Iowa Capital Gains Exclusion for stock sales? The first income tax bill in the hopper in this session of the Iowa General Assembly is HSB 502, which would expand the current tax break for extra-long term capital gains to stock and partnership interest sales.
Iowa currently allows taxpayers to exclude some capital gains from income when the taxpayer meets each of two 10-year requirements:
– They have to have held the property for at least ten years, and
– They have to have materially participated in the business for at least ten years. Material participation is determined under the federal passive activity rules.
If those requirements are met, a taxpayer can exclude gain on the sale of “substantially all of the assets” of a business, or on the sale of real estate used in the business. But unless the gain is recognized in a corporate liquidation following an asset sale, stock gains aren’t eligible for the break. Gains on the sale of partnership interests are never excluded
HSB 502 would extend the break to a sales of “substantially all of the taxpayer’s stock or equity interest in the business, whether the business is held as a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or another business entity.”
The provision makes sense to the extent that such a break shouldn’t be dependent on the way you organize your business. What doesn’t make sense is the way the exclusion is limited by the ten-year material participation requirement. There is a strong economic case to not tax capital gains at all, but I can’t think of any reason that case is affected by material participation.
The biggest argument against the exclusion is that it is a carve-out of the income tax base for a very limited class of taxpayers that adds to the complexity of the Iowa income tax. I would favor a broader, or even complete, capital gain exclusion. I would also be OK with taxing all capital gains in exchange for repeal of the corporation income tax and reduction of the individual rate to under 4% as part of the Quick and Dirty Iowa Tax Reform Plan.
The bill has been referred to a subcommittee of the Iowa House Ways and Means Committee. While I expect no major tax legislation to move this year, limited provisions like this could advance.
When the Regulations were published, those refundable tax credits which were intended for participants in state exchanges were extended to those individuals under the federal exchanges. The plaintiffs filed suit, arguing that making the credits available to those on the federal exchanges was beyond the scope of the law. The plaintiffs sought, through the lawsuit, to prohibit the IRS from enforcing the Regulations as written.
The D.C. U.S. District Court upheld the regulations yesterday on summary judgement. An appeal to the D.C. Circuit is likely.
David Henderson quotes economist John Cochrane:
Our current tax code is a chaotic mess and an invitation to cronyism, lobbying, and special breaks. The right thing is to scrap it. Taxes should raise money for the government in the least distortionary way possible. Don’t try to mix the tax code with income transfers or support for alternative energy, farmers, mortgages, and the housing industry, and so on. Like roughly every other economist, I support a two-page tax code, something like a consumption tax. Do government transfers, subsidies, and redistribution in a politically accountable and economically efficient way, through on-budget spending.
But that isn’t going to happen anytime soon.
So wise, and, sadly, so true. Mr. Cochran has a lot of wise things to say; read the whole thing. Lynne Kiesling passes on more Cochrane wisdom in Cochrane on ACA’s unravelling: parallels to electricity.
Robert D. Flach, TWO RECENT TAX POSTS WORTH DISCUSSING. “The idiots in Congress must understand that the purpose of the Tax Code is to raise the money needed to run the government – PERIOD.”
Trish McIntire talks about Choosing A Tax Pro. “Just because your previous preparer did something a certain way doesn’t mean that another preparer will run their office the same.”
William Perez, Free Tax Preparation Services
Paul Neiffer, Grain Gifts – How Are They Taxed?:
Since there is no cost allocated to the grain that is gifted, there is no charitable deduction to report. Rather, since you are reducing your schedule F income by the amount of grain given, this essentially results in your charitable deduction. You are not allowed to deduct both on schedule F and on schedule A.
Only one deduction counts.
Jason Dinesen, Got 1099s to Issue?:
A 1099 may need to be issued if:
You paid $600 or more in total to any 1 person during the year for services provided to your business. This also applies to payments made to businesses organized as partnerships. However, a 1099 does NOT need issued for payments made to a corporation. Payments made to an LLC may or may not require a 1099, depending on how the LLC is taxed.
You paid $600 or more in total to a law firm during the year, regardless of how the law firm is organized. In other words, even if the law firm is a corporation, you would need to issue it a 1099 if you paid the firm $600 or more.
You paid $600 or more in rental or lease payments to an unincorporated person or partnership during the year (similar rules as listed under item #1).
And the deadline is looming.
Jack Townsend, Switzerland’s Quixotic Efforts to Close the Stable Door After the Horse Has Left the Barn. Consider Swiss bank secrecy most sincerely dead.
TaxProf, The IRS Scandal, Day 252
Keith Fogg, Forum Shopping in the Tax Court – Small Tax Case Procedure and the Rand Decision. (Procedurally Taxing). Issues when a tax deficiency results solely from refundable tax credits.
Tax Justice Blog, What to Watch for in 2014 State Tax Policy
Scott Drenkard, Open Sky Policy Institute: “Illinois is not an Example for Other States”. Not exactly going out on a limb, but worth noting.
Roberton Williams, Tax Complications for Same-Sex Couples in Utah (and Elsewhere) (TaxVox)
News from the Profession: How To Not Tick Off Your Public Accounting Colleagues Without Being a Clown About It (Going Concern)
Tags: TaxProf, Kay Bell, William Perez, Iowa capital gain exclusion, TaxGrrrl, David Henderson, Going Concern, Obamacare, Jack Townsend, Roberton Williams, ACA, Scott Drenkard, Cara Griffith, Lynne Kiesling, Keith Fogg., John Cochrane, HSB 502