Internal Revenue Code Update

In December of last year, the federal government passed an update to the Internal Revenue Code, which extends various income tax credits for tax year 2014. In Iowa, we now need to work on "coupling" these extenders so that Iowa law matches the federal code. Until Iowans and their tax preparers know what law will apply, they must wait to file returns, or are forced to filed amended returns later.

I have been assigned to work as the manager for this important, time-sensitive legislation. This week, the House Ways and Means Committee passed the bill 25-0. Although this update has a meaningful fiscal impact to  the state general fund, I was pleased to see us work in quick, bi-partisan fashion.

Specific provisions of our bill include an update to the Iowa research activities credit to include revisions in the federal research credit.  Other significant federal tax changes that this bill couples with include a deduction of up to $250 for out-of-pocket expenses for teachers, tuition and fees deduction for higher education expenses, deduction for mortgage insurance premiums as deductible qualified residence interest and nontaxable IRA transfers to eligible charities.

The item with the biggest fiscal impact might also be the most important, which now allows small businesses to expense the first $500,000 of equipment cost, known as section 179 expensing.

The one piece of the federal act not coupled into Iowa law is 50 percent bonus depreciation for both individual and corporate income tax for assets. This has been the case for Iowa law since 2008.

The bill will now move to the floor for further consideration. Getting this bill to the Governor's desk quickly will be a big benefit for Iowa taxpayers and tax preparers.


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