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IDR releases new state tax reform guidance

DES MOINES – In 2018, the Iowa legislature enacted Senate File 2417, a state tax reform bill that includes extensive changes to the state’s tax structure. The Department has released updated guidance to explain the following tax changes:

  • Business Interest Expense Conformity – Beginning in tax year 2019, Iowa conforms with the business interest expense deduction limitations under section 163(j) of the Internal Revenue Code.
    • Because Iowa did not conform to these limitations for tax year 2018, taxpayers whose interest expense deduction was limited for federal, but not for Iowa purposes in 2018 may need to make Iowa adjustments for last year’s federal carryforward amount on the 2019 IA 101 Nonconformity Adjustments form.
    • For corporations that file as members of a consolidated group for federal purposes, but file separate returns, or file as an Iowa consolidated group with fewer members than the federal group, the interest expense limitation under section 163(j) must be recalculated as if the Iowa group or separate entity had filed its own federal return.
  • Partnership Interest Expense Nonconformity Adjustment – This guidance has been updated to describe required adjustments and reporting procedures beginning in tax year 2019 for partnerships and their partners that had business interest expense that was disallowed as a deduction for federal purposes under section 163(j) of the Internal Revenue Code in tax year 2018, but was allowed as a deduction for Iowa purposes in tax year 2018 because of nonconformity.

The Department maintains a tax reform page to provide taxpayers with guidance on tax reform topics. Additional guidance is added as it becomes available.

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