY 2024-2025, $92.3 million; for FY 2025-2026,
18$259.4 million; for FY 2026-2027, $195.6 million; for FY
192027-2028, $9.6 million.
-26-jm/jh