September 25, 2020

Bury Iowa's Inheritance Tax

The following is based on a true story:
Mary, an Iowa resident, owns 250 acres of land, worth around $2,000,000 that has been in her family for generations. She does not have any children, and her nephew, John, farms the ground. Mary dies and leaves this property to John.

The state of Iowa will send John an inheritance tax bill of around $300,000 (15%). As a young farmer, he will now have to borrow money to pay the tax and keep this land as a family farm or be forced to sell a portion of it just to pay the tax bill.

This is not the outcome Iowa’s tax policy should create. If Mary had children or grandchildren and left the land to them, they would not be taxed.

Only six states in the nation levy an inheritance tax, a tax on assets given to a living person from a deceased person at the time of death. Iowa is one of them.

Who Pays Iowa's Inheritance Tax?

If an Iowa resident dies and their property goes to their spouse, children, grandchildren, parents, or grandparents, no inheritance tax is due.

If the property is left to a brother, sister, son-in-law, or daughter-in-law, the state will tax the property up to 10 percent of the value. If the property is left to someone else like an aunt or uncle, niece or nephew, cousin, business partner, or friend, the state will tax the property up to 15 percent of the value.

Why Does it Matter?

While farmland being passed among family members is a common occurrence in Iowa, the same unfairness of the inheritance tax penalizes small business owners and anyone else who leaves assets to anyone other than their lineal descendants.

The first item in ITR's Five Principles of Sound Tax Policy is fairness. Iowa’s tax code should be fair and not favor one group of taxpayers at the expense of another.

What should be done?

It is time for bureaucrats at the Capitol in Des Moines to completely eliminate the inheritance tax. The legislature should address this inequity in the tax code and allow Iowans to leave their assets to whoever they want without penalty.

Already, 44 states get by without an inheritance tax. Iowa can do the same.

Grabbing Property Tax Dollars
Faster than Iowans Can Earn Them

An ITR member recently shared with us, "Property taxes are a burden. My income does not keep up with the increases."

This problem is not unique. Local governments are grabbing taxpayer dollars at a rate faster than most of us can earn them. People don't have a choice when it comes to property taxes. They have to send that money to local governments, and every year, their tax bill takes more of their household budget. 

Over the last two months, ITR compared property tax increases to population and school enrollment growth in communities across Iowa. If you missed it, take a look with the links below: Community colleges follow the three taxing authorities above as the next largest consumer of property taxes. Statewide, community college revenue from property taxes grew from $50.7 million in 1999 to $166.6 million in 2019.

In a Hawkeye Reporter article, ITR President Chris Ingstad said, "It flies under people's radar a lot because the total property tax bill is dominated by cities, school districts, and counties. As a result, people tend to overlook the property taxes levied by community colleges but those dollars are growing really, really quickly."

Links of Interest

Iowa cities and counties will get $3 million less than last year for road projects based on fuel and vehicle purchases and registrations.- Iowa Capital Dispatch
Iowa Regents asking state to restore $8 million cut, plus $18 million general fund boost. - Cedar Rapids Gazette
College Savings Iowa expands how the money can be used. - Radio Iowa
If Biden is elected president, small businesses across the country will see higher taxes that will harm growth and jobs at a time that the economy is recovering.
- Americans for Tax Reform
The federal government continues to take in record amounts of revenue, but it goes out the Treasury's door as fast as it comes in. - Cal Thomas

Recent ITR Watchdog Email Updates

  • Iowa's tax climate gets a failing grade
    Which states are poised for economic recovery?
  • County property taxes compared to population growth
  • Who pays the most in property taxes?
  • 66% say taxes are a deciding factor
  • Iowa's Rich States, Poor States ranking
  • School district enrollment and property tax comparison
  • Are Iowa's public universities bloated or under-managed
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It’s easy for politicians to yield to noisy special interest groups when the taxpayer keeps quietly paying the bills.
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