A 1031 exchange is a tax strategy that allows you to defer paying capital gains taxes when you sell an investment property, as long as you reinvest the proceeds into a new, like-kind property. This means you can sell one property and buy another similar one without immediately paying taxes on any gains from the sale.
These like-kind exchanges are covered under Section 1031 of the Internal Revenue Code (hence the name "1031 Exchanges") and apply to federal capital gains taxes. However, each state has their own tax code, and may have different rules for real estate tax withholdings, the ability to complete a tax-deferred sale, or the rules around like-kind exchanges. Below we'll dive deep into these state-level specifics.
Iowa allows taxpayers to deduct federal income taxes from their state taxable income. The Combined Rate accounts for Federal, State and Local tax rates on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations (which results in a tax rate increase of 1.18 percent).
Iowa allows for a deduction of all federal taxes actually paid in cash during the year. The deduction is equal to federal taxes withheld from paychecks during the year, plus any estimated payments made during the year, plus any federal taxes paid with the taxpayer's tax return during the year. Note that this means the taxpayer would be deducting taxes paid with prior year federal return since that return would have been filed during the current calendar year. Iowa allows for a Tax Credit instead of a deduction for taxes paid in other states.
Many states recognize and follow the federal rules for a qualifying 1031 exchange. We recommending reviewing these resources for 1031 exchanges at the federal level - learn about the rules for an exchange, the key deadlines you must meet, and why you are required to work with a Qualified Intermediary like Deferred.com.
Iowa doesn't have any specific laws or regulations when compared to other states in the U.S. The federal rules and principles governing 1031 exchanges across all states are applicable for Iowa as well.
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