An eligible individual may elect to exclude net income from a
farm tenancy agreement covering real property held by the individual for ten or
more years from the computation of net income, if the eligible individual
materially participated in a farming business for ten or more years.
(1)
Definitions. Unless
otherwise indicated in this rule or required by the context, all words and
phrases used in this rule that are defined under Iowa Code section
422.7(14)
shall have the same meaning as provided to them under that Iowa Code section.
"Disabled individual" means an individual
who is receiving benefits as a result of retirement from employment or
self-employment due to disability. In addition, a person is considered to be a
disabled individual if the individual is determined to be disabled in
accordance with criteria established by the Social Security Administration or
other federal or state governmental agency.
"Held" shall be determined with reference to
the holding period provisions of Section
1223 of the Internal Revenue Code and the
federal regulations pursuant thereto.
(2)
Material participation.
Material participation for the purposes of this rule is determined pursuant to
subrule 302.87(2) and the definition of "materially participated" in Iowa Code
section 422.7(14). An
eligible individual meets the material participation requirements if the
individual materially participated in a farming business for ten years or more
in the aggregate. When determining whether an eligible individual has stopped
materially participating, the material participation test in subparagraph
302.87(2)"e"(5) and the material participation of a spouse
shall not apply.
(3)
Lifetime election. An eligible individual may make a single
lifetime election on a form prescribed by the department to exclude net income
pursuant to a farm tenancy agreement covering real property. If an eligible
individual makes the election described in this subrule, the eligible
individual is not eligible to make an election to exclude the capital gain from
the sale of real property used in a farming business or certain livestock under
Iowa Code section
422.7(13) and
rule
701-302.87 (422) or claim the
beginning farmer tax credit under Iowa Code section
422.11E in the same tax year or
any subsequent tax year. The election is irrevocable once made.
a.
Beginning farmer tax
credit. A retired farmer shall not utilize an unclaimed amount of a
beginning farmer tax credit in the same tax year the retired farmer is making
an election described in this subrule or in subrule 302.87(3) or in any
subsequent tax year.
b.
Surviving spouses. A surviving spouse of a deceased eligible
individual may make the election described in this subrule or the election
described in subrule 302.87(3) subject to the provisions of subrule 302.87(3).
For purposes of this subrule, "retired farmer" as used in subrule 302.87(3) has
the same meaning as "eligible individual."
c.
Joint owners. An eligible
individual may exclude income pursuant to the election described in this
subrule or the election described in subrule 302.87(3) to the extent of the
eligible individual's ownership interest in the real property subject to the
provisions of subrule 302.87(3). For purposes of this subrule, "retired farmer"
as used in subrule 302.87(3) has the same meaning as "eligible
individual."
(4)
Amount of exclusion. An eligible individual that has made the
election described in subrule 302.88(3) may exclude the amount of net income
received from a farm tenancy agreement covering real property. An eligible
individual may exclude net income from any qualifying farm tenancy agreement
covering real property if the holding period requirements are met with respect
to the real property in question, including agreements that are entered into
after the single lifetime election is made. The amount of the exclusion cannot
exceed the fair profits which would normally arise from a farm tenancy
agreement between two parties operating at arm's length.
This rule is intended to implement Iowa Code section
422.7(14).
