For Iowa individual income tax purposes, Iowa net operating losses (NOLs) are generally carried back two years, except for losses incurred in a presidentially-declared disaster area by taxpayers engaged in a small business or in a farming business (3-year carryback), losses incurred by taxpayers due to casualty or theft (3-year carryback), and, by election, losses incurred by individuals engaged in farming (5-year carryback). See IA 123 for further guidance regarding carrybacks and carryforwards. The information below only covers NOLs incurred in a presidentially-declared disaster area by taxpayers engaged in a small business or a farming business.
On March 23, 2020, President Donald Trump issued a federal disaster declaration, effective January 20, 2020, for all counties in Iowa due to the COVID-19 pandemic. As of August 26, 2021, this disaster declaration is still ongoing. Since all counties in Iowa are part of the presidentially-declared disaster area for the COVID-19 pandemic, all Iowa NOLs incurred between January 20, 2020, and the end of the disaster declaration in Iowa by a taxpayer engaged in a small business or a farming business must be carried back 3 years unless the taxpayer makes an election to waive the entire carryback period or to use the 5-year carryback period available for farmers.
Taxpayers must use the IA 123 to calculate their Iowa NOL. Taxpayers engaged in a small business or a farming business with an NOL incurred in a presidentially-declared disaster area should, in addition to any other applicable boxes, check the “Other” box on the line “What caused the NOL” of the IA 123, and write “COVID-19 pandemic” in the explanation section. Taxpayers who already filed their 2020 tax return but who did not elect to waive the carryback period and only carried their Iowa NOLs back 2 years will need to amend their returns to reflect the 3-year carryback.