August 24, 2021 | Brothers, sisters, aunts, uncles, and in-laws rejoice! The inheritance tax is dead!
On May 19th, 2021, the Iowa Legislature passed S.F. 619, a law which will phase out inheritance taxes at a rate of 20% per year and completely eliminate the tax by January 1st, 2025. S.F. 619 was then signed into law by Governor Reynolds on June 16, 2021.
While few Iowan families have to worry about the federal estate tax where each individual has a lifetime exemption of $11.7 million for tax year 2021, the Iowa inheritance tax affects bequests as small as $100,000. Although surviving spouses, children, parents and grandchildren were exempt from the Iowa inheritance tax, bequests to brothers, sisters and sons / daughters-in-law were taxed at a rate of 10% for amounts over $150,000. More distant family members such as aunts, uncles, cousins, nieces, nephews were taxed at a rate of 15% for amounts over $100,000. The Iowa inheritance tax also constricted families’ charitable giving options by imposing a 10% tax on bequests to charitable organizations formed outside the state of Iowa.
With the inheritance tax on its way out, Iowan families will have greater choices and freedom in the estate planning and charitable giving goals. Perhaps the greatest benefit will be the ability to pass along family-owned farmland and privately held family businesses to siblings and other family members to continue operations without having to fear a crushing inheritance tax bill.
Last but not least, the first year of the phaseout retroactively applies to January 1, 2021. Even if an Iowa inheritance tax return has already been filed in 2021, it can be amended to include a 20% discount on the taxes owed. If you or a family member have questions about how this change will impact your current estate plan or if a family member passed away this year, don’t hesitate to contact our offices.
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