Iowa does not conform to federal §168(k) — 100% of your federal bonus depreciation must be added back on the Iowa state return. The federal deduction is unaffected; on the Iowa side you recover the timing difference through standard MACRS depreciation over the property's 5/15/27.5-year life at Iowa's 3.8% flat rate. Cross-reference our all-50-states conformity guide to see how Iowa lines up against every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction.
How Iowa Treats §168(k) — The Add-Back Mechanic
Iowa has statutorily rejected federal §168(k) bonus depreciation for all tax years since 2002. Under Iowa Code §422.7 (individual income tax) and §422.35 (corporate income tax), Iowa's IRC conformity is structured so that §168(k) has never been part of the state tax base. The Iowa Administrative Code adds further mechanical detail at 701 IAC 40.65.
Mechanically, the STR investor claims the full federal §168(k) bonus on Schedule E of the federal return, then reports the add-back on IA 4562A (Iowa Depreciation Adjustment Schedule). Iowa depreciation is computed without bonus and taken as a subtraction over the property's normal MACRS life. Iowa Department of Revenue expanded instructions cover the mechanics for individuals with rental activity.
Iowa also has a unique coupled-conformity rule: if the legislature ever conforms to §168(k), it will automatically conform to the §163(j) business interest limits too. This linkage makes conformity legislation politically harder to pass and helps explain why the add-back has survived multiple IRC conformity updates.
Worked Example — $150,000 Federal Deduction on an Iowa STR
Assume an STR investor buys an Okoboji lake house, closes 2026, and identifies $150,000 in bonus-eligible 5-year and 15-year assets through a cost-segregation-quality report.
| Line | Federal | Iowa |
|---|---|---|
| Year 1 §168(k) deduction (bonus-eligible portion) | $150,000 | $0 (100% add-back) |
| Year 1 tax savings @ 37% federal / 3.80% IA flat | $55,500 | $0 |
| Year 1 Iowa MACRS recovery (approx.) | — | ~$16,900 (blended 5/15/27.5-yr MACRS) |
| Years 2 through end of asset life — IA subtraction modification | — | Remaining ~$133,100 recovered ratably |
The Year-1 Iowa miss is roughly $5,700 in state tax that would have been saved had Iowa conformed ($150,000 × 3.80% flat rate). That timing loss reverses as Iowa depreciation exceeds federal in later years — but the up-front hit is real, and it should be baked into the STR investor's after-tax return model. Run the address on your property to see the combined federal-and-state math.
The Statute Explained
Iowa uses specified-date IRC conformity for depreciation and has structured that conformity to permanently exclude §168(k). This makes Iowa's approach more like Arkansas or Kentucky (fixed-date exclusion) than Arizona or Idaho (rolling conformity with a §168(k) carve-out). The Iowa legislature would need to affirmatively amend the conformity statute — and simultaneously accept the §163(j) coupled-conformity provision — to bring §168(k) into the state base.
OBBBA (P.L. 119-21) restored 100% federal bonus for property acquired and placed in service after January 19, 2025. Iowa's add-back applies to that restored federal deduction just as it has applied to prior versions of §168(k). Note also that Iowa moved to a new 3.8% flat individual income tax rate under recent legislation, which reduces the dollar penalty compared to the prior graduated top rate.
How Iowa Compares to Federal-Conforming States
Roughly half the country conforms to federal §168(k) via rolling IRC conformity. In a full conformer like Colorado (4.4% flat) or Alabama (5.0% top marginal), the same $150,000 federal bonus produces $6,600 or $7,500 in additional Year-1 state savings on top of the federal $55,500 — the stacking benefit Iowa STR investors don't get in Year 1.
Compared to other decoupled states, Iowa is in the lower-middle of the pack on dollar impact: smaller than California (~$19,950 miss at 13.3%) or Hawaii (~$16,500 at 11%), and roughly comparable to Arkansas (~$5,850 at 3.9%). Contrast against how Wisconsin does it, or use the state conformity tool to run Iowa side-by-side with any other state at any federal deduction amount.
What This Means for Your STR Purchase Decision
For an STR investor evaluating an Okoboji, Iowa City, or Amana Colonies property, Iowa's non-conformity is a modest state-timing hit. Two takeaways:
First, the federal Year-1 bonus deduction remains dominant — Iowa takes nothing away from the federal $55,500 in Year-1 savings on a $150,000 bonus. Second, the Iowa timing loss is small enough (~$5,700 in Year 1) that it should not swing an offer decision on its own. Just build the state-side deferral into your after-tax return model.
Before writing an offer on any Iowa STR placed in service after January 19, 2025, run the address on your property to get a line-item breakdown before committing.
Analyze a specific Iowa property
Run any Iowa STR listing through DepreciMax's $99 property report — line-item finish classification closely calibrated to a formal cost seg study, includes Iowa-specific add-back math.
Frequently Asked Questions
Does Iowa plan to conform to §168(k) in 2026?
No. Iowa has statutorily rejected federal §168(k) bonus depreciation for all tax years since 2002 under Iowa Code §422.7 / §422.35 and 701 IAC 40.65. No 2026 legislation has been introduced to conform. Iowa also has a coupled-conformity rule: if the legislature ever conforms to §168(k), it automatically conforms to the §163(j) business interest limits too.
Can I still take federal bonus depreciation if I live in Iowa?
Yes. The federal §168(k) deduction is unaffected. An Iowa resident STR investor placing a property in service after January 19, 2025 can claim the full 100% federal bonus deduction under OBBBA (P.L. 119-21). Iowa only changes the state-return calculation.
How do I report the Iowa §168(k) add-back?
Iowa taxpayers report the add-back on IA 4562A (Iowa Depreciation Adjustment Schedule) and take Iowa depreciation without §168(k) bonus. The Iowa Department of Revenue expanded instructions cover the mechanics for individuals with rental activity.
What happens on sale — does Iowa recapture the difference?
Iowa basis is higher than federal basis by the unrecovered add-back amount. On sale, Iowa gain is correspondingly smaller than federal gain, so the state timing difference reverses through subtractions across the depreciation period and, if not fully absorbed, through a lower Iowa gain at disposition.
Does Iowa's decoupling apply to §179 too?
Iowa conforms to federal §179 expensing at the federal dollar limit for individuals. The §168(k) non-conformity in Iowa Code §422.7 / §422.35 is separate and specific to bonus depreciation.
Every state's §168(k) position, in one place
Interactive map, sortable table, and deep-dive guide for each of the 51 jurisdictions — post-OBBBA verified.
See the 50-state map →Iowa statute: Iowa Code §422.7 / §422.35; 701 IAC 40.65; Iowa Department of Revenue Expanded Instructions (tax.iowa.gov). Federal authority: IRC §168(k), as amended by the One Big Beautiful Bill Act (P.L. 119-21) restoring 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Nothing in this article is tax advice. Consult a CPA who specializes in real estate before making investment decisions based on state-conformity projections.