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Property Tax Division and your questions: Credits and Exemptions

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1 Property Tax Division and your questions: Credits and Exemptions
Cary Halfpop, Cody Edwards, Joel Gabrielson ISAA Spring School – March 14, Iowa Department of Revenue

2 Questions? Answer ! Filling Jim’s shoes  The Answer Team
Jim Moyle is still retired We continue to learn, slowly Be patient with us, we need time Dig a little deeper for your information lists Filling Jim’s shoes  The Answer Team Cary Halfpop Cody Edwards Joel Gabrielson Ken Kerr

3 What we do to achieve results:
Property Tax –Credits and Exemptions We apply credits to taxes paid, while we apply exemptions when determining the tax liability. Name: Credits, Exemptions, and Transfer Tax Description: The Property Tax Division provides technical information to the public, county, state, and legislative officials as well as inter agency and department wide staff on issues related to property tax credits, exemptions, and real estate transfer tax. Why we are doing this: The department of revenue administers Iowa Code Chapters 404; ; 423A; 423B; 423C; 425; 425A; 426; 426A; 427; 427C; 428A; 435; and 533. What we do to achieve results: Provide technical information and applicable forms to the public, county officials, and other interested parties on property tax credits, exemptions, and real estate transfer tax.

4 Help Yourself
Find statutes & rules through the Iowa Legislature website /ic?f=templates&fn=default.htm Iowa Tax Research Library (ITRL) Google Scholar Annotated Code

5 Information for Tax Administration Purposes -- Income Tax Info
Iowa residency Above or below income thresh hold Needed for DVHTC, Homestead credit, Property tax credit Contact the following for information Joel Gabrielson, Ken Kerr,

6 Questions Submitted ????

7 Tax Credits Agricultural Land Credits Ag Land Family Farm Land Homestead Military Exemption Disabled and Senior Citizens Tax Replacement Credits Mobile Home reduced Tax Rate and Credit Property Tax Rent Reimbursement Special Assessment this is the department’s web link for program explanations.

8 Exemptions Barn and One-Room School House
Computers and Industrial Machinery and Equipment Special Valuation Data Center Business Property Exemption Forest and Fruit Tree Reservations Exemption Impoundment Structures Exemption Industrial Property, Research-Service Facilities, Warehouses, Distribution Centers and Cattle Facilities Exemption Low-Rent Housing Exemption Methane Gas Conversion Property Exemption  Geo Thermal Exemption Native Prairie/Wetlands Exemption Natural Conservation and Wildlife Areas Exemption Pollution Control and Recycling Exemption Religious, Educational and Charitable Property Exemption Speculative Shell Buildings Exemption Urban Revitalization Exemption Value-Added Agricultural Products Exemption Web Search Portal Exemption Wildlife Habitat Exemption Wind Energy Property Exemption

9 Homestead Credit Generally
Basic Requirements: Property must be legally or equitably owned by the claimant; If owner of homestead is married, the spouse may sign and deliver the credit application. Property must be used as a homestead by the claimant or the claimant’s spouse on July 1 of each year; Owner of the property requested a homestead, must declare residency in Iowa for income tax purposes; and Property must be occupied by claimant or claimant’s spouse for at least 6 months in each calendar year. See 701 IAC 80.1(2)“j” for special rules for owners of homestead property who are in the military or are confined in a nursing home, extended-care facility, or hospital. An individual residing on property that is owned by a trust may qualify for the homestead credit if all requirements of the credit are met and the individual is the beneficiary of the trust.

10 Homestead and low-valued properties Process used when valuing a “low value property for credit”.
Even if the taxable value of the homestead is less than $3,783, for example $3,500, then the auditor will continue to use $3,783 as the maximum homestead credit against taxable value. The auditor will then multiply the funded homestead credit, $3,783, by the tax rate, for example $35 per thousand ($3,783 x = $132.41, which is the funded homestead tax credit amount). The funded portion of the homestead credit is $ The gross tax due is $ ($3,500 x 0.035). So, the taxpayer does not have to pay property tax. Under this scenario, any time a homestead has a taxable value of less than or equal to the state-funded homestead credit, the homestead owner who meets all the requirements of the homestead credit does not have to pay property tax   $4,850 (100% credit) x 0.78 (funding %) = $3,783 (state-funded homestead credit) $3,783 x = $ (state-funded homestead tax credit) $3,500 (taxable value of homestead) x = $ (gross tax due) $ $ = -$9.91 (excess homestead credit; homeowner does not have to pay tax).

