IRC Update Bill •
This is the annual bill proposed by the Department of Revenue to incorporate into Iowa income tax law the federal income tax changes enacted by Congress in calendar year 2012.
Updates codes references, decouples from federal bonus depreciation, and provides certain taxpayers additional time to file a claim.
Summary of Action The House Ways and Means Committee passed HSB 38 on January 28, 2013 with a vote of 24-0. The Senate passed their version on February 4, 2013 with a vote of 48-0.
Section by Section Analysis Division I – Internal Revenue Code References Sections 1, 4 and 6 update the provisions in the Iowa Code for the Iowa research activities credit to include revisions in the federal research credit, which is the basis for the Iowa research activities credits. The federal research credit was extended for the 2012 and 2013 tax years as part of the American Taxpayer Relief Act of 2012. Sections 2 and 5 which define the Internal Revenue Code for Iowa income tax purposes are also updated so that all of the 2012 federal changes (with the exception noted in Division II of the bill), including the American Taxpayer Relief Act of 2012, which affect the computation of Iowa net income for individuals, corporations and financial institutions are adopted. Some of the significant federal tax legislation enacted that affect the 2012 and 2013 tax year include the following: 1
• • • • • •
Deduction for up to $250 for out-of-pocket expenses for teachers Tuition and fees deduction for higher education expenses Election to deduct state sales/use tax in lieu of state income tax as an itemized deduction Deduction for mortgage insurance premiums as deductible qualified residence interest Nontaxable IRA transfers to eligible charities Small businesses can now expense (instead of depreciate) the first $500,000 of equipment cost. This is labeled “Section 179 expensing.”
Some of the provisions that affect 2013 and subsequent tax years include the following: • • • •
Provides for 50% bonus (accelerated) depreciation for assets acquired in 2013 only. Places a limitation on itemized deduction for high income taxpayers. Permanently extends the amounts ($3,000 for one child, $6,000 for two or more children) for the child and dependent care credit Extends higher income thresholds and higher credits with families with three or more children for the earned income tax credit for five more years through 2017.
Section 3 provides for the election to deduct state sales/use tax in lieu of state income tax as an itemized deduction for Iowa income tax for the 2012 and 2013 tax years. Division II – Bonus Depreciation Sections 9 and 10 decouples with the 50% bonus deprecation provision for individual and Corporation income tax for assets acquired in 2013. This is consistent with the Iowa treatment of bonus depreciation that was also available for federal income tax purposes for assets acquired in 2008-2012. Division III – Filing of Claims Section 13 provides additional time for taxpayers impacted by the FAA Modernization and Reform Act of 2012, Public Law 112-95, to request a refund for Iowa individual income tax. This federal law allows a qualified airline employee who received a settlement payment from an airline company in bankruptcy to roll over that amount into a traditional individual retirement account (IRA). The federal law allowed additional time until April 15, 2013 for a refund to be requested for federal income tax purposes as long as the rollover occurred within 180 days of February 14, 2012. Iowa taxpayers impacted by this federal change have until June 30, 2013 to request a refund for Iowa individual income tax. All the provisions of this bill are retroactive to January 1, 2012, for tax years beginning on or after that date, with the exception of Sections 9 and 10 related to the disallowance of bonus depreciation. Sections 9 and 10 are retroactive to January 1, 2013, for tax years ending on or after that date.
Division IV – Property Assessment Appeal Board Repeals the sunset of the property assessment appeal board slated for July 1, 2013 and strikes the provision relating to the property assessment appeal board review committee.
Amendment Analysis H – 110.50 – conforming amendment to Senate File 106 The only substantive change is that it strikes Division IV of the House File which would have repealed the sunset to the property assessment appeal board.
Fiscal Note FY 2013
HOUSE REPUBLICAN STAFF ANALYSIS ________________________________________________________________________ Bill: HF 110 (formerly HSB 38) IRC Update Bill Committee: Ways and Means Date: February 5, 2013 Floor Manager: Rep. Landon Staff: Dustin Blythe (1-3452)