EIF-B_Where We Come From

By KRISTINE A. TIDGREN
Staff Attorney
Center for Agricultural Law & Taxation
Iowa State University
EASTERN IOWA FARMER
In early 2022, the Iowa Legislature
passed HF 2317, which reduced individual
and corporate income tax rates, provided
exemptions for most forms of retirement
income – including retired farmer rental
income –and scaled back the Iowa capital gain
deduction.
Most changes went into effect during the 2023
tax year. Last fall, the Iowa Department of Revenue
(IDOR) finalized deduction rules for retired
farmer rental income and Iowa capital gain.
Because they may need to make elections to
take advantage of these new provisions, retired
farmers and others must understand these rules
when filing 2023 returns. This column gives
an overview of some key changes. A more
detailed document with additional information
is at calt.iastate.edu/blogpost/understanding-iowas-new-tax-rules-retired-farmers.
Farm tenancy income
exclusion
Beginning in 2023, certain “retirement
income” for those disabled or 55 or older
is excluded from Iowa taxable income. The
law exempts retirement income received by
surviving spouses. Prior law exempted retirement
income only up to $6,000 for singles,
and $12,000 for those who are married filing
jointly.
Exempted income includes income from
qualified retirement accounts, annuities, individual
retirement accounts, plans maintained
or contributed to by an employer, or maintained
or contributed to by a self-employed
person as an employer, and deferred compensation
plans or any earnings attributable to the
deferred compensation plans.
Iowa institutes
new tax laws for
retired farmers
Recognizing land is a retirement fund for
many farmers, lawmakers created a provision
allowing an eligible retired farmer-lessor to
elect to exclude from Iowa income taxation
the net income received under a written farm
lease covering real property.
This applies only to income from farm tenancy
agreements – cash leases and crop share,
flex and livestock share leases. A farm tenancy
agreement is a written agreement outlining the
rights and obligations of an owner-lessor and a
tenant-lessee where latter has a farm tenancy,
which is a leasehold interest in land held by a
person who produces crops or provides for the
care and feeding of livestock on the land.
The law doesn’t apply to rental income
received as an owner of an entity taxed as a
partnership, an S corporation, or a trust or estate,
even if net income passes through to the
eligible individual.
The election to exclude income from a farm
tenancy agreement has trade-offs. Individuals
making this election may not apply the Iowa
capital gain deduction in current or succeeding
tax years. Likewise, they are not eligible for
the beginning farmer tax credit in current or
future years.
IDOR created Iowa Form 125 (2023 IA 125)
to allow retired farmers to make a lifetime
election to exclude net income from a farm
tenancy agreement covering real property.
Taxpayers must detail their qualification for
the election. The farm tenancy income exclusion
election is irrevocable once made.
Iowa capital gain deduction
Before 2023, the Iowa capital gain deduction
was available to taxpayers who sold
farming and non-farming business assets and
breeding or dairy livestock. The deduction
has changed to apply only to the sale of real
About
CALT:
n The Center for
Agricultural Law and
Taxation (CALT)
at Iowa State
University was
created in 2006.
It provides timely,
critically objective
information to
producers,
professionals and
agribusinesses
concerning the
application of
important
developments in
agricultural law and
taxation (federal and
state legal opinions
of relevance, as well
as critical legislative
developments) and
is a primary source
of professional
educational training
in agricultural law
and taxation.
Contact CALT:
Iowa State
University
2321 N. Loop,
Suite 200
Ames, IA 50010
Phone:
(515) 294-5217
Fax: (515) 294-0700
www.calt.iastate.edu
eifarmer.com