11 Homestead Questions Who is entitled to the homestead credit, the deed holder or contract buyer? Either one may claim the credit. It depends on who resides in the property. Are a husband and wife who own and occupy separate dwelling homes each entitled to a homestead credit? Yes, if they meet all the other homestead credit requirements. May a husband who resides with his wife in the dwelling sign and deliver the homestead application even though his name is not on the deed? Yes, if the owner is married, the spouse may sign and deliver the homestead credit application.

12 Disabled Veteran Homestead Tax Credit
Full exemption must be allowed, regardless of percent funding A veteran or a beneficiary of a veteran who elects to secure the DVHTC is precluded from participating in any other real property tax exemption provided by law (425.15), since this credit is 100% of their property taxes. Number of acres of land that qualify, area with building DVHTC and military exemption not allowed on same property

13 Homestead Credit for a Family Farm Corporation
A Family Farm Corporation is the only type of business entity that may qualify for the homestead credit (LLCs cannot qualify for the homestead credit). The number of homestead credits allowed a family farm corporation is limited to the number of shareholders in the FFC. The requirements for the homestead credit are the same for a FFC as an individual, but the individual occupying the property must be shareholder of the FFC. There is allowed only one homestead per legally described tract Visit the Secretary of State website to determine whether a business entity is a Family Farm Corporation. “Search Databases” > “Business Entities” > then enter name of business (e.g., Smith Family Farm) > click on the business number for the correct entity > “Filings” > View the most recently filed Annual Report.

14 Family Farm Tax Credit (425A)
Three requirements to qualify for the FFTC: eligible tract of agricultural land; owned by an “owner;” designated person is actively engaged in farming. Most inquiries are about who qualifies as an “owner?” See Iowa Code section 425A.2(5)(c) for special rules relating to land being farmed under a lease arrangement.

15 Family Farm Tax Credit Cont’d
“Eligible tract of agricultural land” basic qualifications: Contiguous tracts, identical legal ownership, located within the same county (425A.2(5)(a)); Half of the acres of the contiguous tracts devoted to production of crops or livestock (425A.2(5)(b)); and 10 acres or more, excluding buildings or other structures located on the land, or land belonging to and part of other lands of more than 10 acres (425A.2(2))

16 Family Farm Tax Credit Cont’d
Who/what qualifies as an “owner” (425A.2(6)): Absolute owner; Contract purchaser; A partnership where all partners are related or formerly related to each other by blood, marriage, or adoption; Family Farm Corp. or Authorized Farm Corp.; or See Iowa Code sections 9H.1(9) and 9h.1(3) for requirements. Family Farm LLC or Authorized LLC. Note that these two entity types were added to the definition of “owner” in 2011.

17 Family Farm Tax Credit Cont’d.
Designated person must be actively engaged in farming: There are 9 situations where someone qualifies as a “designated person” under Iowa Code section 425A.2(4). Who qualifies as a designated person is beyond the scope of today’s discussion, but note that only specified individuals can be farming the agricultural land and still qualify for the FFTC. “Actively engaged in farming” requires: 1) personal involvement in production of crops or livestock; 2) on the eligible tract (as defined above); 3) on a regular, continuous, and substantial basis.

18 Family Farm Tax Credit Questions
What LLCs qualify for the FFTC? Authorized LLC and Family Farm LLC. Do all of the LLC’s members have to be related to qualify for the credit? No. However, a Family Farm LLC requires that a majority of the members be related. Does a LLP qualify as an ownership type under the new law for Family Farm Credit?  Is an LLP the same as a LLC? No. An LLP is different than an LLC. How do I know if a LLC is a Family Farm LLC or a Family Farm Corp.? The Iowa Secretary of State website.

19 Low Rent Housing (427.1(21) and 701 IAC 80.4)
Requirements: Property must be owned by a non-profit organization; Property must be operated or controlled by a non-profit organization; and The non-profit must be providing low-rent housing for persons who are elderly and persons with physical disabilities.

