HF 778 — A bill for an act relating to taking a capital gain deduction for the sale of real property used in a farming business. (Formerly HSB 188.) Effective 7-1-19.

House File 778 - IntroducedEnrolled HOUSEHouse FILEFile 778 BYAN COMMITTEEACT ONRELATING WAYS AND MEANS (SUCCESSOR TO HSBTAKING 188) A BILLCAPITAL FORGAIN AnDEDUCTION ActFOR relatingTHE toSALE takingOF aREAL capitalPROPERTY gainUSED deductionIN forA theFARMING saleBUSINESS. of real property used in a farming business.

TLSBSection 1794HV1. (2) 88 jm/jh H.F.

778 Section 1.

Buildings which are primarily used or intended for humanHouse habitationFile are778, deemedp. to be used in a farming business when the building is located on or adjacent to the parcel used in the farming business.

2 human habitation are deemed to be used in a farming business when the building is located on or adjacent to the parcel used in the farming business.

(b) Real property classified as agricultural property for LSBIowa 1794HVproperty (2)tax 88purposes, -1-except jm/jhreal 1/4property H.F.described in section 441.21, subsection 12, paragraph “a” or “b”, shall be presumed to be real property used in a farming business.

778 Iowa property tax purposes, except real property described in section 441.21, subsection 12, paragraph “a” or “b”, shall be presumed to be real property used in a farming business.

(1) The taxpayer has materially participated in a farming business for a minimum of ten years and has held the real propertyHouse usedFile in778, ap. farming business for a minimum of ten years.

3 property used in a farming business for a minimum of ten years.

EXPLANATION______________________________ The______________________________ inclusionLINDA ofUPMEYER thisCHARLES explanationSCHNEIDER doesSpeaker notof constitutethe agreementHouse withPresident of the explanation’sSenate substanceI byhereby thecertify membersthat ofthis bill originated in the generalHouse assembly.and is known as House File 778, Eighty-eighth General Assembly.

This______________________________ billCARMINE modifiesBOAL theChief capitalClerk gainof deduction for the saleHouse ofApproved real_______________, property2019 used______________________________ inKIM aREYNOLDS farmingGovernor business enacted in 2018 Iowa Acts, chapter 1161, section 113.

The capital gain deduction LSB 1794HV (2) 88 -2- jm/jh 2/4 H.F.

778 for the sale of real property used in a farming business is set to begin in tax year 2023 or in a later tax year, contingent upon the satisfaction of certain net general fund revenue amount and growth targets.

Currently, the capital gain deduction for the sale of real property used in a “farming business” set to go into effect in 2023 or a later tax year restricts the deduction to the sale of “real property used in a farming business”, provided the taxpayer “materially participated” in the farming business for at least 10 years, held the real property for at least 10 years, and sold the real property to a “relative”, all as defined in 2018 Iowa Acts, chapter 1161.

The bill modifies the restrictions relating to the deduction for the sale of real property used in farming business by permitting the taxpayer to take the deduction if one of the following apply:

the taxpayer “materially participated” in the farming business for at least 10 years and held the real property for at least 10 years;

or the taxpayer sold the real property to a “relative”.

The bill expands the definition of “relative” to include an entity in which a relative of the taxpayer has a legal or equitable interest in the entity as an owner, member, partner, or beneficiary.

The bill also modifies the definitions of “farming business” and “real property used in a farming business”.

The bill defines “livestock” to mean the same as defined in Code section 717.1, which is used in the definition of farming business.

The bill strikes provisions related to restricting the capital gain deduction for the sale of real property used in a farming business if the relative sells or transfers the real property used in a farming business within five years of the original sale.

The bill also strikes a provision providing that to the extent otherwise allowed, the capital gain deduction for the sale of real property used in a “farming business” shall not be allowed for purposes of computing income for the taxable year LSB 1794HV (2) 88 -3- jm/jh 3/4 H.F.

778 or years for which a net operating loss is deducted under the Internal Revenue Code or under Code section 422.9 (deductions from net income).

The bill does not change the future effective date of the capital gain deduction for the sale of real property used in a farming business.

LSB 1794HV (2) 88 -4- jm/jh 4/4