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Iowa Inheritance Tax

Iowa is one of a number of states that assess a tax on the inheritance of property.  The tax applies to Iowa residents and to nonresidents who own certain types of property (such as real estate) located in the state of Iowa at the time of death.  Iowa’s inheritance tax is based upon two main factors:

  1. The relationship between the person who died and the person inheriting property, and
  2. The amount of the inheritance.

Net estates valued at less than $25,000 are exempt from tax.  For estates valued at more than $25,000 the tax rate ranges from 5% to 15%.  Fortunately, for those larger estates there are some exceptions to the tax.  The most important exception to the tax is that no tax is assessed on amounts received by the decedent’s surviving spouse, children, parents or other lineal ascendants or descendants.   Qualified charitable organizations are also exempt from the tax.  All other beneficiaries, including siblings, nieces and nephews, cousins and friends must pay tax on their share.

As the amount of a non-exempt inheritance increases, the tax rate goes up.  Therefore, it is very important to determine which assets need to be included in the  tax calculation.  Life insurance and qualified retirement benefits can be exempted from the tax under some circumstances.  Special rules apply to assets held jointly with another person or owned by a trust set up by the decedent or in which the decedent had an interest before death.  Complex questions can arise if the decedent gave property away, but retained an interest in the property such as the right to use the property until his/her death.

After determining which assets are taxable, each asset must be properly valued.  This presents additional issues depending upon the type of asset and whether a federal estate tax return is required to be filed.  Iowa’s inheritance tax is separate from the federal estate tax.  Each have different filing requirements and use very different rules in its tax calculation.  One or both of these death taxes may be applicable depending upon the value of a decedent’s assets and to whom he/she leaves those assets.

Watch for future information on the federal estate tax.  Contact us if you have questions about Iowa’s inheritance tax.

Joyce Klimesh About Joyce Klimesh

Joyce is the Firm’s specialist in Estate and Trust taxation. She holds a Doctor of Law (JD) from the University of Iowa and has over 20 years of experience in public accounting. She earned her BA in Business Management from the University of Northern Iowa.

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