20 Very fact intensive inquiry!
Exemption for Property of Religious, Literary, and Charitable Societies (427.1(8)) Very fact intensive inquiry! Property is not exempt simply because it is considered a “non-profit” for federal tax purposes. Examples of potential exempt property: Nursing Homes Churches with Day Cares Assisted Living Facilities 501(c)(3)s Non-profit renting to non-profit YMCAs and Fitness Centers

21 Exemption for Property of Religious, Literary, and Charitable Societies 427.1(8))
Three general requirements: the property must be a charitable, religious, or educational institution or society at the time of the claimed exemption; the property must not be used for pecuniary profit; and the property that is being claimed exempt, must be actually and solely used for charitable, religious, or educational purposes of the entity. See Partnership for Affordable Housing, Ltd. Partnership Gamma v. Board of Review for the City of Davenport, 550 N.W.2d 161 (Iowa Sup. Ct. 1996), for an explanation of actual and sole use for charitable purposes.

22 Exemption for Municipal and Military Property (427.1(2))
Very fact intensive inquiry! Property is not exempt simply because it is owned by a county, township, city, school corporation, levee district, drainage district, or the Iowa national guard. Three general requirements: The municipality or national guard must own the property; The property must be devoted to public use; and Public use is a use that comes within the duty of the municipality; what is a duty of the municipality can be difficult to determine. The exemption should not be allowed if the municipality uses the property as a private corporation. The property must not be held for “pecuniary profit.” Profits must be reinvested into the property and no private individual can reap individual benefits from the excess funds.

23 Exemption for Municipal and Military Property (427.1(2))
Examples of potential exempt property: County owned property used as a hospital clinic. City owned property used to provide electricity to citizens within the city’s borders. See Van Buren County Hosp. and Clinics v. Board of Review of Van Buren, 650 N.W.2d 580 (Iowa Sup. Ct. 2002) for specific examples of what municipal property qualifies for the property tax exemption.

24 Cities acquire properties
Cities feel that when they receive properties the exemption applies immediately. The status of property on July 1 of the fiscal year, which commences during the assessment year, determines eligibility of the property for exemption in situations where no claim is required to be filed to procure a tax exemption. If the property is in a taxable status on July 1, no exemption is allowable for that fiscal year. If the property is in an exempt status on July 1, no taxes are to be levied against property during that fiscal year.

25 City acquires property from private owner April 30, 2012.
As the property was in private ownership on July 1, 2011, the property is subject to taxation based on the assessment for the 11/12 fiscal year payable 12/13. As the property will be owned by the city, used for a city purpose and not held for pecuniary profit on July 1, 2012 the property will be exempt based on the assessment for the 12/13 fiscal year so no taxes payable for 13/14. The same logic would apply to the sale of property by the city to a private owner. Property sold by the city April 30, As the property was owned by the city on July 1, 2011, the assessment for the 11/12 fiscal year payable 12/13 would be exempt from tax. As the private owner would own the property on July 1, 2012, the assessment for the 12/13 fiscal year payable 13/14 would be due.

26 Exceptions to this rule would be if the city acquired the property in connection with the establishment, improvement, or maintenance of a public road The property would be taxable for that portion of the fiscal year in which the property was privately owned. Rather than taxing the property for the full year based on the assessment because the property was in private ownership on July 1, 2011 the property tax would be prorated for the July 1,11 to April period the property was in private ownership. Another exception, when a city sells property that it had acquired through eminent domain to a private individual. The property is subject to taxation for that portion of the fiscal year the property was in private ownership and the taxes for that fiscal year should be prorated accordingly.

27 Questions to Ask to Determine Exemption Eligibility
Questions to Ask to Determine Exemption Eligibility for Charitable, Religious, Literary, Municipal, or Military Property Who owns the building? What are the lease terms? Can I see a copy of the lease? What services will the organization be providing? What is the purpose of the organization and property? How will the organization use its revenue? Is the organization exempt from tax for federal purposes (“Yes” does not automatically qualify the property for the exemption)?

28 Review agenda: Questions submitted? Credits and exemptions
Tax Research Tools

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