Bill Text: IA SF309 | 2017-2018 | 87th General Assembly | Introduced

Iowa Senate Bill 309 (Prior Session Legislation)

Introduced

Bill Title: A bill for an act relating to the exclusion from the individual income tax of certain net capital gains from the sale of real property used in a business, and including effective date and retroactive applicability provisions.

Sponsorship: Partisan Bill (Republican 1)

Status: (Introduced - Dead) 2017-02-22 - Subcommittee: Feenstra, Behn, and Quirmbach. S.J. 387. [SF309 Detail]

Download: Iowa-2017-SF309-Introduced.html


Senate File 309 - Introduced




                                 SENATE FILE       
                                 BY  SCHULTZ

                                      A BILL FOR

  1 An Act relating to the exclusion from the individual income
  2    tax of certain net capital gains from the sale of real
  3    property used in a business, and including effective date
  4    and retroactive applicability provisions.
  5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
    TLSB 1081XS (3) 87
    mm/sc/rn

PAG LIN



  1  1    Section 1.  Section 422.7, subsection 21, paragraph a, Code
  1  2 2017, is amended by adding the following new subparagraph:
  1  3    NEW SUBPARAGRAPH.  (3)  (a)  For purposes of determining
  1  4 the material participation of a taxpayer under this paragraph
  1  5 with regard to a partnership, subchapter S corporation, limited
  1  6 liability company, estate, or trust whose capital gain flows
  1  7 through to the owners or beneficiaries for federal income tax
  1  8 purposes, material participation shall be determined at the
  1  9 owner or beneficiary level according to the activities of each
  1 10 owner or beneficiary.
  1 11    (b)  Notwithstanding subparagraph division (a), and
  1 12 notwithstanding any contrary provision of section 469(h) of
  1 13 the Internal Revenue Code, or any other contrary provision of
  1 14 law, for purposes of determining the material participation of
  1 15 a taxpayer under this paragraph with regard to the sale of an
  1 16 estate's or trust's real property used in a business or rental
  1 17 arrangement, for any year in which the decedent of the estate
  1 18 or one or more settlors, executors, or trustees of the estate
  1 19 or trust, as applicable, is materially participating in the
  1 20 estate's or trust's business or, if the estate's or trust's
  1 21 real property is leased to another person, is materially
  1 22 participating in the lessee's business that uses the real
  1 23 property, all the beneficiaries or owners of the estate or
  1 24 trust shall also be treated as materially participating in
  1 25 that business for that year.  The requirement in subparagraph
  1 26 (1) of this paragraph that material participation occur for a
  1 27 period of ten years may be satisfied for a beneficiary or owner
  1 28 of an estate or trust by any combination of years of material
  1 29 participation by any decedent, settlor, executor, or trustee of
  1 30 the estate or trust attributable to the beneficiary or owner
  1 31 under this subparagraph division (b), aggregated over the ten
  1 32 years preceding the sale.
  1 33    Sec. 2.  REFUNDS.  Refunds of taxes, interest, or penalties
  1 34 that arise from claims resulting from the enactment of this
  1 35 Act, for capital gains earned from sales occurring between
  2  1 January 1, 2007, and the effective date of this Act, shall
  2  2 be limited to ten thousand dollars in the aggregate and
  2  3 shall not be allowed unless refund claims are filed prior to
  2  4 October 1, 2017, notwithstanding any other provision of law to
  2  5 the contrary.  If the amount of claims totals more than ten
  2  6 thousand dollars in the aggregate, the department of revenue
  2  7 shall prorate the ten thousand dollars among all claimants in
  2  8 relation to the amounts of the claimant's valid claims.
  2  9    Sec. 3.  EFFECTIVE UPON ENACTMENT.  This Act, being deemed of
  2 10 immediate importance, takes effect upon enactment.
  2 11    Sec. 4.  RETROACTIVE APPLICABILITY.  This Act applies
  2 12 retroactively to January 1, 2007, for tax years beginning on
  2 13 or after that date.
  2 14                           EXPLANATION
  2 15 The inclusion of this explanation does not constitute agreement with
  2 16 the explanation's substance by the members of the general assembly.
  2 17    Under current law, a taxpayer's net capital gain from the
  2 18 sale of a business, or from the sale of real property used in
  2 19 a business, is exempt from the individual income tax if the
  2 20 taxpayer held the real property or the business for a minimum
  2 21 of 10 years, and materially participated in the business for
  2 22 10 years.  "Material participation" refers to the level of
  2 23 involvement a taxpayer has in the operations of a business, and
  2 24 whether or not any particular taxpayer materially participates
  2 25 in a business is determined under the Internal Revenue Code.
  2 26    This bill requires that for purposes of determining material
  2 27 participation of a taxpayer for the capital gain tax exemption
  2 28 with regard to a partnership, S corporation, limited liability,
  2 29 estate, or trust whose capital gain flows through to the owners
  2 30 or beneficiaries for federal income tax purposes, material
  2 31 participation shall be determined at the owner or beneficiary
  2 32 level according to the activities of each owner or beneficiary.
  2 33    The bill also provides an exception to this material
  2 34 participation requirement for the sale of real property used
  2 35 in a business which, under certain circumstances, attributes
  3  1 the material participation of certain representatives of an
  3  2 estate or trust to the beneficiaries or owners of that estate
  3  3 or trust.  For purposes of determining material participation
  3  4 of a taxpayer with regard to the sale of an estate's or trust's
  3  5 real property used in a business or rental arrangement, all the
  3  6 beneficiaries or owners of the estate or trust shall be treated
  3  7 as materially participating in a business for any year that
  3  8 the decedent or one or more settlors, executors, or trustees
  3  9 of the estate or trust is materially participating in the
  3 10 estate's or trust's business or, if the real property is leased
  3 11 to another person, is materially participating in the lessee's
  3 12 business that uses the real property.  The bill also provides
  3 13 that the 10=year material participation requirement can be
  3 14 satisfied for a beneficiary or owner of an estate or trust by
  3 15 any combination of years of material participation attributable
  3 16 to the beneficiary or owner under the bill, aggregated over the
  3 17 10 years preceding the sale.
  3 18    The bill limits refunds of tax, interest, or penalties
  3 19 arising from claims resulting from the enactment of the bill
  3 20 for capital gains earned from sales occurring between January
  3 21 1, 2007, and the effective date of the bill to $10,000 in
  3 22 the aggregate, and requires such claims to be filed prior to
  3 23 October 1, 2017.  If the aggregate amount of refund claims
  3 24 exceeds $10,000, the department of revenue is required to
  3 25 prorate the $10,000 among all claimants in relation to each
  3 26 claim amount.
  3 27    The bill takes effect upon enactment and applies
  3 28 retroactively to January 1, 2007, for tax years beginning on
  3 29 or after that date.
       LSB 1081XS (3) 87
       mm/sc/rn