The Iowa legislature didn't get around to deciding what Iowa's 2010 income tax law was until April of this year. Thousands of Iowa returns were filed without claiming deductions enacted by the later-than-last-minute legislation (SF 512). Today the Iowa House is scheduled to debate a proposal to allow taxpayers the option of claiming those breaks on their 2011 returns in place of filing amended 2010 returns.
Amendment H-1735 to HF 677 -- the omnibus budget bill -- would allow taxpayers to take the following 2010 tax breaks on 2011 returns:
- The Section 179 deduction of up to $500,000 for otherwise depreciable equipment. The Iowa 2010 limit had been $134,000;
- The deduction for higher education expenses; and
- The $250 educator expense deduction.
This is a great idea. Amending an Iowa return to get a $250 educator deduction is hardly worth the bother of amending when you at best get a $22 refund. An S corporation claiming the increased Section 179 deduction may have multiple owners that have already filed 2010 returns; it may be a better deal to just hold the deduction over to 2011 than to pay to amend the 2010 Iowa return and all of the owner IA 1040s.
The bill also would allow taxpayers to amend their 2008 Iowa returns to claim the same teacher deductions, higher education expenses and the optional itemized sales tax deduction allowed on federal returns for that year. This is a strange provision, re-opening an old year for deductions that taxpayers have given up on. In fact, many taxpayers who accidentally claimed those deductions on Iowa returns for those years because they were on the federal return have paid assessments issued by the Department of Revenue for those items; they would then have to amend their returns to recover refunds for the deductions they claimed in the first place.
There apparently is no budget deal yet, so the passage of these provision can't be assumed. Still, it's good to see legislation that could save the expense of amending returns for small refund amounts.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to