The Iowa Homestead Credit and revocable trusts

To qualify for the credit, the property owner must be a resident of Iowa and actually live on the property on July 1 andfor at least six months of every year. The only exceptions are persons in the military and nursing homes who otherwise qualify.

Sign-up for the credit is at the assessor’s office by July 1 of the year the credit is first claimed. Once a person qualifies, the credit continues until the property is sold or until the owner no longer qualifies.

But, word comes from Orville Bloethe (long-time practicing lawyer in Victor, Iowa) that there is an unexpected issue that arises when the home is placed in a revocable trust. Largely, it is a timing issue. The following example illustrates the problem:

Example: Sally executes a revocable trust and deed conveying land to the revocable trust on June 25, 2006. The deed is recorded on July 7, 2006. Later, Sally learns from the assessor’s office that she is not eligible for the Homestead Credit for the year beginning July 1, 2006 and ending June 30, 2007.

Result: The Iowa Department of Revenue is taking the position that the transfer of the home to the trust is the equivalent of buying a new home and applying for the Homestead Credit for the first time. It doesn’t matter that Sally has lived in the home for many years. Thus, Sally loses the Homestead Credit for the year beginning July 1, 2006.

Solution: Sally must transfer the home to the trust, record the deed and apply for the Homestead Credit all before July 1, 2006, or she will lose the Homestead Credit.