Iowa state income tax
Iowa has a state income tax. It is flat, with a top marginal rate of 3.8%. Iowa Senate File 2442 (signed May 2024) accelerated the state's earlier phase-down (HF 2317, 2022) straight to a single flat individual income tax rate of 3.8% for tax year 2025 and later, skipping the previously scheduled graduated step at 4.82% for 2025. There are no income brackets for 2025 or 2026; every level of taxable individual income is taxed at 3.8%. Capital gains are taxed under special rules (see below).
Does Iowa have a state income tax?
Yes. Iowa taxes individual income on a flat schedule topping out at 3.8%. Iowa Senate File 2442 (signed May 2024) accelerated the state's earlier phase-down (HF 2317, 2022) straight to a single flat individual income tax rate of 3.8% for tax year 2025 and later, skipping the previously scheduled graduated step at 4.82% for 2025. There are no income brackets for 2025 or 2026; every level of taxable individual income is taxed at 3.8%.
| Item | Iowa |
|---|---|
| State income tax | Yes, flat |
| Top marginal rate | 3.8% |
| Capital gains | Special rules, up to 3.8% |
| State sales tax | 6% (plus local) |
| Avg. property tax rate | 1.33% of home value |
| Estate / inheritance tax | None |
How does Iowa tax capital gains?
Iowa taxes capital gains under special rules rather than at the ordinary income rate. Most capital gains are taxed as ordinary income at Iowa's flat 3.8% rate with no general preferential rate. However, Iowa's Capital Gain Deduction (Iowa Code 422.7; IA 100 series forms) provides a FULL exclusion (effectively 0% Iowa tax) for qualifying net capital gain from the sale of real property used in a business (typically farmland) in which the taxpayer materially participated for the 10 years immediately preceding the sale, and the property was held 10+ years; similar full exclusions apply to sales of certain qualifying business assets, cattle/horses, and breeding livestock meeting analogous holding/participation tests. Gains that don't meet these farm/business tests (stocks, bonds, most real estate, personal-use property) get no deduction and are taxed in full at 3.8%. You still owe federal capital gains tax on top of any state tax. See how capital gains tax works in 2026.
What about retirement income in Iowa?
Retirement income is taxed differently from wages in many states. For how Iowa treats Social Security, pensions, and 401(k)/IRA withdrawals, see Iowa retirement taxes.
Sources
- Iowa income tax rates and brackets: Iowa Department of Revenue / Taxation.
- Iowa capital gains treatment: Iowa tax authority.
- Iowa sales tax: Iowa Department of Revenue.