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TAX LAWS<br />
Farm tenancy income<br />
exclusion<br />
Beginning in 2023, certain “retirement<br />
income” for those disabled or 55<br />
or older is excluded from Iowa taxable<br />
income. The law exempts retirement<br />
income received by surviving spouses.<br />
Prior law exempted retirement<br />
income only up to $6,000 for singles,<br />
and $12,000 for those who are married<br />
filing jointly.<br />
Exempted income includes income<br />
from qualified retirement accounts, annuities,<br />
individual retirement accounts,<br />
plans maintained or contributed to by<br />
an employer, or maintained or contributed<br />
to by a self-employed person as an<br />
employer, and deferred compensation<br />
plans or any earnings attributable to the<br />
deferred compensation plans.<br />
Recognizing land is a retirement fund<br />
for many farmers, lawmakers created<br />
a provision allowing an eligible retired<br />
farmer-lessor to elect to exclude from<br />
Iowa income taxation the net income<br />
received under a written farm lease<br />
covering real property.<br />
This applies only to income from<br />
farm tenancy agreements – cash leases<br />
and crop share, flex and livestock share<br />
leases. A farm tenancy agreement is<br />
a written agreement outlining the rights<br />
and obligations of an owner-lessor and<br />
a tenant-lessee where latter has a farm<br />
tenancy, which is a leasehold interest<br />
in land held by a person who produces<br />
crops or provides for the care and feeding<br />
of livestock on the land.<br />
The law doesn’t apply to rental income<br />
received as an owner of an entity<br />
taxed as a partnership, an S corporation,<br />
or a trust or estate, even if net income<br />
passes through to the eligible individual.<br />
The election to exclude income from<br />
a farm tenancy agreement has tradeoffs.<br />
Individuals making this election<br />
may not apply the Iowa capital gain<br />
deduction in current or succeeding tax<br />
years. Likewise, they are not eligible<br />
for the beginning farmer tax credit in<br />
current or future years.<br />
IDOR created Iowa Form 125 (2023<br />
IA 125) to allow retired farmers to<br />
make a lifetime election to exclude net<br />
income from a farm tenancy agreement<br />
covering real property. Taxpayers must<br />
detail their qualification for the election.<br />
The farm tenancy income exclusion<br />
election is irrevocable once made.<br />
Iowa capital gain deduction<br />
Before 2023, the Iowa capital gain<br />
deduction was available to taxpayers<br />
who sold farming and non-farming<br />
business assets and breeding or dairy<br />
livestock. The deduction has changed<br />
to apply only to the sale of real property<br />
used in a farming business and the<br />
sale of some draft, dairy, and breeding<br />
livestock by retired farmers liquidating<br />
their businesses. Installment agreements<br />
signed before 2023 are subject<br />
to the pre-2023 law. The deduction will<br />
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