Menu
Tax Notes logo

Iowa Not Conforming to Retroactive CARES Act Provisions

Posted on June 3, 2020

Iowa doesn't conform to federal tax changes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act that affect tax years before 2020, according to the Department of Revenue.

The state "generally conforms with tax provisions of the CARES Act to the extent they affect Iowa income taxes for tax years beginning on or after January 1, 2020," the DOR explained in its June 1 release.

According to the department, the state is not aligned with section 1106 of the CARES Act (P.L. 116-136) for tax years beginning before January 1, 2020. Section 1106 forgives and excludes taxpayers’ loan obligations under the Paycheck Protection Program from income for tax purposes.

The release states that while section 2304 of the CARES Act temporarily suspended the excess business loss limitation under IRC section 461(l) for tax years 2018 to 2020, the temporary suspension should not affect the calculation of tax year 2018 net state income because Iowa is not conformed to the excess business loss limitation for that year. The excess business loss limitations will apply for tax year 2019 for state tax purposes.

Iowa will also use 30 percent of adjusted taxable income in calculating the IRC section 163(j) deduction limitation for tax year 2019. Section 2306 of the CARES Act temporarily increased the amount of interest expense that can be deducted at the federal level from 30 percent of a taxpayer’s ATI to 50 percent.

The state will also treat qualified improvement property (QIP) placed in service during tax years 2016 through 2019 as a 39-year property, according to the DOR. Under section 2307 of the CARES Act, QIP placed in service after December 31, 2017, can be treated as 15-year property for federal depreciation purposes and have an assigned class life of 20 years for alternative depreciation system purposes.

According to the release, the DOR will soon release nonconformity guidance on these provisions that will include instructions on how to report the differences on state tax returns.

Copy RID