Ruhl&Ruhl REALTORS - Real Estate in Iowa, Illinois, and Wisconsin

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Facts & Trends

Taxes: Iowa & Illinois Compared

Note: Information and statistics provided by RSM McGladrey, Inc. Each individual's income tax situation is different. We recommend that you consult with your income tax advisor to address your personal tax issues before making a tax-motivated decision.

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Sales Tax:	Iowa-6.00% + Local Tax (Bettendorf 1.00%, Davenport 1.00%) (Food and drugs exempt) Illinois-6.25% + Local Tax (Moline 1.00%, Rock Island .75%, East Moline .50%, Silvis .50%) (1.00% - Food and drugs)
Personal Income Tax:
Iowa:	Escalating tax scale from .36% to 8.98%. The 8.98% tax bracket starts at $62,056 of taxable income. Numerous deductions from state tax are allowable, including federal income taxes paid and certain itemized deductions such as property taxes, interest, etc. Dual income families can submit a “married filing separately” return thereby decreasing the tax rate. A partial exemption is provided for Retirement Income. The exemption is up to $12,000 for joint filers and up to $6,000 for all other filers. In order to use this exemption, the taxpayer must be 55 years or older, disabled, or a surviving spouse or a survivor having an insurable interest in an individual who would have qualified for the exemption. Iowa generally follows the Federal Internal Revenue Code to determine income and deductions. Only a maximum of 50% of the Social Security income is subject to tax.
Illinois:	Flat rate of 3% based on federal adjusted gross income excluding Social Security and Retirement Income and after certain other adjustments. Illinois does not allow itemized deductions. However, there is a $2,000 deduction for each Illinois exemption. There is also a credit for 5% of the real estate taxes paid on a taxpayer’s personal residence.
Reciprocity:	Iowa and Illinois have reciprocity with each other. Therefore, Iowa and Illinois residents are deemed to have earned wage income in their state of residence, and not their state of employment if they are employed in Iowa or Illinois.
Real Estate Property Taxes:	Difficult to make generalizations due to variance between cities and counties within Iowa and Illinois. These taxes are potentially somewhat less in Iowa.
Gain On Sales Of Residences:	For federal, Iowa, and Illinois tax purposes, taxpayers may exclude gain on sale of their principal residences once every two years, subject to ownership and use tests, as follows: single taxpayers up to $250,000 and married taxpayers up to $500,000. Gains in excess of these amounts are taxed at capital gains rates on federal returns, and at regular rates on Iowa and Illinois returns.
Note:	Tax impact of one state versus another requires a case-by-case analysis by a knowledgeable tax advisor.

The Calculation of Illinois and Iowa Income Taxes
Illustration of the general methodology used to calculate Illinois and Iowa income taxes. Key differences are indicated in bold.
Major Issues	Illinois	Iowa
Starting Point:	Federal Adjusted Gross Income (AGI)	Federal Adjusted Gross Income (AGI)
Additions to income:	Federal tax-exempt income N/A	Federal tax exempt income Federal income tax refund
Subtractions from Income:	All federally taxed retirement income All Federally taxed Social Security Income Interest on U.S. obligations Interest on certain Illinois obligations Contributions to "Bright Start," "Bright Directions," or "College Illinois" college savings plans N/A N/A N/A All state refunds	Retirement Income of up to $12,000 for MFJ, or $6,000 for Single if taxpayer is 55 or older, disabled, or a survivor. Up to 35% of federally taxed Social Security income Interest on U.S. obligations Interest on certain Iowa obligations Iowa Educational Savings Plan Trust contributions Federal income taxes paid Certain capital gains from an active business 100% health insurance and long-term care costs Iowa state refunds
Itemized deductions:	N/A	Generally similar to federal deductions, except for Iowa income taxes paid
Personal exemptions:	$2,000 each, additional $1,000 if 65 or over or blind	N/A
Income Tax:	Flat 3% rate N/A	Progressive rates, from 0.36% up to $1,379 of income, to 8.98% on income over 62,055 Alternative minimum tax
Credits against income tax:	5% of property taxes paid on principal residence N/A Up to $500 total of K-12 qualifying education expenses N/A	N/A $40 Personal Exemption Up to $250/child for K-12 qualifying education expenses Child and Dependent Care or Early Childhood Development
Reciprocity with other states:	Yes (Iowa, Kentucky, Michigan, Wisconsin)	Yes (Illinois only)

Analysis of Bi-State Tax Issues
Hypothetical 2008 Income Tax Returns Illinois Resident (Based on a family of four)
	Scenario 1	Scenario 2	Scenario 3
Federal Income Taxes Adjusted gross income (AGI) Standard/itemized deduction Personal Exemptions Federal taxable income	$ 75,000 (11,900) (14,000) $ 49,100	$ 150,000 (17,610) (14,000) $ 118,390	$ 250,000 (28,559) (13,533) $ 207,908
Federal income tax Alternative minimum tax ("AMT")* Total federal tax	$ 6,566 0 $ 6,566	$ 22,285 0 $ 22,285	$ 47,339 800 $ 48,139
Illinois Income Taxes Federal AGI Illinois personal exemptions Illinois taxable income	$ 75,000 (8,000) $ 67,000	$ 150,000 (8,000) $ 142,000	$ 250,000 (8,000) $ 242,000
Illinois income tax Credit for taxes paid on principal residence (used real estate tax of $1,500, $3,000 and $6,000) Net Illinois income tax	$ 2,010 (75) $ 1,935	$ 4,260 (150) $ 4,110	$ 7,260 (300) $ 6,960
Total Federal and Illinois Tax	$ 8,501	$ 26,395	$ 55,099
Includes deductions for state taxes, real estate taxes, and home mortgage interest. *The Alternative Minimum Tax, or AMT, is primarily caused by the required addback of state income taxes for AMT calculation purposes. While state income taxes are an allowable itemized deductions for calculating federal income tax, they are not deductible for AMT purposes. The greater the state income tax deduction, the greater the deductions impact on the AMT calculation.

Analysis of Bi-State Tax Issues
Hypothetical 2008 Income Tax Returns Iowa Resident (Based on a family of four)
	Scenario 1	Scenario 2	Scenario 3
Federal Income Taxes Adjusted gross income (AGI) Standard/itemized deduction Personal Exemptions Federal taxable income	$ 75,000 (11,900) (14,000) $ 49,100	$ 150,000 (22,045) (14,000) $ 113,955	$ 250,000 (34,944) (13,533) $ 200,523
Federal income tax Alternative minimum tax ("AMT")* Total federal tax	$ 6,566 0 $ 6,566	$ 21,176 0 $ 21,176	$ 44,902 3,237 $ 48,139
Iowa Income Taxes Federal AGI Deduction for federal income taxes Itemized deductions, net of state income taxes Iowa taxable income	$ 75,000 (6,566) (6,750) $ 61,684	$ 150,000 (21,176) (13,500) $ 115,324	$ 250,000 (48,139) (21,950) $ 179,911
Iowa income tax Iowa personal exemption tax credit Net Iowa income tax	$ 3,891 (160) $ 3,731	$ 8,705 (160) $ 8,545	$ 14,505 (160) $ 14,345
Total Federal and Iowa Tax	$ 10,297	$ 29,721	$ 62,484
Includes deductions for state taxes, real estate taxes, and home mortgage interest. *The Alternative Minimum Tax, or AMT, is primarily caused by the required addback of state income taxes for AMT calculation purposes. While state income taxes are an allowable itemized deductions for calculating federal income tax, they are not deductible for AMT purposes. The greater the state income tax deduction, the greater the deductions impact on the AMT calculation.