Rental Property Taxes in Iowa (2026 Guide)

1. Property Tax: the Rollback (and the Homestead Credit You Miss)

Iowa does not tax property on its full market value. It applies a statewide residential assessment limitation — the "rollback" — set each year by the Department of Revenue under Iowa Code 441.21(9). For assessment year 2025 (taxes payable in FY2027) the residential rollback is 44.5345%, so only about 44.5% of a home's assessed value is taxable. Residential rental property rides this same residential rollback (the old separate "multiresidential" class was folded into residential effective 2022).

Each county then applies a consolidated levy rate per $1,000 of net taxable value (city + county + school + other levies combined), which is why the dollars-per-thousand rate varies widely by jurisdiction.

The trap: the Homestead Credit/Exemption (Iowa Code 425.11) requires the owner to occupy the home as their primary residence. A rental is not owner-occupied, so it gets the rollback but NOT the homestead break — meaning a rental's effective property-tax rate runs higher than an identical owner-occupied home next door.

2. Income Tax: Flat 3.80% (New for 2025-2026)

Iowa retired its old bracketed income tax. Under SF 2442 (2024 Acts ch 1094), Iowa Code 422.5(1)(a) now imposes a single flat rate of 3.80% on all taxable income for tax years beginning on or after January 1, 2025. The Department of Revenue's 2026 rate announcement confirms 3.80% applies for 2026 as well. SheltrIQ's engine applies 3.80% for 2026.

Watch for stale guidance: older legislative materials reference a 3.9% target rate for 2026 (from the 2022 HF 2317 law). SF 2442 superseded that — the operative 2026 rate is 3.80%. Net rental income flows from your federal return onto the Iowa return and is taxed at that flat rate.

3. Capital Gains: the Deduction Does Not Cover Rentals

Iowa has a capital-gains deduction, but it is narrow. Under Iowa Code 422.7(13) it applies to the sale of real property used in a farming business — and only when the taxpayer materially participated in the farming business for at least 10 years and held the property for at least 10 years, or sold it to a relative (plus separate retired-farmer and farm-tenancy provisions).

For ordinary residential or commercial rental property, the Iowa capital-gains deduction generally does NOT apply — the statute keys the exclusion to farming real estate, not rental real estate, even where a 10-year material-participation test is met. Plan a rental disposition as fully taxable at Iowa's flat 3.80% rate.

4. Bonus Depreciation: Iowa Now Conforms (Post-2021)

This is a meaningful improvement for landlords. For assets placed in service in tax years beginning on or after January 1, 2021, Iowa conforms to federal Section 168(k) bonus depreciation — no Iowa add-back and no IA 4562A adjustment is required for bonus depreciation alone. Your federal bonus deduction (for example, on a cost-segregated component) carries to Iowa.

The legacy nuance: for assets placed in service before 2021, Iowa historically decoupled from §168(k), so those older assets still carry a depreciation adjustment on Form IA 4562A (with cumulative balances on IA 4562B) over their life and at disposition. If your portfolio predates 2021, keep that separate Iowa basis running until those assets fully reconcile.

5. Real Estate Transfer Tax

Iowa charges a real estate transfer tax of $0.80 per $500 (or fraction) of value above the first $500 — roughly 0.16% — under Iowa Code 428A.1, paid by the grantor (seller). On a $250,000 sale that is about $400. There is no separate percentage-based mortgage or recordation tax beyond county per-document recording fees.

6. LLC Fees: a $30 BIENNIAL Report

An Iowa LLC does not file every year. Under Iowa Code 489.209, an LLC files a biennial report — once every two years, in odd-numbered years (between January 1 and April 1) — with the Secretary of State. The fee is $30 filed online (Fast Track Filing) or $45 by paper. Because it is biennial, the all-in annualized cost is roughly $15 a year, making Iowa one of the cheaper states to hold rentals in an LLC.

7. Rent Control

Iowa prohibits local rent control statewide (Iowa Code 364.3(9)): a city "shall not adopt or enforce any ordinance imposing any limitation on the amount of rent that can be charged for leasing private residential or commercial property." No Iowa city or county may cap your rent — you set rents at market.

8. Security Deposit Rules

Cap of two months' rent — a landlord may not demand or receive a deposit exceeding two months' rent (Iowa Code 562A.12(1)).
Return within 30 days of the tenancy ending and receipt of the tenant's mailing address, with a written statement of any deductions (Iowa Code 562A.12(3)).
Miss the deadline, lose the right to withhold — failing to provide the written statement within 30 days forfeits all rights to keep any of the deposit (Iowa Code 562A.12(4)); bad-faith retention can add punitive damages up to twice the monthly rent (562A.12(7)).

9. How SheltrIQ Helps Iowa Landlords

Iowa's flat-tax and conformity changes simplified the math — SheltrIQ keeps your return on the current rules:

Flat 3.80% income modeling — applies Iowa's current SF 2442 flat rate for 2026, not the stale 3.9% target figure.
Bonus-depreciation conformity — recognizes that post-2021 assets conform to federal §168(k) with no Iowa add-back, while flagging the legacy IA 4562A adjustment on any pre-2021 assets.
Disposition modeling — treats a non-farm rental sale as fully taxable in Iowa (no farm-only capital-gains deduction) at the flat 3.80% rate.
AI Schedule E classification — sorts each expense to the right line so your Iowa income starts from an accurate federal return.

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