Senate File 126 (formerly House File 125) passed the House this week by a vote of 95-0 after passing the Senate last week. The bill updates Iowa law to conform to certain tax provisions Congress finally enacted in December for tax year 2014.
The bill updates the provisions in the Iowa Code for the Iowa research activities credit to include revisions in the federal research credit (the basis for the Iowa credit). The federal research credit was extended for the 2014 tax year in the Tax Increase Prevention Act.
Senate File 126 also updates the Iowa income tax code to couple with the 2014 federal changes (with the exception of bonus depreciation). The more significant federal tax cuts that this bill couples with include:
• Deduction of up to $250 for out-of-pocket expenses for teachers
• Tuition and fees deduction for higher education expenses
• Election to deduct state sales/use tax in lieu of state income tax as an itemized deduction
• Deduction for mortgage insurance premiums as deductible qualified residence interest
• Nontaxable IRA transfers to eligible charities
The most significant tax cut in Senate File 126 allows small businesses to expense (instead of depreciate) the first $500,000 of equipment cost (known as Section 179 expensing).
Section 179 of the federal tax code allows businesses to deduct the full cost of qualifying equipment or software purchased or financed during the tax year. That way, if a business buys (or leases) a piece of qualifying equipment, the full purchase price can be deducted from gross income. This was a tax cut created to incentivize businesses to invest in themselves.
The bill does not couple with the federal provision for 50 percent bonus depreciation for both individual and corporate income tax for assets acquired in 2014. This is the same stance that has been taken since 2008. It is fitting that the first bill sent to the governor for his consideration this year is a bill that provides nearly $100 million in tax benefits for teachers, homeowners and small business owners.
I look forward to seeing you at one of the next legislative forums on Friday, Feb. 27:
8 a.m. – Wayne County Farm Bureau (Corydon)
10 a.m. – Chariton Mosaic (Chariton)
Noon – Lakeside Casino (Osceola)
2 p.m. – Leon Community Center (Leon)