Iowa does not have a separate capital gains tax. A gain from stocks, a business or real estate is part of your taxable income and is taxed at Iowa's single income tax rate. What changed in recent years is the other half of the story: Iowa used to let many sellers deduct part or all of a gain (farmland, businesses, timber, employer stock sold to an ESOP), and for most sales that deduction is gone.
This guide uses Iowa Code 2026 (sections 422.5 and 422.7, as compiled on 12 December 2025), the Iowa Department of Revenue's 2025 IA 1040 instructions and capital gain deduction forms, and two IRS pages, all read on 3 November 2026. Laws passed in the 2026 Iowa session after that Code compilation are not in the Code text we read, so check the Department before relying on a figure for a sale after 2026.
Iowa Code 2026, section 422.5, imposes the tax on the entire taxable income at a rate of three and eight-tenths percent. The Department's 2025 IA 1040 instructions say the same in their What's New section: Iowa now has a flat tax rate of 3.8%. There are no brackets and no separate rate for long-term gains.
One older Department page still describes the 2022 law (House File 2317, signed March 1, 2022) as converting to a flat 3.9% for tax years 2026 and later. The Code text and the 2025 instructions we read both give 3.8%, so we use 3.8%; the 3.9% on that summary page is out of date. We did not find a published 2027 rate.
The Department's conformity page says that for tax years beginning on or after January 1, 2023, the starting point for taxation is federal taxable income, and that Iowa has adopted rolling conformity, meaning the state automatically conforms with changes to the Internal Revenue Code in the calculation of federal taxable income, except as Iowa law specifies. A capital gain on your federal return is therefore already in your Iowa starting figure, and Iowa taxes it with the rest of your income at 3.8%.
Federal rules still decide what counts as a gain. IRS Topic 409 says that if you hold an asset more than one year before disposing of it your gain or loss is generally long-term, that a lower federal rate may apply to a net capital gain than to ordinary income, and that net short-term gains are taxed as ordinary income at graduated rates. Iowa applies one rate either way.
The Department's guidance for the Iowa capital gain deduction forms says that under tax reform passed in 2018 and 2019 and modified in the 2021 and 2022 sessions, the Iowa capital gain deduction is repealed for most transactions occurring on or after January 1, 2023. The Iowa Code footnote for the 2022 amendment to section 422.7 likewise says it is effective January 1, 2023 and applies to sales consummated on or after that date. The Department's summary of the 2022 law is House File 2317.
The Department lists three kinds of sale that survive the repeal: certain sales of real property used in a farming business; sales of cattle or horses held for breeding, draft, dairy or sporting purposes, or other breeding livestock, by a retired farmer who has sold all or substantially all of their farming interest; and deductions for previously eligible installment sales that occurred before January 1, 2023. It also says the sale of an asset by a C corporation generally does not qualify. Before 2023 the deduction also covered sales of a business, timber and employer securities sold to a qualified Iowa employee stock ownership plan; the Department now lists those forms (IA 100C, 100D, 100E, 100F) only for installment sales from before 2023.
You claim whatever still qualifies on IA 1040 Schedule 1, line 16, and the instructions say you must include the applicable IA 100 form with your return.
Each of these has conditions we do not reproduce in full. If you think you qualify, use the Department's flowcharts and the form instructions linked below rather than this summary.
This table is our arithmetic (gain times 3.8%), not an official calculation. It shows the Iowa tax a gain adds when it sits on top of your other Iowa taxable income and no deduction or exclusion applies to it, rounded to the nearest dollar. It ignores credits, the Department's alternate tax computation and any Iowa modifications.
| Capital gain in Iowa taxable income | Added Iowa tax at 3.8% |
|---|---|
| $10,000 | $380 |
| $50,000 | $1,900 |
| $100,000 | $3,800 |
| $500,000 | $19,000 |
Worked example (ours): a taxpayer has $60,000 of Iowa taxable income before a sale and sells an asset that produces a $40,000 gain that does not qualify for any Iowa exclusion. Iowa taxable income becomes $100,000, and tax at 3.8% is $3,800 instead of $2,280. The gain adds $1,520. The same gain would have been taxed at 3.8% on the Iowa side whether it was short-term or long-term; only the federal tax differs.
Starting with tax year 2026 the Department also says the threshold for when an individual must make estimated tax payments rises from $200 to $1000, which matters if you expect a large gain with no withholding.
Iowa Code section 422.5 imposes the tax on every resident and nonresident. The Department's instructions explain that a nonresident or part-year resident completes Schedule IA 126, where only Iowa income is reported and a percentage of Iowa income to total income is determined, and that Iowa taxes the Iowa-source income of nonresidents and part-year residents at the same rate it taxes residents.
For capital gains, the Department says part-year residents include 100% of the gain or loss from assets sold while an Iowa resident, plus gains from assets sold as a nonresident under the nonresident rules. Nonresidents include 100% of the gain or loss from sales of real or tangible personal property if the property was located in Iowa at the time of the sale, and from sales of intangible personal property if the taxpayer's commercial domicile is in Iowa.
If you are an Iowa resident or part-year resident and another state, a local jurisdiction outside Iowa or a foreign country also taxed the gain, the Department's out-of-state credit (Form IA 130) may reduce your Iowa tax. The credit must not exceed the Iowa tax imposed on the same income that the other jurisdiction taxed.
We found no Iowa home sale rule in the pages we read. Because Iowa starts from federal taxable income, we read the effect of the federal exclusion as carrying over, but the Department's pages we read do not say this in so many words. IRS Topic 701 says you may qualify to exclude up to $250,000 of the gain on the sale of your main home from your income, or up to $500,000 if you file a joint return with your spouse. For the federal test, see our home sale capital gains guide.