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Individual Income Tax

NOTICE: On March 15, 2019, Governor Reynolds signed Senate File 220, which made the same ($70,000) section 179 deduction limitation applicable to all taxpayers for 2018. Earlier legislation only applied this limit to individuals and entities taxed as partnerships. Under that prior law Corporations subject to the income tax, entities that file as S-Corporations for income tax purposes, and financial institutions subject to the franchise tax were subject to a lower ($25,000) section 179 deduction limit for 2018. The earlier legislation also provided the Special Election described below to individuals and partnerships, but not to Corporations (including entities taxed as S-Corporations) and financial institutions. This Special Election has now been extended to all taxpayers. This guidance was updated on March 15, 2019, to reflect these changes.

Under section 179 of the Internal Revenue Code, taxpayers can deduct from their federal income tax the cost of qualifying property used in a trade or business in the year the property was placed in service. This allows businesses to deduct the cost of qualifying tangible personal property purchased for business use in one year, rather than deducting the cost of the tangible personal property over a number of years using depreciation. More information on the federal treatment of section 179 deductions may be found on the Internal Revenue Service’s website and in IRS Publication 946, Chapter 2.

The election to expense qualifying property under section 179 of the IRC is made at the federal level. Once the taxpayer makes this federal election, the same election automatically applies to the same property for Iowa purposes as well, except under specific circumstances. The amount of the Iowa section 179 deduction is the same as the amount of the federal section 179 deduction, up to the Iowa limit. 

Iowa taxpayers who elect the federal section 179 deduction must also take a section 179 deduction for the same assets for Iowa income tax purposes in that year. However, for certain years, the Iowa limitations on this deduction are different from the federal limitations for the same year. This means that for some tax years, adjustments are required to determine the correct Iowa section 179 expensing deduction.