Two Iowa Tax-Related Bills to Watch
Update: SF 220 passed the Senate by a vote of 48-0 on February 18, 2019. They immediately messaged the House. Read the Iowa Legislative Agency Report about this bill here.
In the month since the 2019 Session of Iowa’s 88th General Assembly convened, legislators have introduced hundreds of bills for consideration. This year, the first legislative funnel is scheduled for March 8, several weeks later than last year’s first legislative milestone. The first funnel marks the final day for non-appropriations Senate and House bills and joint resolutions to pass out of committee. Today, we want to draw your attention to two pending tax-related bills that could impact agricultural clients in the near term.
Section 179 Modification
Signed into law last May, Senate File 2417 made significant changes to Iowa tax law, particularly law impacting future years. For 2018, the law increased the Section 179 deduction limit for individuals to $70,000, with a reduction limitation of $280,000. This limit applies to partnerships, as well as LLCs taxed as partnerships. The law, however, did not increase the Section 179 deduction for corporations, including S corporations and C corporations. These corporations, as well as financial institutions subject to the Iowa Franchise Tax, are subject to a $25,000 Section 179 limit, with a $200,000 reduction limitation. The difference in treatment is for the 2018 tax year only as all entities and individuals are subject to a $100,000 Section 179 deduction limit with a $400,000 reduction limitation for 2019. In 2020, Iowa law is scheduled to fully couple with federal law for the Section 179 deduction.
The 2018 distinction between S corporations and partnerships with respect to the Section 179 deduction, in particular, seems to have been unintentional. In 2018, partnerships could pass through a $70,000 Section 179 deduction to their partners, but S corporations could pass through only a $25,000 deduction to their shareholders. Because in both cases, the owners are the ultimate taxpayers, the distinction seems unwarranted and arbitrary.
A pending bill, Senate File 220, would expand the enhanced Section 179 deduction ($70,000) and reduction limitation ($280,000) to apply to S corporations, C corporations, financial institutions, and LLCs and partnerships taxed as corporations. The bill cleared the Ways and Means Committee on February 7.
We are anticipating action on this bill in the near future. We will keep you posted because this legislation, if enacted, would significantly impact a number of 2018 returns.
Beginning Farmer Tax Credit Program
Introduced February 14, House Study Bill 173 would increase funding to the Beginning Farmer Tax Credit program, allowing more landlords to receive the special Iowa tax credit for working with a beginning farmer.
This new law would increase funding for the Beginning Farmer Tax Credit program from $6 million to $12 million per year. Cash rent contracts would yield a 5 percent credit and crop share contracts a 15 percent credit. There would be no special enhanced rate for renting farmland to veterans and no credit for those engaging custom contract farmers. Even so, funding levels would be restored to those that existed from 2013 to 2017. This article provides a summary of the prior law, which expired January 1, 2018.
We are following legislative activity and will continue to provide updates as developments unfold.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.