Creating a radon mitigation system tax credit available against the individual and corporate income taxes, and including retroactive applicability provisions

Description

House File 1027 creates a nonrefundable individual income and corporate income tax credit not to exceed $1,000 for the purchase of a radon mitigation system, defined as a system installed and designed to reduce radon concentrations in the indoor air of a building. The tax credit may be carried forward to the following tax year. The Bill also requires the State Building Code Commissioner to require passive radon mitigation methods for single-family or two-family residential construction commenced after adoption of the requirement.

The sections in the Bill enabling the tax credits are retroactively effective to January 1, 2025, for tax years beginning on or after that date.

Background

Radon is a naturally occurring radioactive gas that is colorless, odorless, and tasteless and comes from the natural decay of uranium found in soil and rock.

Iowa Code chapter 103A defines “building” as “a combination of any materials, whether portable or fixed, to form a structure affording facilities or shelter for persons, animals or property” and “includes any part of a building unless the context clearly requires a different meaning.”

Assumptions

• The former Iowa Department of Public Health (DPH) reported that there are approximately 3,000 qualifying radon mitigation system installations annually.
• According to the U.S. Census Bureau, the annual number of single-family and two-family home permits in Iowa equaled 8,100 on average between calendar years 2011 and 2024.
• Approximately 1,500 existing homes and 1,500 new homes built annually will receive active radon mitigation system installations.
• Each qualified taxpayer for the 3,000 active radon mitigation system installations will be able to claim the entire $1,000 tax credit for the eligible tax year due to purchase and installation costs of a qualifying active radon mitigation system exceeding the tax credit limit.
• Approximately 6,600 new homes built annually will receive passive radon mitigation system installations due to the Bill.
• According to the State of New Jersey, the cost of each passive radon mitigation system installation in a new home is $500, which will be the amount of the tax credit for 6,600 passive radon mitigation system installations due to the Bill.
• The average tax credit claim for all installations due to the Bill is $656.
• The adoption of new State Building Code requirements is assumed to take effect January 1, 2026 (TY 2026).
• The number of annual installations in future years in unknown. The current number of installations is used for estimating purposes in this Fiscal Note.
• The initial fiscal impact for claims under the Bill will occur in FY 2026 for TY 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 individual income tax credit in HF 1027 is projected to decrease net individual income tax liability and State General Fund revenue by the following amounts:

• FY 2026 = $3.0 million
• FY 2027 and beyond = $6.3 million

The Bill is expected to reduce income surtax to local governments in the following amounts:

• FY 2026 = $75,000
• FY 2027 and beyond = $158,000

Sources

• U.S. Census Bureau
• State of New Jersey Department of Environmental Protection
• Iowa Department of Public Health
• Iowa Department of Revenue
• Legislative Services Agency analysis