Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

NEW IOWA 'HOLDING PERIOD' PROPOSAL

January 27, 2006

A new bill in the Iowa Senate, SSB 3046, would require Iowa to follow federal tax rules in determining how long an asset has been "held."

This is important for taxpayers trying to qualify for the Iowa exclusion for capital gains on business property that has been "held" for at least ten years. The Department of Revenue has made up its own holding period rules based on a chain of reasoning stemming from (I'm not making this up) a misreading of an old CCH "Master Tax Guide."

The bill would apply for determining the holding period of property sold starting January 1, 2006 and retroactively to tax years ending after January 1, 2006.

There are many policy reasons against this capital gain exclusion in the first place, but if it is to exist, it should at least be easy to apply. Under the current Department of Revenue interpretation, like-kind exchanges and involuntary conversions of business property start a new holding period; under federal law, the holding period of teheexchanged property (or converted property) "tacks" to the property acquired to replace it. Taxpayers shouldn't have to deal with a separate unclear set of holding period rules based on the whim of state tax collectors.

While the proposed rules are fine as far as they go, they should be expanded to cover all open tax years. The Department's application of the rules up to now is wrong, and SSB 3046 should say so. The 2006 effective date is likely to embolden the Department to continue to defend its old holding period stance for examinations of pre-2006 tax years. At the very least, the explanation of the bill should say that the provision is a "clarification" of existing rules.

 • Eye on the Legislature ~ • Iowa Tax Law       Bookmark: del.icio.us • Digg • reddit