Overview of Iowa Inheritance Tax Laws
Understanding How the Laws Affect an Estate
NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
Iowa does not impose a separate state estate tax due to changes in the federal estate tax laws that phased out the state pick up tax effective for deaths occurring on or after January 1, 2005.
However, Iowa is among one of seven states that assess a separate state inheritance tax on certain property owned by an Iowa resident and real estate and tangible personal property located in Iowa that is owned by a nonresident.
Estate Taxes vs. Inheritance Taxes - What's the Difference?
- An estate tax is charged against the entire estate regardless of who the beneficiaries of the estate may be.
- An inheritance tax is only charged against the shares of certain beneficiaries of an estate.
Which Beneficiaries Are Subject to the Iowa Inheritance Tax?
Each beneficiary of an Iowa estate receives or does not receive, an exemption from the Iowa inheritance tax based on the beneficiary's degree of relationship to the decedent. Here are the categories of beneficiaries and their applicable exemptions, or lack thereof, that are available under Iowa law:
- For deaths occurring on or after July 1, 1997, surviving spouses; parents, grandparents, great-grandparents, and other lineal ascendants; and children (biological and legally-adopted), stepchildren, grandchildren, great-grandchildren, and other lineal descendants are entirely exempt from the Iowa inheritance tax.
- Charitable, religious, educational, and veterans organizations as defined in sections 170(c) and 2055 of the Internal Revenue Code; public libraries; public art galleries; hospitals; humane societies; municipal corporations; bequests for care of cemetery lots within the state of Iowa, and bequests for religious services not in excess of $500.00 are entirely exempt from the Iowa inheritance tax.
- Any other beneficiary not listed above, including siblings, nieces, nephews, cousins, and friends, are taxed on the entire share passing from the estate to that person.
Is Life Insurance Included in an Iowa Estate?
What Expenses Can Be Deducted From the Value of an Iowa Estate?
Certain expenses can be deducted from the value of an Iowa estate, including:
- Funeral expenses
- Attorney's fees
- Personal representative and trustee fees
- Lawful debts owed by the decedent, including mortgages
- Certain unpaid taxes
What Are the Iowa Inheritance Tax Rates?
The Iowa inheritance tax rates are as follows:
- If the net estate of the decedent is valued at less than $25,000, then there is no Iowa inheritance tax due.
- Schedule B beneficiaries: For brothers, sisters (including half-brothers, half-sisters), sons-in-law, and daughters-in-law, there is no exemption, and the inheritance tax rates range from 5% to 10%.
- Schedule C beneficiaries: For uncles, aunts, nieces, nephews, foster children, cousins, brothers-in-law, sisters-in-law, step-grandchildren, and all other individual persons, there is no exemption, and the inheritance tax rates range from 10% to 15%.
- Schedule D beneficiaries: For firms, corporations, and societies organized for profit (including organizations failing to qualify as charitable, educational, or religious organizations, to include social and fraternal organizations that do not qualify under IRC 170(c) and 2055), the tax rate is 15%.
- Schedule E beneficiaries: For charitable, educational, and religious organizations organized under the law of a foreign country, and bequests for religious services in excess of $500.00, the tax rate is 10%.
- Schedule F beneficiaries: For unknown heirs, as distinguished from beneficiaries who are not presently ascertainable, due to contingent events, the tax rate is 5%.
For a chart showing the exact inheritance tax rate brackets, refer to the Iowa Inheritance Tax Rate Schedule on the Iowa Department of Revenue website.
What Iowa Inheritance Tax Forms Must Be Filed and When Are They Due?
The estates of Iowa residents and nonresidents who own real estate and/or tangible personal property located in Iowa need to file an Iowa Inheritance/Estate Tax Form, Form IA 706, on or before the last day of the ninth month after the decedent's date of death. The inheritance tax must also be paid within the same time frame, otherwise, interest will begin to accrue.
Where Should Iowa Inheritance Tax Forms Be Filed?
File the completed Iowa Inheritance/Estate Tax Return (Form IA 706) with FIDUCIARY RETURN PROCESSING / INHERITANCE, Iowa Department of Revenue, P.O. Box 10467, Des Moines, IA 50306-0467.
Where Are Iowa Inheritance Tax Payments Made?
Inheritance tax payments are made to the Iowa Department of Revenue.
Where Can You Find Additional Information About Iowa Inheritance Taxes?
For more information about Iowa inheritance taxes, refer to the Iowa Department of Revenue website. For tax research, visit the Iowa Tax Research Library. E-mail the Iowa Department of Revenue at firstname.lastname@example.org.