- Instruction Year: 2023
New for 2023:
Due to a number of legislative changes to Iowa income tax taking effect on January 1, 2023, the IA 1040 has been substantially revised. Read these instructions carefully.
All dollar amounts should be rounded to the nearest cent.
The starting point for taxation on the IA 1040 is now federal taxable income. You must complete the federal 1040 prior to completing the IA 1040. You may need to complete a federal 1040 even if you are below the federal filing requirement.
- This means that Iowa will now incorporate the federal standard or itemized deduction and will no longer allow an Iowa-specific standard or itemized deduction.
- Iowa will also now incorporate the federal net operating loss and will no longer allow an Iowa-specific net operating loss. Taxpayers must use Schedule 1 to carry forward any pre-2023 Iowa net operating loss and must use Schedule 1 to reduce federal taxable income by any pre-2023 federal net operating loss carryforward. Taxpayers must use the new IA 124 to calculate pre-2023 federal net operating loss carryforwards to add back and pre-2023 Iowa net operating loss carryforwards to deduct against taxable income.
- Additionally, this change incorporates the federal qualified business income deduction and the domestic production activities deduction, and those will no longer be deducted separately on the Iowa return.
Step 2: All taxpayers are now required to use the same filing status on their Iowa return that they use on their federal return. Married taxpayers no longer have the option to file separately on a combined return.
Line 5: The number of tax brackets has decreased as well as the rate for each bracket. These will continue to decrease until 2026 when Iowa will have a single tax rate of 3.9%.
Iowa’s alternative minimum tax has been repealed. The alternative minimum tax credit carried forward from a previous year may be applied to this return, but will be repealed on January 1, 2024 and cannot be carried forward to a future tax year.
Line 27: Taxpayers claiming the Composite or Pass-Through Entity Tax (PTET) Credit should report the credit on line 27. Include the IA Schedule CC with your return. See the Department's website for more information on the PTET Credit.
Schedule 1: The IA 1040 now includes Schedule 1 to enter any required Iowa adjustments to federal taxable income. See instructions below for more information about Schedule 1.
Schedule 1, line 7: The retirement income exclusion has been increased to include all qualifying pension and retirement income for qualifying taxpayers.
Schedule 1, line 15: The additional Iowa health insurance premiums deduction, previously allowed for all taxpayers, will be limited to taxpayers age 65 or older with Iowa taxable income of less than $100,000. In order to determine whether a taxpayer’s Iowa taxable income is less than $100,000 for purposes of this provision, taxpayers are required to add back the following items:
- Iowa reportable Social Security
- Iowa pension or retirement income exclusion
- Federal standard or itemized deduction to the extent it does not exceed federal adjusted gross income
- Federal personal exemption deduction ($0 for 2023)
- Federal qualified business income deduction
Schedule 1, line 16: There have been significant changes to the Iowa capital gain deduction. Most of the capital gain deductions have been repealed for transactions occurring after January 1, 2023. However, installments from sales occurring prior to January 1, 2023 may still be deducted. Taxpayers may deduct the capital gain from the sale of real property used in a farming business if they meet certain holding period and material participation requirements. Additionally, retired farmers may elect to deduct the capital gain from the sale of cattle, horses, or breeding livestock in certain circumstances. Also new for 2023 is an additional deduction for the capital gain from the sale or exchange of employee-owned capital stock in a qualified Iowa corporation. See the IA 100 forms and Iowa Administrative Code rules 701—302.41 and 302.87 for more information about the Iowa capital gain deductions.
Schedule 1, line 19:
- A deduction is allowed for the amount of student loan repayments paid by an employer that result in income. Payments on any qualified loan for this purpose include payments of principal or interest and those made to either the taxpayer or to a lender. No deduction will be allowed to the extent the taxpayer claimed deduction for federal purposes under section 221 of the IRC for interest on the same qualified education loan.
- Retired farmers may elect to exclude income from a farm tenancy agreement covering real property if certain holding period and material participation requirements are met. See Iowa Administrative Code rule 701—302.88 for more information.
- To the extent included for federal purposes, the amount of education savings account payments used for qualifying expenses.
Step 9: To allow another individual to discuss this tax return with the Department, complete the third-party designee section on the IA 1040, Step 9.
IA 124: Taxpayers should use this form to calculate any pre-2023 federal NOL carryforward that must be added back or any pre-2023 Iowa NOL that may be deducted. The IA 123 has been discontinued.
IA 125: Retired farmers may elect to exclude income from a farm tenancy agreement covering real property if certain holding period and material participation requirements are met. See IA 125 and Iowa Administrative Code rule 701—302.88 for more information.