Fiscal Note
Fiscal Services Division
HF 717 – Property Tax, Section 42 Property (LSB1059HV)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 717 relates to the taxable valuation of property that is rented or leased to low-income
individuals and families as authorized by Section 42 of the Internal Revenue Code. The Bill
allows Section 42 housing property that is composed of one or two dwelling units to be
classified as residential property. Under Iowa Code section 441.21(14)(c), Section 42 property
is classified as commercial property. The Bill takes effect upon enactment, and applies
retroactively to assessment year (AY) 2023 and after.
Background
Section 42 refers to that section of the federal Internal Revenue Service tax code, which
provides tax credits to investors who build qualified housing. Investors receive a reduction in
their federal tax liability for a period of 10 years in return for providing housing to persons with
lower incomes.
Under current law, effective with AY 2022, Section 42 housing may not be classified as
residential property and is classed as commercial property. Also, under current law, the
assessed value of commercial property up to $150,000 is subject to an assessment limitation
factor (rollback) equivalent to that of residential property and values above this threshold are
subject to the commercial rollback.
Under the Bill, Section 42 property containing two or fewer dwelling units would be classified as
residential and subject to the residential rollback for the entire assessed value of the property.
Such property includes single-family dwellings, duplexes, and condominium property. The Bill
would allow certain Section 42 property to be classified as residential property, when such
property would otherwise be classified as commercial.
Assumptions
• The Department of Revenue reports that the total assessed value of Section 42 housing in
Iowa that is composed of one or two dwelling units is $105.3 million. The Department
estimates that this value represents 604 properties statewide.
• As commercial property, the first $150,000 of assessed value is subject to the residential
rollback (54.6501% for AY 2022) and the remaining assessed value is subject to the
90.0000% commercial rollback. As residential property, the entire assessed value will be
subject to the residential rollback.
• The FY 2023 statewide average residential property tax rate is $33.65 per $1,000 of taxed
value, and the school finance basic levy comprises $5.40 of that rate.
Fiscal Impact
Changing the property classification for one- and two-dwelling unit Section 42 housing is
projected to reduce property taxes owed by Section 42 property owners by $175,000 per year
beginning in FY 2025. Of that amount, $28,000 will be replaced by the State General Fund
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appropriation for school aid and the remaining $147,000 is a projected decrease in annual local
government property tax revenue.
Source
Department of Revenue
/s/ Jennifer Acton
April 19, 2023
Doc ID 1371839
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
www.legis.iowa.gov
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Statutes affected:
Introduced: 441.21