The Ultimate Guide to Iowa Real Estate Taxes

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By Clever Real Estate Updated December 29, 2022


Are you buying or selling a home in Iowa and wonder how it’s going to impact your taxes? The good news is that there’s a significant exemption for capital gains when you sell a home, but there are other taxes and fees to be aware of. Here’s what you need to know!

The Ultimate Guide to Iowa Real Estate Taxes

Taxes are one of the guarantees in life, and when you’re buying or selling a home, understanding the property taxes is vital. Not only do you have to budget for taxes in your monthly payments, but you also have to think about transfer taxes and the taxes you pay on your profits from the sale.

Who pays transfer taxes, how you calculate property taxes, and knowing how to budget for taxes along with the rest of your real estate transaction can be hard to determine. This article will help!

Will You Have to Pay Taxes When You Sell Your Home in Iowa?

How are your profits handled when you sell your home in Iowa? Will you be hit with significant taxes when you sell?

The good news is that unless your profits are $250,000 or more ($500,000 for married couples) you probably don’t have to pay federal taxes on your home sale. However, if you have lived in your home for less than two of the last five years, you could have to pay taxes on your gains.

How do you make sure you qualify? There are several standards.

  • You’ve owned the home for at least two years
  • The property has been your primary residence for at least two years
  • During the two-year period ending on the date of sale, you did not exclude gains from the sale of another home.

If your gain is over the $250,000/$500,000 limit, you’ll pay a capital gains tax on the profit above that amount. If you haven’t lived in the home for at least two years, your gains may be taxed at your income tax rate or at the capital gains rate.

How Much Are Real Estate Transfer Taxes in Iowa (and Who Pays Them?)

A real estate transfer tax is charged by the state, county, or city whenever you sell a home. Generally, the tax is equal to a percentage of the sale price or appraised value of the property.

The transfer tax is separate from recording fees or taxes for a mortgage transfer – those fees are additional and vary depending on which Iowa county you sell your home.

To find the amount of real estate transfer tax in Iowa, you can use this handy calculator. It sure beats having to look up the sale price and taxes on a long table! The rate is determined at $1.60 per $1,000, with the first $500.00 exempt.

Who pays transfer taxes? Although the buyer technically pays it, it comes off as a credit on the closing statement. So truthfully, the money comes out of the seller’s pocket. However, the deed fees are paid by the buyer.

How to Calculate Property Taxes in Iowa

Once you own a home, you can expect to owe property taxes every year. In Iowa, property taxes are used for schools, county services, hospitals, and other local needs. Your property will be assessed every two years, and the assessment can cause your taxes to change.

Your taxes can also vary significantly from county to county. For instance, a home that costs $250,000 in Johnson County will have $3,908 a year in property taxes. In Washington County, that same home will have $3,613 a year in property taxes, while in Polk county it will be $4,473.

The average property taxes in Iowa are 1.470% of the home’s assessed value, but it can range as high as 1.789% in Polk County to a low of 1.136% in Pocahontas County.

When you’re planning for the cost of homeownership, you’ll want to be sure you understand how property taxes will impact your budget. Your buyer’s agent can help you determine the property taxes in the areas you’re interested in buying a home. That way you won’t be surprised after the fact.

Tax Breaks for Iowa Home Buyers & Sellers

Just because we all pay taxes doesn’t mean you have to pay the maximum amount all the time. In fact, there are a lot of tax breaks that you can take advantage of that will help you save money.

Tax Breaks and Credits for Buyers

One program that home buyers will want to take advantage of when they buy an Iowa property is the Iowa Mortgage Credit Certificate Program. This program allows you to take a tax credit off your federal income taxes that is worth 50% of the interest you pay on your home mortgage each year, up to $2,000.

You can also write off mortgage interest on total principal up to $750,000 (or $375,000 for married filing separately.)

There are a variety of other property tax exemptions as well. You’ll want to take a good look at them, but here are just a few:

  • An exemption for value added by geothermal heating or cooling, lasting 10 years
  • Property tax exemption for up to four years for historic properties
  • Iowa homestead tax credit
  • A tax credit for disabled veterans
  • A tax reduction for military veterans who own homes in Iowa

Tax Breaks and Write-Offs for Sellers

Can you get tax breaks when you sell a home? Yes! There are several categories of expenses that you can write off against your taxes.

Any repairs related to the sale that are made within 90 days of the closing date can be deducted from your taxes. You can also deduct improvements that boost the value of the home, but you have to spread those deductions over the course of multiple years.

You can also deduct mortgage interest you paid during the time you owned the home before you sold it. These are limited by the new tax laws, but you can currently write off mortgage interest on principal up to $750,000 (or $375,000 for married filing separately).

You can also deduct costs related to selling your home. Be sure to keep a record of all your expenses, including the amount you pay your real estate agent, legal fees, title insurance, staging costs, and more.

Taxes Vary Depending On Your Specific Market

In the end, the exact taxes and fees you’ll pay as a home buyer or seller will vary quite a bit depending on the county and municipality you’re in. That’s one of the reasons it’s so important to work with professionals who can help you understand your full costs.

Working with the right local real estate agent and certified tax professional or accountant can also help you save money when you take full advantage of the deductions that apply to your situation.

You never want to pay more than you have to. Whether you’re planning to sell your home or buy your dream house, work with a Clever Partner Agent. Our experienced local agents work for major brands are fully understand the local area that you’re in.

Interested in getting started? Simply fill out the form on our site and a Clever representative will be in touch. Whether you’re buying or selling, we’ll answer all your questions and set you up with a no-obligation consultation.

We’re here for you when you’re ready to buy or sell your Iowa home.

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