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Property Tax Reliance

In 2023, Iowa's reliance on the property tax was slightly above the U.S. average, when measured as a share of state and local revenue and a share of personal income, but was slightly below the national average for median taxes paid. See Selected Property Tax Statistics

Administration and Assessment

In Iowa, property taxes are levied by more than 2,000 local taxing districts, including counties, cities, townships, school districts, and special districts such as community college districts, hospital districts, and sanitation districts (Iowa Department of Revenue). Assessments are conducted at the local level. All real property that is not tax-exempt is assessed every two years at 100 percent of market value. Personal property is not taxed.

Property is separated into six classes: agricultural, residential, commercial, industrial, utilities, and railroads (Wolters Kluwer Editorial Staff 2022). Assessment limits restrict the growth in assessed value of each property class to a certain percentage, or set its taxable value at a certain (less than 100) percentage of assessed value, or both.

Limits on Property Taxation

Iowa places limits on property tax rates for the general funds of counties and cities ($3.50 and $8.10, respectively, per $1,000 of assessed value). Although counties and cities can have supplemental levy rates for certain services, reforms enacted in 2023 consolidated most city and county levies into an Adjusted City General Fund Levy subject to the $3.50 and $8.10 limits (Paquin 2024). See Property Tax Features

Iowa cities and counties must reduce property tax levies when growth in the jurisdiction’s non-TIF taxable value exceeds 2.75 percent. The amount of the reduction varies and is tied to four growth thresholds. Jurisdictions with taxable value growth exceeding 6 percent, the highest threshold, must adjust the Combined General Fund Levy (CGFL) to reduce revenue for the following budget year by 3 percent (Mullenix 2023; 2024).

Assessment limitations, often referred to as rollback provisions or simply rollback, were passed by the legislature to keep assessed values from rising too quickly. Rollback applies to classes of property and not to individual properties. The Iowa Department of Revenue posts the assessment ratio and assessment limitation by property type each year. For 2024, for commercial, industrial, and railroad property valued at $150,000 or more, taxable value was set at 90 percent of assessed value. Utility property is assessed at 100 percent of market value and annual growth is limited to 8 percent. Residential taxable values and commercial, industrial, and railroad properties valued at $150,000 or less are set at 47.4316 percent of assessed value, and growth in assessed value is limited to 3 percent. Agricultural taxable value is set at 73.8575 percent of assessed value, and growth in assessed value is limited to 3 percent (Iowa Department of Revenue 2024a; 2024b).

Under Iowa’s truth-in-taxation law, counties must mail an annual statement to each taxpayer every March, which includes the taxing district’s total taxes levied and combined tax rate for the current year; the combined effective tax rate for the current year; the proposed total property taxes and combined tax rate for the budget year, if there is a proposed tax increase; an explanation of the reasons for any increase in the levy for each local government (county, city, and school district); the percent change in taxes over the prior year; examples of the tax impact of the proposed tax increases on a $100,000-value residential property and a $300,000-value commercial property; and a link to a state webpage with explanatory information. The statement must include information about the required public hearing for each local government in the taxing district and must be mailed prior to the public hearing. Each local government holds a separate public hearing.

Property Tax Relief and Incentives

Iowa has several property tax credit programs. The first is a homestead credit. Currently, the credit is equal to the total tax liability on the first $4,850 of taxable property value. Eligible property owners must file an Iowa income tax return and occupy the property for at least six months each calendar year. There is no income requirement. Senior homeowners are eligible for an additional $3,250 exemption in fiscal year 2025; the senior homestead exemption will increase to $6,500 in fiscal year 2026.

Iowa also has a property tax circuit breaker for both homeowners and renters, which was limited to households with incomes less than $24,206 in 2022. In addition, Iowa offers property tax credits for active military, veterans, and to agricultural landowners (Significant Features of the Property Tax).

The state provides various property tax incentives for economic development including enterprise zones and tax increment financing (Urban Renewal Zones). Properties in Urban Revitalization Areas are eligible for up to a full abatement of property taxes for up to 10 years, excluding school taxes. Iowa’s Business Property Tax Exemption provides an abatement of a portion of the first $150,000 of value for qualifying commercial properties. In 2018, Iowa had 3,340 TIF districts, the highest number of any state in the United States (Merriman 2018).

Key Property Tax History

In a 2002 lawsuit, a group of Iowa school districts and individuals alleged that the state’s education finance system violated the state constitution on education equity (SchoolFunding.Info). The lawsuit was later withdrawn, making Iowa one of the few states with no state court decision on the constitutionality of the state’s school funding system.

