a. Accrual method: Taxpayers
who had capital gains in 2005 that were reported on the installment method
for Federal and the entire gain was reported for Iowa in a prior year do not have
to report installments.
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, are 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.
Capital gains from installment sales in 2005: 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.
Savings Iowa 529 Plan (Iowa Educational Savings Plan Trust): If
you, your spouse, or any other interested party participate in
College Savings Iowa, each may deduct an amount contributed not
to exceed $2,375 per beneficiary. This is an Iowa Section 529
Plan. Please note: Rollover contributions from
other states' Section 529 savings plans do qualify for the annual
deduction subject to the annual maximum contribution limit.
e. Claim of Right
Deduction: If income was repaid in
the 2005 tax year and was reported and taxed on a prior Iowa return,
that income may be deducted
on the 2005 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 2005 the taxpayer was notified that $4,000 of the unemployment
benefits had to be repaid. The benefits were repaid by the end of 2005.
The taxpayer may claim a $4,000 income adjustment on line 24 of the 2005
f. Disability income
exclusion: You may exclude from Iowa
tax a portion of the disability pay you received in 2005 if you meet
ALL of the following
g. Domestic production
activities deduction from line 35 of the Federal
1040: Iowa allows the deduction for qualified production activities income
set forth in Section 199 of the Internal Revenue Code for tax periods
beginning on or after January 1, 2005.
expenses: Enter out-of-pocket teacher expenses as allowed
on Federal 1040, line 23. For 2005 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.
i. 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.
j. 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 6478.
income exclusion and/or foreign housing deduction from Federal
form 2555 or form 2555EZ.
l. Gains or losses
from distressed sale transactions: If
you need further information, e-mail
our tax specialists.
m. Health savings
account deduction from
line 25 of the Federal 1040
n. "Hybrid" /
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 1040.
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
Your deduction amount on the Iowa return is the same as on
the Federal return.
A complete list of vehicle models that have been certified for the clean-burning
fuel deduction can be seen on the IRS Web site.
o. 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 family member.
this file for all military information
q. Net operating loss,
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
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
r. Organ transplant
expenses: A deduction in computing Iowa adjusted gross income is no allowed for taxpayers for un-reimbursed expenses relating to a human organ transplant. The taxpayer, while living, who donates all or part of a designated human organ can claim a deduction for un-reimbursed expenses such as travel expenses, lodging expenses and lost wages.
The deduction is limited to $10,000, and a taxpayer can only claim this
deduction once. If a taxpayer claims this deduction for Iowa tax purposes,
the taxpayer cannot also claim these same unreimbursed expenses as an itemized
deduction for medical expenses on the Iowa return.
s. 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.
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.
Student Loan Interest Deduction: Enter
the same figure that is allowed on your Federal 1040, line 33, or on
your Federal 1040A,
Tuition and fees deduction: Enter
the amount from Federal 1040, line 34, or Federal 1040A, line 19.
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:
x. Work Opportunity
Credit: If you claimed a Work Opportunity Credit on your
Federal income tax return, enter the amount here.
Other Federal Adjustments prior
to the calculation of Federal 1040 line 38 (Federal AGI) not already taken
on the IA 1040
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 before the adjustment in question.
(Examples of how