The state of Iowa has made significant tax law changes for tax year 2023. The starting point for taxation on your Iowa return is now federal taxable income. Iowa's 2023 instructions go on to state:
- "This means that Iowa will now incorporate the federal standard or itemized deduction and will no longer allow an Iowaspecific standard or itemized deduction.
- Iowa will also now incorporate the federal net operating loss and will no longer allow an Iowa-specific net operating loss. Taxpayers must use Schedule 1 to carry forward any pre-2023 Iowa net operating loss and must use Schedule 1 to reduce federal taxable income by any pre-2023 federal net operating loss carryforward. Taxpayers must use the new IA 124 to calculate pre-2023 federal net operating loss carryforwards to add back and pre-2023 Iowa net operating loss carryforwards to deduct against taxable income.
- Additionally, this change incorporates the federal qualified business income deduction and the domestic production activities deduction, and those will no longer be deducted separately on the Iowa return"
Alternative Minimum Tax (AMT)
- Iowa's alternative minimum tax has been repealed.
- The AMT credit carryforward from a previous year may be applied until January 1, 2024.
- Iowa will no longer have its own standard or itemized deductions, incorporating the federal standard or itemized deduction instead.
- All taxpayers must now use the same filing status on their Iowa return as their federal return.
- Married taxpayers no longer have the option to file separately on a combined return.
- The number of tax brackets has decreased, accompanied by reduced rates.
- This reduction is part of a phased plan, with Iowa aiming for a single tax rate of 3.9% by 2026.
- Farm Tenancy Income Exclusion: Retired farmers can exclude income from a farm tenancy agreement by meeting specific holding period and material participation requirements.
- Education Savings accounts payments used for qualifying expenses: The amount of education savings account payments used for qualifying expenses may be deducted.
- Retirement Income Exclusion The retirement income exclusion will now include all qualifying pension and retirement income for qualifying taxpayers.
- Additional Iowa Health Insurance Premiums Deduction: This deduction is no longer allowed for everyone. Starting with the 2023 tax year, the additional Iowa health insurance premiums deduction will be limited to taxpayers age 65 or older with Iowa taxable income of $100,000 or less.
- Capital Gain Deductions: Most of the Iowa capital gain deductions have been repealed for capital transactions occurring after January 1, 2023. However, installments from capital sales made prior to January 1, 2023 may still be deducted.
- Iowa Composite Credits: These credits should be reported on line 27 of the Iowa IA 1040. You must include the IA Schedule CC with your return.
For more information regarding the changes made by Iowa, please see Iowa's 2023 instruction booklet.