a. Accrual method: Taxpayers who
had capital gains in 2002 that were reported on the installment method for
Federal and the entire gain was reported for Iowa in 2001 do not have to
b. Beneficiaries, exemption of payments
to: Installment payments and lump sum payments received on or after July
1, 2002, by a beneficiary from an annuity of a deceased employee, is exempt
from income tax if the payments are included in the deceased employees
estate for Iowa inheritance tax purposes. If this annuity income is included
as part of Iowa gross income and included in the deceased employees
estate for Iowa inheritance tax purposes, enter that amount on this line.
c. Capital gains from installment sales
in 2002: The installment method for reporting capital gains for accrual
accounting taxpayers is adopted for Iowa individual income tax purposes for
tax years beginning on or after January 1, 2002. However, if you used the
accrual method of accounting and reported the entire capital gain on the
2001 Iowa return which was reported on the installment method for Federal
tax purposes, deduct the amount reported of any additional installments from
that capital gain on this line.
d. Claim of Right Deduction: If
income was repaid in the 2002 tax year and was reported and taxed on a prior
Iowa return, that income may be deducted on the 2002 tax return. However,
it may be to your advantage to take a credit on line
66. You may take either the deduction on this line or take a credit on
line 66, but not both.
Example of Claim of Right Deduction:
A taxpayer reported $7,000 in unemployment benefits on the 1998 Iowa return.
In early 2002 the taxpayer was notified that $4,000 of the unemployment
benefits had to be repaid. The benefits were repaid by the end of 2002.
The taxpayer may claim a $4,000 income adjustment on line 24 of the 2002
e. Disability income exclusion:
You may exclude from Iowa tax a portion of the disability pay you received
in 2002 if you meet ALL of the following conditions:
f. Employer Social Security Credit:
If your business was in the food or beverage industry and you claimed
a refundable credit for a portion of employer Social Security tax on employee
tips, you may claim a deduction on line 24 for this credit.
g. Federal Alcohol Fuel Credit:
If you claimed an Alcohol Fuel Credit on your Federal tax return, enter the
amount of your Alcohol Fuel Credit here and attach a copy of Federal form
h. Foreign-earned income exclusion and/or
foreign housing deduction from Federal form 2555 or form 2555EZ.
i. Gains or losses from distressed
sale transactions: If you need further information, e-mail
our tax specialists.
j. Clean-fuel vehicles: The clean-burning
fuel deduction applies to vehicles propelled by clean-burning fuel such as
natural gas or electricity. Because this is an above-the-line deduction for
Federal tax purposes, the deduction may be claimed on this line of the IA
The Internal Revenue Service certifies
whether or not a vehicle qualifies for the deduction. In order for a
vehicle to be eligible for the deduction, it must:
- be acquired by the taxpayer for original
use rather than for resale,
- meet specified Federal and state emission
- be manufactured for public road/highway
- have a minimum of four wheels, and
- not operate exclusively on rails
The deduction is $2,000 for qualifying
vehicles first used in the 2001, 2002 and 2003 calendar years. The deduction
decreases to $1,500 for 2004, to $1,000 in 2005 and to $500 in 2006. Federal
law currently provides no deduction for hybrid vehicles first used after
The Toyota Prius, Honda Insight and hybrid
Honda Civic have been approved. Others may be approved in the future. Contact
the Internal Revenue Service for a current list of qualifying vehicles. Call
the IRS at 1-800-829-1040.
Other "clean fuel deductions"
allowed on the Federal 1040, line 34, will also be allowed on the IA 1040,
k. In-home health care: To the extent
included in Iowa gross income, deduct any state Supplementary Assistance
payments received for unskilled in-home health-related care services to a
Educational Savings Plan Trust: If you participate in the Iowa
Educational Savings Plan Trust, you (and/or a spouse who also contributes)
may deduct an amount contributed not to exceed $2,180 per beneficiary.
This is a Section 529 Plan.
m. Medical savings account deduction:
If you claimed a Medical Savings Account Deduction on your Federal income
tax return, enter the amount of this deduction here and attach a copy of
Federal form 8853.
n. Net operating loss, Iowa:
Residents: Enter any Iowa net operating
loss carryforward from the prior year and attach the supporting schedule.
Nonresidents: Enter any Iowa-source net
operating loss carryforward on your Schedule IA126.
Nonresidents do not enter net operating losses on the IA 1040 return.
Net Operating Loss Worksheet for additional information on the new carryback
Iowa will not couple with the revised
carryback provisions of the Federal Economic Stimulus Bill.
The Federal return allows for a 5-year
carryback of net operating losses incurred in 2001 and 2002. Iowa has its
own net operating loss provisions for a 2-year carryback, and Iowa law will
not be changed based on the passage of the Federal bill. Therefore, for net
operating losses incurred in 2001 and 2002, the loss carryback for Iowa purposes
will remain at 2 years with exceptions noted on form IA
o. Partnership income and/or S corporation
income: Enter modifications that decrease the income if the income is
declared on line 10
of the IA 1040.
p. Retirement plans for military, exemption
of withdrawals: If a National Guard member or member of the military
reserve is called to active state or Federal duty and makes a withdrawal
from a qualified retirement account of the member, the amount of the withdrawal
is not subject to Iowa income tax or state tax penalty. If this income is
reported as taxable pension income on line
9 of the Iowa return, enter that amount here.
q. Speculative shell buildings:
If you are the owner of a qualifying speculative shell building, enter the
difference between the depreciation taken on this building on your Federal
return and the depreciation that you could take under the accelerated cost
recovery system of the Internal Revenue Code if the building were classified
as 15-year property. Attach a worksheet showing this calculation.
r. Student Loan Interest Deduction:
Enter the same figure that is allowed on your Federal return.
s. Teacher expenses: Enter out-of-pocket
teacher expenses as allowed on Federal 1040, line 23. For 2002 and 2003 tax
years, a deduction is allowed for up to $250 annually of expenses incurred
by teachers, instructors, counselors, principals, etc., for books, supplies,
computer equipment and materials used in the classroom.
t. Tuition and fees deduction: Enter
the amount from Federal 1040, line 26 or Federal 1040A, line 19.
u. Wages paid to certain individuals:
If you operate a business, you may qualify for an additional deduction
of 65% of the wages paid in the first 12 months up to a maximum deduction
of $20,000 per qualifying new employee. This deduction is in addition to
the wage deduction you were allowed on Federal Schedule C. To qualify, the
new employee(s) must be disabled or an ex-offender on parole, probation,
or in a work release program. All types of businesses may qualify for this
deduction for hiring qualifying ex-offenders. However, the deduction for
hiring qualifying persons with disabilities is restricted to certain small
Further information is available online:
v. Work Opportunity Credit: If you
claimed a Work Opportunity Credit on your Federal income tax return, enter
the amount here.
w. Other Adjustments allowed on
Federal 1040, line 34
MARRIED SEPARATE FILERS:
When the adjustment is attributable
to a specific spouse, it is taken by that spouse.
When the adjustment is not attributable
to any one spouse, it must be prorated based on the net income amounts
on line 26. Calculate through line 26 as if the adjustment in question
If the adjustment is attributable to
a dependent, such as the tuition and fees deduction, it is prorated based
on net income.
of how to prorate)