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Issue Guide

Inheritance Tax

posted on April 30, 2019

The Problem:

Several years ago, the legislature removed the inheritance tax for lineal relations. Today, if a deceased person does not have children or chooses to leave their assets to a non-lineal relation, this can create a scenario where the beneficiary does not have the liquid assets to pay the inheritance tax, potentially resulting in the sale of a small business or family farm. This is not the outcome tax policy should strive to achieve.

ITR Solution:

Completely eliminate Iowa's inheritance tax.

What Has Happened:

  • A bill cleared two hurdles in the Senate.
  • A similar bill was introduced in the House.

Work Left to Do:

Contact your legislators and let them know Iowa may be driving the final nail into the heart of the family farm or the family business via the inheritance tax.

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Iowa Needs to Completely Eliminate the Inheritance Tax

In Iowa, surviving spouses, children, grandchildren, and other direct lineal descendants (and ascendants for that matter), are exempt from paying taxes to the State of Iowa for property and assets they inherit. But beneficiaries such as sons-in-law and daughters-in-law, nieces, nephews, and others, have to pay a tax ranging from 5 percent to 15 percent on the value of their inheritance.

In an already difficult economic environment for small businesses and our agricultural community, the state may be driving the final nail into the heart of the family farm or the family business via the inheritance tax.

Iowa's inheritance tax can create problems for small businesses and family farms. Often, farmers and small business owners are asset-rich but cash-poor. If a deceased person does not have children or chooses to leave their assets to a non-lineal relation, this can create a scenario where the beneficiary does not have the liquid assets to pay the inheritance tax, potentially resulting in the sale of a small business or family farm. This is not the outcome tax policy should strive to achieve

During the 2019 legislative session, SF 1, a bill that would completely eliminate the inheritance tax, cleared two hurdles in the Iowa Senate and is now eligible to be voted on by the full Senate.  A similar bill, HF 438, was introduced and passed out of subcommittee in the House. These bills are still alive and can advance in the 2020 legislative session.  ITR supports both of these bills because tax policy should not treat different groups of taxpayers in the exact same circumstance differently. In fact, avoiding this tax is another reason why some Iowans choose to leave this state. Simply put, the Iowa inheritance tax system punishes Iowans who do not have children to leave assets to.