HOUSE REPUBLICAN STAFF ANALYSIS Bill: Committee: Floor Manager: Date: Staff:
House File 2092 Ways and Means Rep. Nunn January 28, 2016 Kristi L. Kious (2-5290)
House Ways & Means: House Floor: Senate Floor: Governor:
PASSED on January 25 (23-1) PASSED on January 28 (82-14)
Internal Revenue Code Update This bill updates Iowa Code references to the Internal Revenue Code to make federal income tax revisions enacted by Congress in 2015 applicable for Iowa income tax purposes. This bill also decouples with federal bonus depreciation provisions. Session law only—will return to operation under 2014 IRC on January 1, 2017 (will have to couple/decouple again next year). Fiscal Note – FY 16: -$96 million; FY 17 +$86 million Based on revenue projections, the impact of the IRC bill would be to reduce the ending balance of FY 16 by $96
million (thus reducing the carry forward to FY 16 by that amount). The positive $86 million in FY 17 would be added to ongoing FY 17 revenue.
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Section by Section Analysis Division One – Internal Revenue Code References Section 1 – Internal Revenue Code References for 2015 This section updates provisions in the Iowa Code to make references to tax year 2015. (The only tax year this bill deals with). By operation of those references—Iowa Code couples with the federal tax code for many tax provisions recently extended by Congress. The more significant federal tax changes that this bill couples with include: Deduction of 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 expensing (instead of depreciate) the first $500,000 of equipment cost (known as Section 179 expensing) 1
Section 2 – Deduction for State Sales and Use Tax Iowa Code provides individuals an income tax deduction for states sales and use tax paid in lieu of a deduction for state income taxes or the standard deduction for federal purposes. This section makes that deduction applicable and available for tax year 2015. Section 3 – Bonus Depreciation This section provides for the decoupling of Iowa Code with federal bonus depreciation provisions. Bonus depreciation is being phased out in the Internal Revenue Code and will be gone by 2020. Section 4 – Effective Upon Enactment This section makes the bill effective upon enactment. Section 5 – Retroactive Applicability This section makes the bill retroactive to January 1, 2015.
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Amendment Analysis H-8003 by Nunn – Clarification by drafter. Under current Iowa law, taxpayers are in some instances required to recalculate their alternative minimum tax and itemized deductions to account for Iowa’s decoupling from federal bonus depreciation. This amendment simply ensures that taxpayers must make those same adjustments to account for the 2015 decoupling from federal bonus depreciation for their 2015 taxes.
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