Bills › 90th General Assembly
Relating to the farm tenancy net income exclusion available against the individual income tax, and including effective date and retroactive applicability provisions
Topics:AgricultureTaxesIncome taxes
Same legislation: HF 2666
Where it is now
- Done: IntroducedFebruary 14, 2024
- Done: SubcommitteeFebruary 21, 2024
- Done: House committeeMarch 19, 2024
- Skipped: Passes the HouseContinued as HF 2666
- Next: Senate committee
- Next: Passes the Senate
- Next: To the Governor
- Next: Signed into law
Became HF 2666 → Its progress continues under the new number. Go to HF 2666 What’s a funnel?
What’s in it
AI summary Retired farmers can now get a tax break on income from farm rental agreements even if that money is paid through a business or a trust. This change allows certain entities like partnerships, S corporations, and estates to qualify for the same tax exclusion that individuals receive. It ensures that income flowing through these organizations is treated the same as if the farmer received it directly.1
Read the official explanation
Current law excludes from the individual income tax a retired farmer’s total net income received pursuant to a farm tenancy agreement covering real property held by the retired farmer for or more years, if the farmer materially participated in a farming business for or more years. Under current law, net income from a farm tenancy agreement earned by an entity taxed as a partnership for federal tax purposes, an S corporation, or a trust or estate is not eligible for the farm tenancy lease income exclusion. This bill allows the net income from a farm tenancy agreement earned, received, or reported by an entity taxed as a disregarded entity, partnership for federal tax purposes, an S corporation, a trust, or estate to be eligible for the farm tenancy lease income exclusion in the same manner as if the net income received pursuant to a farm tenancy passes directly from the farm tenant to the eligible individual rather than passing to the eligible individual through an entity taxed as a disregarded entity, a partnership, an S corporation, a trust, or an estate. The bill allows net income accruing to a grantor trust or to a business entity that is a disregarded entity to be deemed to have been distributed to its sole owner to the extent the sole owner of such disregarded entity or trust has the right to withdraw or compel distribution of such net income. The bill takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2023.
House subcommittee
Named February 21, 2024. On March 5, 2024 it recommended passage. Vote Total: 3-0.
Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part
Fiscal note
Less revenue: up to $3.9M Compare with other bills
AI summary This bill allows certain retired farmers to deduct income from farm tenancy agreements received through entities like partnerships, S corporations, trusts, or estates from their individual income tax. The change is projected to decrease State General Fund revenue by $3.9 million in fiscal year 2025, $1.8 million in fiscal year 2026, $1.5 million in fiscal year 2027, $1.5 million in fiscal year 2028, $1.6 million in fiscal year 2029, and $1.6 million in fiscal year 2030. Additionally, the bill is expected to decrease the statewide local option income surtax for schools by amounts ranging from $38,000 in fiscal year 2027 and 2028 to $99,000 in fiscal year 2025.3
Read the fiscal note
Description
House File 2666 allows the net income from a farm tenancy agreement for an entity taxed as a disregarded entity, a partnership for federal tax purposes, an S corporation, a trust, or an estate to be deducted from the net individual income tax for a retired farmer who materially participated in a farming business for 10 or more years.
The Bill takes effect upon enactment and is retroactively effective to tax years beginning on or after January 1, 2023.
Background
Iowa Code section 422.7 details how net income is computed for federal income tax purposes with State adjustments. Farm tenancy income covering real property held by an individual for 10 or more years is eligible to be subtracted from net income for State tax purposes. Currently, Iowa Code section 422.7(14)(e) does not allow an entity taxed as a partnership for federal tax purposes, an S corporation, a trust, or an estate to deduct net income from a farm tenancy agreement for the net individual income tax. The Bill would remove this ineligibility.
Assumptions
- According to the Iowa Department of Revenue (IDR), the Bill will entail administrative costs, updated forms, administrative rules, development, enforcement costs, and other related costs that cannot be estimated due to lack of information. However, any fiscal impacts related to these challenges are not included in this Fiscal Note.
- It is assumed that retired farmers who receive farm income from partnerships in 5 of the prior 12 tax years will have received at least 10 years of farm income during their entire working lives and are eligible for the deduction. According to the IDR, the total farm rental income from partnerships that is passed through to qualified retired farmers is estimated to be $31,000 in tax year (TY) 2022.
- It is assumed that retired farmers who receive farm income from S corporations in 5 of the prior 10 tax years will have received at least 10 years of farm income during their entire working lives and are eligible for the deduction. According to the IDR, the total farm rental income from S corporations that is passed through to qualified retired farmers is estimated to be $27.4 million in TY 2022.
- It is assumed that retired farmers who receive farm income from estates and trusts in 5 of the prior 7 tax years will have received at least 10 years of farm income during their entire working lives and are eligible for the deduction. According to the IDR, the total farm rental income from estates and trusts that is passed through to qualified retired farmers is estimated to be $10.1 million in TY 2022.
- Qualified total farm rental income for the entities in this Fiscal Note is estimated to be $37.6 million in TY 2023, and will grow annually to $41.5 million by TY 2030.
- The marginal individual income tax rate per tax year is estimated below:
- TY 2023 = 5.43%
- TY 2024 = 5.02%
- TY 2025 = 4.67%
- TY 2026 and after = 3.90%
- The fiscal impact of a tax year would be realized in the following fiscal year, except that TY 2023 and TY 2024 fiscal impacts would both be realized in FY 2025.
- The income surtax for schools is a local option tax that is based on a taxpayer’s Iowa income tax liability. Law changes that lower Iowa income tax liability also lower the amount of income surtax owed by any taxpayer subject to the surtax. For this projection, the surtax is assumed to equal 2.5% of State individual income tax liability.
Fiscal Impact
The proposed deductions from the individual income tax in House File 2666 are projected to decrease net individual income tax liability and State General Fund revenue by the following amounts:
- FY 2025 = $3.9 million
- FY 2026 = $1.8 million
- FY 2027 = $1.5 million
- FY 2028 = $1.5 million
- FY 2029 = $1.6 million
- FY 2030 = $1.6 million
The decrease in tax liability is also projected to decrease the statewide local option income surtax for schools by the following amounts:
- FY 2025 = $99,000
- FY 2026 = $44,000
- FY 2027 = $38,000
- FY 2028 = $38,000
- FY 2029 = $39,000
- FY 2030 = $40,000
Sources
- Iowa Department of Revenue
- Legislative Services Agency analysis
- Retired Farmer Lease Income Exclusion, Pass-Through Entities · March 21, 2024 · $3.9M
- Retired Farmer Lease Income Exclusion, Pass-Through Entities · March 8, 2024 · $3.9M
Family tree
90th General Assembly
Picked up later
Earlier and later bills are matched by wording or an identical title.
Similar bills
- HF 56 Relating to the farm tenancy net income exclusion available against the individual income …91st General Assembly · Renumbered as HF 624Nearly identical
- SF 19 Relating to the farm tenancy net income exclusion available against the individual income …91st General Assembly · In committeeNearly identical
Matched by wording or an identical title.