Iowa taxes real estate gains at a flat 3.8% for 2026, and since 2023 its once-broad capital gain deduction survives only for farm real property and retired farmers, so a typical rental or commercial sale is fully taxable. On a $300,000 gain a high earner faces about $87,800 in federal and Iowa tax, and a 1031 exchange in Iowa defers all of it. The transfer tax of $1.60 per $1,000 is the one closing cost an exchange does not touch.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Flat 3.8% individual income tax for 2026 |
|---|---|
| Long-term capital gains treatment | Taxed as ordinary income; the Iowa capital gain deduction now applies only to certain farm real property and retired farmers' livestock |
| Nonresident withholding at closing | None for individual sellers |
| Withholding form | None at closing; nonresidents report Iowa-source gain on their Iowa return |
| Transfer or conveyance tax (a 1031 does not defer it) | $0.80 per $500 of value above the first $500 (about $1.60 per $1,000), with a Declaration of Value |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes |
| Estate note | Iowa inheritance tax does not apply to deaths on or after January 1, 2025 |
Table of contents
- How much is capital gains tax on real estate in Iowa?
- Iowa tax on a $300,000 gain: worked example
- Iowa's farm capital gain exclusion after 2023
- Does Iowa withhold tax from nonresident sellers?
- Iowa real estate transfer tax
- Iowa conformity and clawback rules
- Moving into or out of Iowa
- Where Iowa 1031 exchanges happen
- Federal 1031 rules that apply in Iowa
- Common Iowa 1031 exchange mistakes
- Start your Iowa 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Iowa?
Iowa capital gains tax on real estate is now a single number. Senate File 2442, enacted in May 2024, moved Iowa to a flat individual rate, and the Iowa Department of Revenue confirms a flat 3.8% for tax year 2026 on all levels of taxable income. Gains are taxed as ordinary income at that rate, including the part that is unrecaptured Section 1250 depreciation, which the federal return taxes at up to 25%. Size that federal piece with the depreciation recapture calculator.
For decades Iowa also let owners exclude gain on real property used in a business they had held and materially participated in for ten years. That changed on January 1, 2023. The Department of Revenue's IA 100 materials state that the Iowa capital gain deduction is repealed for most transactions on or after that date, and real property in non-farm businesses no longer qualifies. What remains is covered in the next section. For an apartment building, a warehouse or a single-family rental, assume the full gain is taxed at 3.8%.
Iowa has no city or county income tax on capital gains, so the rate is the same in Des Moines as in Sioux City.
Iowa tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on an Iowa rental property, $100,000 of it unrecaptured Section 1250 depreciation, a married couple filing jointly in the top federal bracket, no farm exclusion. Iowa's rate is flat, so the top rate applies to every dollar.
| Line | Math | Tax |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% × $100,000 | $25,000 |
| Remaining long-term gain | 20% × $200,000 | $40,000 |
| Net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Iowa income tax | 3.8% × $300,000 (no exclusion for non-farm property) | $11,400 |
| Total tax a full 1031 exchange defers | $87,800 |
A retired farmer who qualifies to exclude the gain on farmland would have a $0 Iowa line, leaving the federal $76,400. See how the numbers compare with a cash sale on the capital gains vs. 1031 exchange comparison.
Iowa's farm capital gain exclusion after 2023
Under Iowa Administrative Code rule 701-302.87, the capital gain deduction for tax years from 2023 onward covers:
- Real property used in a farming business, generally held for at least ten years with at least ten years of material participation in the farming.
- Cattle or horses held 24 months or more for draft, breeding, dairy or sporting purposes, and other breeding livestock held 12 months or more, for retired farmers only.
A retired farmer makes a single, irrevocable lifetime election to exclude qualifying gain. The rule treats a sale of farm real property to a relative more generously, allowing the exclusion regardless of the holding period and material participation tests. Cash-rent leases and Conservation Reserve Program ground do not count as a farming business, so an investor who owns farmland and rents it out for cash generally does not qualify. The farmland does not have to be in Iowa.
How this interacts with a 1031: if you qualify for the exclusion, Iowa tax on the sale is already zero and an exchange is only about the federal tax. If you do not, for example because the land has been cash-rented, an exchange defers the 3.8% too. Holding periods under the deduction are measured using federal Section 1223, which generally carries the holding period of relinquished property over to property received in an exchange, but material participation must still be met. Get your CPA to confirm eligibility on the IA 100 forms before you choose between exchanging and excluding.
Does Iowa withhold tax from nonresident sellers?
No. Iowa does not require withholding at closing when an individual sells Iowa real estate, so there is no exemption form to file for a 1031 exchange and the full proceeds go to your qualified intermediary. Nonresidents still owe Iowa tax on gain from Iowa real property and report it on an Iowa nonresident return in the year of a taxable sale. Foreign sellers remain subject to federal FIRPTA withholding; see our FIRPTA guide.
