Iowa Provides Itemized Deduction Guidance

Iowa’s itemized deduction guidance highlights and summarizes the major differences between federal and Iowa itemized deductions. The federal Tax Cuts and Jobs Act (TCJA) made numerous changes to the itemized deductions claimed by individuals. Iowa will not conform to most of these changes until 2019. Iowa individual income tax will be calculated using the Internal Revenue Code in effect on January 1, 2015.

How are Certain Iowa Itemized Deductions Determined?

Iowa has generally not adopted federal deduction limitations and suspensions. Iowa itemized deductions for 2018 include:

– Medical Expense Deduction. Iowa individuals can deduct qualified medical expenses exceeding 10% of Iowa adjusted gross income (AGI), federal taxpayers are limited to 7.5% of federal AGI.

– State and Local Tax Deduction. The federal cap does not apply and individuals who itemize deductions can elect an optional deduction for state sales and use taxes in lieu of the deduction for state and local income taxes, if the same election is made at the federal level.

– Qualified Home Mortgage Interest Deduction. Taxpayers can generally deduct interest secured by an individual’s main home or second home, paid during the year on the first $1 million of acquisition loans, and interest paid during the year on the first $100,000 of home equity loans.

– Charitable Contribution Deduction. Iowa has not increased the charitable deduction limitation, applied the special rule for California wildfire relief contributions, repealed the college sports ticket rights deduction, increased the qualified conservation contributions, applied the food inventory contributions deduction, but the limitation on contributions in exchange for state and local tax credits will apply if the federal regulation is adopted.

– Personal Casualty/Theft Loss Deduction. Iowa taxpayers can deduct casualty and theft losses from personal use property, even if such losses are not attributable to a federally declared disaster, if the losses exceed a $100 per-event loss limitation and exceed 10% of a taxpayer’s AGI.

– Deduction for Miscellaneous Expenses Subject to the 2% AGI Floor. Iowa taxpayers may deduct the miscellaneous expenses to the extent they exceed 2% of the taxpayer’s Iowa AGI and that were deductible before the federal suspension.

– Overall Itemized Deduction Limitation. Individuals with Iowa AGI over the threshold must reduce their Iowa itemized deductions (excluding medical expenses, investment interest, or personal casualty and theft losses) by the lesser of 3% of the amount their AGI exceeds the threshold amount, or 80% of their itemized deductions.

Iowa Tax Reform Guidance: Individual Itemized Deductions for Tax Year 2018, Iowa Department of Revenue, December 17, 2018, ¶201-404

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