Tax-Free IRA Distributions to Certain Public Charities for Individuals 70 ½ and olderīeginning in 2018, the law conforms Iowa tax law with the federal PATH Act provision allowing taxpayers 70 ½ and older to make tax-free distributions from their IRAs to a qualified charity. This election is for one tax year and electing out of it in the subsequent tax year does not affect the taxpayer’s ability to continue to take the five-year deduction of the excess from a prior year’s election. Taxpayers who make the election cannot take the section 179 deduction for that tax year for any eligible property, but must depreciate the cost using the appropriate MACRS convention. This election is made possible by new subsection § 422.7(52).
The law addresses this problem by allowing the taxpayer to elect to deduct the amount in excess of the Iowa limit evenly over a five-year period beginning the following tax year. In these cases, the Iowa taxpayer has been unable to use the excess deduction at all, even though the taxpayer has been required to reduce his or her basis to correspond with the amount of the federal deduction passed through. This problem arises when a taxpayer is allocated greater section 179 deduction amounts than are allowed under Iowa law by multiple partnerships or S corporations, or from an out-of-state entity. The law also addresses the section 179 glitch we’ve written about in more detail here. The phase-out threshold for this deduction is increased from $200,000 to $280,000. The law increases Iowa’s section 179 deduction from $25,000 to $70,000 for tax year 2018 for individual taxpayers. These changes apply retroactively to January 1, 2018. The law makes a number of changes beginning with the 2018 tax year. Following is a review of key provisions included in the bill that Governor Reynolds signed into law on May 30, 2018.
Federal tax reform implemented by the Tax Cuts & Jobs Act set the stage for this legislation.
2417, a significant overhaul of the Iowa tax code. On May 5, 2018, the Iowa Legislature passed S.F. Note: The Iowa Department of Revenue has launched a new webpage, where it will be publishing its latest guidance and information on the new Iowa law.
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