IA - IRC Conformity

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IOWA INTERNAL REVENUE CODE CONFORMITY


Summary

The Iowa Legislature has enacted legislation, House File 186, to update Iowa's tax laws to incorporate changes made by Congress to the federal Internal Revenue Code in 2003, 2004 and January 2005. Previously, Iowa law had only updated references to the Internal Revenue Code through January 1, 2003. Based on the passage of House File 186, references to the Internal Revenue Code are now updated through January 31, 2005. This includes the provisions of the following legislation:

Jobs and Growth Tax Relief Reconciliation Act of 2003; Military Family Tax Relief Act of 2003; Medicare Prescription Drug, Improvement and Modernization Act of 2003; Working Families Tax Relief Act of 2004; American Jobs Creation Act of 2004; Tsunami Relief Charitable Contribution Act of 2005.


New Adjustments

Due to the passage of House File 186, the following adjustments are allowed for Iowa tax purposes:

A deduction is allowed for contributions to health savings accounts starting in 2004;

Members of the National Guard and armed forces military reserve can deduct unreimbursed travel expenses to the same extent that is allowed for federal purposes for 2003 and subsequent years. This deduction for Iowa was previously limited to $1,500;

Teachers are allowed a deduction up to $250 for out-of-pocket classroom expenses for 2004 and 2005;

Manufacturers are allowed a deduction relating to income from domestic production activities starting in 2005;

The increase in section 179 expensing is allowed for 2006 and 2007;

Taxpayers can claim an itemized deduction for contributions made in January 2005 for relief of victims of the Indian Ocean tsunami on the 2004 Iowa return if these contributions were deducted on the 2004 federal return.


State Sales Tax Adjustment

A specific provision of House File 186 addressed the issue of itemized deductions for state sales tax. As part of the American Jobs Creation Act of 2004, individuals have the option of claiming an itemized deduction of state sales and use tax or state income tax paid for the 2004 and 2005 tax year on the Federal 1040. For Iowa purposes, the itemized deduction for state sales and use tax paid is used only if a taxpayer claimed an itemized deduction for state sales and use tax on the federal return. If a taxpayer claimed state income taxes as an itemized deduction on the federal return, or claimed the standard deduction on the federal return, then the taxpayer cannot claim an itemized deduction on the Iowa return for state sales and use tax paid.


Bonus Depreciation

While Iowa is now coupled with the Internal Revenue Code through January 31, 2005, Iowa continues to decouple with the 30% "bonus depreciation" for assets acquired after September 10, 2001, but before May 6, 2003.


(This information was sent via e-mail by the Iowa Department of Revenue on 4/13/2005. To contact the IA Department of Revenue, send an e-mail to: idrf@idrf.state.ia.us )

[Iowa Department of Revenue Tax Research Library]

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