Iowa: Guidance Issued on IRC section 163(j) Limitation

The Iowa Department of Revenue recently issued guidance on the IRC section 163(j) limitation. Recall, Iowa conforms to the Tax Cuts and Jobs Act (TCJA) for tax years beginning on or after January 1, 2019. Thus, Iowa does not conform to the IRC 163(j) limitation as revised under the TCJA for the 2018 tax year. The guidance provides that while individuals will be required to make adjustments on their Form IA 1040 to account for the larger Iowa deduction, corporate taxpayers (and others) will report necessary adjustments on the 2018 Nonconformity Adjustments Worksheet (2018 Worksheet). The guidance notes that for tax years beginning on or after 2019, Iowa conforms to the federal limitation, meaning the Iowa interest expense deduction will “generally be the same as the federal deduction in a given year.”  However, a taxpayer may be required to make adjustments to account for amounts of interest that were disallowed on the federal return in 2018 and carried forward to a subsequent year.  The guidance provides extensive detail on the special reporting requirements that apply to entities that file as partnerships or S-Corporations and to their partners or shareholders. Please stay tuned to TWIST for more state guidance on federal tax reform.