Overview of Iowa Inheritance Tax Laws
How the Laws Affect an Estate
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 one of seven states that assess a separate state inheritance tax on specific types of property owned by an Iowa resident and real estate and tangible personal property located in Iowa that is owned by a nonresident.
Difference Between Estate Taxes and Inheritance Taxes
While it may just seem to be semantics, there is a real difference between an estate tax and an inheritance tax. An estate tax is charged against the entire estate—the total of the value of all possessions and assets of the decedent—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. Life insurance that is payable to the decedent's estate is included in the total value of the estate. However, life insurance that is payable to a living beneficiary is not.
Beneficiaries That 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 are entirely exempt. The same is true for children—biological and legally-adopted—stepchildren, grandchildren, great-grandchildren, and other lineal descendants. Iowa will not impose an inheritance tax on these beneficiaries.
Charitable, religious, educational, and veterans organizations as defined in sections 170(c) and 2055 of the Internal Revenue Code are also entirely exempt from the Iowa inheritance tax. This includes public libraries, public art galleries, hospitals, humane societies, and municipal corporations. Also, bequests for the 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 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.
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
- A personal representative and trustee fees
- Lawful debts owed by the decedent, including mortgages
- Certain unpaid taxes
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-siblings), 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 Iowa Inheritance Tax Forms Should 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.
Inheritance tax payments are made payable to the Iowa Department of Revenue.
Additional Information About Iowa Inheritance Taxes
For more information about Iowa's 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 email@example.com.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.