I have recently become aware of the secondary market in Iowa Housing Enterprise Zone Credits that could save taxpayers with heavy Iowa tax bills lots of money. It appears that they are legally transferable; however, as with any good thing from the government, there are some hoops to jump through. Here I have listed the requirements as listed in the law in italics along with my plain English interpretation following.
- The department of economic development shall notify the department of revenue of the tax credit certificates which have been approved for transfer. The left hand needs to talk to the right hand before you can get your tax credits. Apparently the government needs to write “inter-agency communication” into the law for anyone in those agencies to actually do it.
- Within ninety days of transfer, the transferee must submit the transferred tax credit certificate to the department of revenue along with a statement containing the transferee’s name, tax identification number, and address, and the denomination that each replacement tax credit certificate is to carry and any other information required by the department of revenue. The guy selling you tax credits has 90 days to tell the government that he sold them to you, and he needs a chunk of your personal information to disclose to them as well. He also has to tell the government what the size of your credit should be, so they can issue a new certificate to you.
- Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the department of revenue shall issue one or more replacement tax credit certificates to the transferee. Each replacement certificate must contain the information required to receive the original certificate and must have the same expiration date that appeared in the transferred tax credit certificate. After the government receives your information from the guy selling you credits, they have 30 days to issue a new certificate to you. This makes 120 days in potential delay getting your tax credits.
- Tax credit certificate amounts of less than the minimum amount established by rule of the department of economic development shall not be transferable. Just like buying bonds, they’re not going to sell you a $20 Enterprise Zone Credit. Have real money to play with or don’t ask to get in the game.
- A tax credit shall not be claimed by a transferee until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. You can’t claim the tax credit until you receive the new certificate from the government!
- The transferee may use the amount of the tax credit transferred against taxes imposed (income, sales, or insurance company tax) for any tax year the original transferor could have claimed the tax credit. Most people will be looking to offset income tax, but other taxes can be offset as well. These credits carry forward, but they expire. Keep the expiration date in mind when deciding how much these credits are worth to you. This expiration is a large factor in the discounts observed in the secondary market.
- Any consideration received for the transfer of the tax credit shall not be included as income. The guy selling you tax credits does not have to claim the money you paid him as income.
- Any consideration paid for the transfer of the tax credit shall not be deducted from income. The amount of money you paid for tax credits is not a deductible expense to you (keep in mind this is with regard to Iowa state income taxes).
So it does appear that these credits are legally transferable, but make sure to dot your I’s and cross your T’s so that you actually receive your tax credits after you hand over the cash. Also be careful to deal with someone that is reputable as there is a significant amount of hoop jumping that needs to be done by the seller for you to get your credits.
With the possibility of these credits selling at significant discounts on the secondary market, this could represent some tax savings for individuals who regularly run a hefty Iowa state tax bill.
For guidance on how to navigate these tax credits, contact the department of economic development.
Source: Housing Enterprise Zone Law (Almost all of this is buried in the middle of paragraph 8 for those that actually take a look at it)