The State of Iowa is now disallowing self-rentals as part of the capital gain deduction unless there is physical proof of material participation. This means the State wants to examine lease agreements, business calendars, logs, invoices or spreadsheets to support the position of material participation. Your material participation in the business activity does not give you material participation in the rental activity. Iowa is treating the land and building as separate from the business, and individuals must prove material participation in the rental activity.
Potential strategies going forward may include grouping or structuring the real estate sale allocations. Consult with your CPA and determine what may qualify in your unique situation. In all cases, proactive and thorough documentation is essential. For more information or assistance, call 888-556-0123 or fill out our form.