Iowa real estate transfer tax
Iowa Code section 428A.1 imposes a real estate transfer tax of 80 cents for each $500 of value, or fraction of $500, above the first $500. That works out to about $1.60 per $1,000, or roughly $1,600 on a $1 million sale. A Declaration of Value is filed with the deed. The tax is typically paid by the seller, and a 1031 exchange does not defer it; it is paid on the relinquished sale and again when you buy Iowa replacement property.
Iowa has no additional city or county transfer taxes, so this is one of the lowest transfer tax burdens among states that charge one.
Iowa conformity and clawback rules
Iowa follows federal income tax treatment of like-kind exchanges, so a valid Section 1031 exchange defers the Iowa tax along with the federal. Iowa has no clawback: it does not require an annual report on out-of-state replacement property and does not follow the deferred gain after you move. If you stay in Iowa and later sell the replacement in a taxable sale, the 3.8%, or whatever rate applies then, comes due.
Moving into or out of Iowa
Many Iowa landowners retire to warmer states. An exchange of Iowa farmland into net-leased property in Florida or Arizona, followed by a move, means a later sale of that property is outside Iowa's reach because Iowa has no clawback. Arizona taxes gains, Florida does not.
Investors in the Omaha-Council Bluffs and Quad Cities metros often compare Iowa with Nebraska or Illinois, and the state tax difference is part of the math: Illinois, for example, taxes gains at a flat 4.95% against Iowa's 3.8%. A nonresident who exchanges into Iowa property will owe Iowa tax on a future taxable sale of it.
Where Iowa 1031 exchanges happen
- Farmland. The largest share of Iowa exchanges. Land sold at auction or privately often trades into more farmland, frequently in the same county, or into commercial property for heirs who do not farm.
- Des Moines metro. Multifamily and industrial in Ankeny, West Des Moines and Waukee, plus net-leased retail.
- Cedar Rapids and Iowa City. Workforce and student housing and light industrial.
- Quad Cities, Council Bluffs and Sioux City. Cross-border markets where investors weigh Iowa against Illinois, Nebraska and South Dakota.
Landowners who want income without management often exchange into Delaware statutory trusts.
Federal 1031 rules that apply in Iowa
You get 45 days after the sale to identify replacement property and 180 days to close on it. A qualified intermediary holds the money in between; receiving it yourself makes the sale taxable. Reinvest at least what you sold for and replace the debt, or the gap is boot. Use the 45-day identification validator, the 1031 exchange calculator and our 1031 exchange guides.
Common Iowa 1031 exchange mistakes
- Relying on the old ten-year business property deduction. Since 2023, non-farm rental and commercial property no longer qualifies.
- Assuming cash-rented farmland qualifies for the exclusion. Cash rent is not a farming business under the rule.
- Using up the retired farmer election on a small sale. It is a one-time, irrevocable choice.
- Selling land at auction before the exchange is in place. The exchange agreement must be signed before the sale closes, and auction contracts often close fast.
- Exchanging to avoid Iowa inheritance tax. It no longer applies to deaths on or after January 1, 2025. Holding exchanged property until death still matters for the federal stepped-up basis; see swap till you drop.
Start your Iowa 1031 exchange
Contact us before the sale, or before the auction closes. Start your exchange and we will prepare the documents for your closing agent, or book an intro call to discuss your Iowa property and whether an exchange or the farm exclusion fits better.
Frequently asked questions
How can I avoid capital gains tax on real estate in Iowa?
A 1031 exchange defers both federal tax and Iowa's 3.8%. Retired farmers selling farm real property they held and farmed for at least ten years may qualify for Iowa's capital gain exclusion, which removes the Iowa tax but not the federal tax.
What is the Iowa capital gains tax rate for 2026?
Iowa taxes capital gains as ordinary income at a flat 3.8% for 2026.
Can I still use the Iowa capital gain deduction on rental property?
Generally no. For transactions on or after January 1, 2023, the deduction is limited to real property used in a farming business and certain livestock sold by retired farmers. Rental and commercial property, and cash-rented farmland, do not qualify.
How much is the Iowa real estate transfer tax?
80 cents for each $500 of value above the first $500, about $1.60 per $1,000. It is due on recording and a 1031 exchange does not defer it.
Does Iowa withhold tax from nonresident sellers?
No. Iowa has no withholding at closing for individual sellers. Nonresidents report Iowa-source gain on an Iowa return.
Does Iowa still have an inheritance tax?
No. Iowa inheritance tax does not apply to deaths on or after January 1, 2025.
Sources
- Iowa Department of Revenue: 2026 individual income tax rate announcement
- Iowa Department of Revenue: Iowa capital gain deduction
- Iowa Department of Revenue: 2025 IA 100E capital gain deduction (business real property)
- Iowa Administrative Code 701-302.87: capital gain deduction
- Iowa Code 428A.1: real estate transfer tax
- Iowa Department of Revenue: introduction to Iowa inheritance tax
Related: Nebraska, Illinois, Minnesota, Missouri, and all 50 states.
This page is general information, not tax or legal advice. Eligibility for Iowa's farm exclusion is fact-specific, so review your sale with a CPA or attorney.
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