Taxpayers have for years been confused by Iowa’s capital gain deduction. It’s only available for certain business sales when the owner has held the business for at least ten years and has “materially participated” in it for that long. But until this year, there was no indication it was so hard on the face of Iowa’s 1040.
The Iowa Department of Revenue last week released a protest resolution involving one such confused taxpayer (my emphasis):
The Department reviewed your 2006, 2007, and 2008 individual income tax returns and denied the capital gains deduction. The issue in this protest is whether your capital gains from investments, i.e., stock sales, dividends, and distributions reported on forms 1099-B and 1099-DIV qualify for the Iowa capital gains deduction.