Reform Guidance - Domestic Production Activities Deduction

NOTICE: This guidance was updated on December 13, 2019 to describe the calculation of the Domestic Production Activities Deduction in Iowa for taxpayers with a fiscal tax year that begins in calendar year 2018, and to describe the application of the deduction in Iowa for tax years beginning on or after January 1, 2019, including allowable deductions for owners, patrons, or beneficiaries of an S corporation, partnership, cooperative, or estate or trust with a fiscal tax year beginning in calendar year 2018.

On December 22, 2017, President Donald Trump signed Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act, which included a repeal of the federal Domestic Production Activities Deduction (DPAD) for tax years beginning on or after January 1, 2018.

Iowa, however, did not conform with this repeal for tax years beginning on or after January 1, 2018, but before January 1, 2019 (referred to herein as “tax year 2018”). As a result, the DPAD will be available as a deduction for Iowa tax purposes for tax year 2018, even though this deduction is not available at the federal level. The deduction will not be available for Iowa purposes for tax years beginning on or after January 1, 2019, except under certain circumstances described below.