In late June, the Iowa legislature passed SF 533. It's an appropriation bill, but it also contains some important tax provisions impacting Iowa income tax provisions for tax years 2008, 2010, and 2011. On July 27, 2011 the governor signed the bill into law after making several line items vetos, one of which affected income taxes.

This legislation retroactively coupled Iowa tax law with the following federal provisions for 2008:

• Tuition and Fees Deduction
• Educator Expenses Deduction
• Casualty Loss (10% limit; $100 floor)

The retroactive nature of the coupling will require amended returns for 2008. Taxpayers who are impacted by these changes and have already filed returns for tax year 2008 may want to consider filing an amended Iowa tax return.  Amended returns may be filed within three years of the original due date. No interest will be paid on refunds resulting from this legislation. 

Observation:  These changes are allowed only for the 2008 tax year.  These changes are not allowed for the 2009 tax year since Iowa did not couple with tax changes affecting the 2009 tax year. 

For 2010 and 2011 Individual Income Tax Filers Only: The Budget Bill allows taxpayers to make certain changes on the 2011 Iowa return in lieu of amending the 2010 return due to the late passage of coupling with the Internal Revenue Code.

The three items for which the change can be made in 2011 in lieu of amending the 2010 return are:

• Section 179 expensing,
• The educator expense deduction and
• The tuition and fees deduction.
  

For 2010 and 2011 Individual Income Tax Filers, as well as Corporate Income Tax (including S Corporations), Partnership, Fiduciary and Franchise Tax: Taxpayers can make an adjustment on the 2011 tax year return for Iowa's coupling with the federal Section 179 expensing limit for 2010. The taxpayer has the option to amend 2010 or adjust 2011.

Observation: Among the line-item vetos made by the governor was an increase in the Iowa earned income tax credit that was passed by the Iowa legislature.  That was the only tax item in the bill that was line-item vetoed.