Capitol Letters: Iowa House Republicans release property tax reform bill

State Rep. Megan Jones

House Study Bill 596 has five divisions that help property owners of all classifications. Iowans have been loud and clear with their desire for property tax reform and House Republicans are ready to answer.

Division I — Property Tax Revenue Limitations

This division creates a budget limitation for all taxing authorities other than school and debt levies. Cities, counties, hospitals, etc will be limited year over year to budget growth of 102% The limitation does not include new construction to allow communities to grow. This division makes no changes to current law rate and use limitations.

Division II — Residential Property Tax Exemption

This division creates a new residential across-the-board exemption. After rollback, all residential parcels will receive a $25,000 exemption from value. This division is retroactive to assessment years 2026 and beyond.

Division III — Property Tax Information Disclosure

This division revamps the outdated document mailed to all property owners. This mailer will contain more information and was crafted by the League of Cities. The new mailer will be required for budget years beginning on or after July 1, 2027.

Division IV — Council of Governments

This division will require COGs to help local governments consolidate services and functions. They have the expertise to help save taxpayer money and streamline services.

Division V — Bonding

This division will give taxpayers more of a voice on bonding issues in their communities. It will require that any bonds payable with property taxes must receive a 60% affirmative vote. This requirement will begin July 1, 2026.

The bill is assigned and is now eligible for consideration in subcommittee.

Reminder: Retirement Income Tax Exempt Since 2023

Approved during the 2022 legislative session and implemented Jan. 1, 2023, House File 2317 exempts all retirement income from income taxes.

Who qualifies?

To qualify for the retirement income exclusion, the taxpayer must be:

• 55 years of age or older on December 31 of the tax year, or
• Disabled, or
• A surviving spouse or a survivor having an insurable interest in an individual who has qualified for the exclusion in the tax year on the basis of age or disability. A survivor other than the surviving spouse is considered to have an “insurable interest” if the survivor is a son, daughter, mother, or father of the annuitant or pensioner, or
• A surviving spouse who receives amounts from a deceased spouse’s pension, regardless if the deceased spouse was 55 years of age or older or disabled, if the pension was from employment in a protection occupation, or as a sheriff, deputy sheriff, firefighter, or police officer.

What income qualifies?

The retirement income exclusion covers “governmental or other pension or retirement plan[s] including defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans...”

The department has determined that distributions from the following plans qualify for the exclusion:

• Traditional individual retirement accounts authorized under section 408(a) of the Internal Revenue Code
• Roth individual retirement accounts (Roth IRA) authorized under section 408A of the IRC
• Roth conversion income
• Simplified employee pension plans defined under section 408(k) of the IRC
• Savings incentive match plans for employees (SIMPLE IRA) defined under section 408(p) of the IRC
• Qualified deferred compensation plans including those authorized under section 401(k) of the IRC
• Eligible deferred compensation plans authorized under section 457(b) of the IRC
• Defined benefit plans, pension plans, profit-sharing plans, or stock bonus plans including IPERS and employee stock ownership plans (ESOP) authorized under section 401 of the IRC
• Distributions from a Keogh plan
• Eligible combined plans described under section 414(x) of the IRC

What about farmers?

Iowa offers retired farmers significant income tax exclusions starting in 2023, allowing them to choose between excluding farm rental income or capital gains from farming asset sales (like land, cattle, horses) if they meet material participation and age/disability requirements, but this election is a one-time, irrevocable choice that impacts future tax benefits. Farmers must be 55+, retired, and have materially participated for 10+ years (rental) or five of last eight (capital gain), selling most of their farm interest for the capital gain exclusion, using specific forms like IA 100G or IA 125.

A Legislative Forum will be held at King’s Pointe Resort in Storm Lake on Saturday, Feb. 7 from 10-11 a.m. You can contact Megan Jones by email: megan.jones@legis.iowa.gov