School districts were funded mostly by the local property tax up until the 1960s (Winkler 1979). In 1971, the General Assembly of the Iowa Legislature passed a bill, House File 654, laying the foundation for the current education funding formula in which a guaranteed foundation level of expenditures is financed by a uniform local property tax levy rate (20 mills for fiscal year 1972) and varying state aid (Foeller 1974). Another House bill passed in 1986 established $5.40 per $1,000 of assessed value as the minimum uniform school levy rate.

The Urban Renewal Law, enacted in 1957, authorized cities to use property tax increment financing in slums or blighted areas. An amendment in 1985 allowed TIF adoptions even in the absence of slum or blight conditions. In 1991, counties were authorized to adopt TIF for industrial purposes. Beginning in 1996, TIF was also allowed for development of affordable housing for low- and moderate-income residents.

Iowa introduced rollback in 1978—the same year Proposition 13 was passed in California. A law passed in 2013 made changes to these limitation factors and allowable growth percentages.

Recent Developments

Local governments in the Midwest have experienced a wave of assessment appeals from big-box stores using “dark stores” assessment theory in recent years. The dark stores approach to assessment uses a sales comparison approach with vacant or “dark” stores as comparable properties. While retailers have successfully slashed their assessments in some states, Iowa courts have generally upheld values set by assessors (Polk County Assessor 2018). Indeed in 2021, the Iowa Court of Appeals upheld Johnson County’s appraisal of a Lowe’s store, rejecting the retailer’s dark store theory argument. Lowe’s appealed the 2017 valuation of its property in Coralville, Iowa, assessed at $11.9 million. On appeal, the Property Assessment Appeal Board rejected a $5.2 million valuation submitted by Lowe’s’ expert appraiser. The Iowa District Court for Johnson County upheld the appeal board ruling. In affirming the District Court ruling in February 2021, the Court of Appeals rejected Lowe’s’ argument that the property should be assessed as if vacant, citing a rule requiring assessors to “consider conditions existing at the time and the condition of the property in which the owner holds it” (Lowe’s Home Centers LLC v. Iowa Property Assessment Appeal Board).

Reacting to a steep rise in assessed values in 2022, Iowa enacted sweeping legislation in 2023 to further constrain growth in property taxes and expand residential tax relief. House File 718 of 2023 broadened the state’s rate limit, imposed a new limit on growth in levies, imposed new truth-in-taxation requirements, and expanded tax relief. The bipartisan legislation consolidated local levies, some of which were not previously subject to the rate limit, into the Adjusted City General Fund Levy (ACGFL) subject to the limitation. The law also restricted levy increases when a jurisdiction's non-TIF taxable property base grows by 3 percent or more over the previous year; in 2024, the law was amended by Senate File 2442 to trigger the limit when growth exceeds 2.75 percent. If growth in a jurisdiction’s non-TIF taxable value increases over four set thresholds, allowable revenue growth is reduced by 1 percent to 3 percent for the following budget year. Iowa replaced its truth-in-taxation conditions, requiring annual property tax statements with information on current and proposed property tax levies and rates, reasons for any proposed increases, and information on required hearings on the information. The law expanded tax relief in the form of an additional homestead exemption for seniors age 65 and older (the new exemption was $3,250 in fiscal year 2025 and will double in fiscal year 2026) and a higher property tax exemption for military service to $4,000 (Mullenix 2023; 2024; Paquin 2024).

In recent years, Iowa has also made adjustments to property tax incentives for businesses. In May 2022, the governor signed a bill (House File 2552) to replace the state-funded Business Property Tax Credit program with a property tax exemption program with state reimbursement to local governments. The program reduced real property taxes on part of the value of commercial, industrial, and railroad properties to the amount that would be due applying the residential rollback rate. For the 2020 assessment year, the state provided a credit to reduce property taxes paid on the first $234,663 of property value to the amount that would be paid applying the residential rollback rate. Under the new law, the state reimburses local governments for a similarly structured exemption on the first $150,000 of property value for eligible businesses. The new policy reduced the value eligible for the exemption, but expanded eligibility to include telecommunications properties, which were previously not classified as commercial and therefore not eligible (Legislative Services Agency 2022; Stroka 2022).

House File 718 of 2023 also included reforms to the state’s Chapter 404 Urban Revitalization Tax Exemptions for revitalization areas created in or after 2025 and for new projects filing for abatements after July 2024. The law excluded school district property taxes from the abatements and added a requirement for written agreement from municipalities before a project is eligible for abatements (Mullenix 2023).

Sources

Foeller, William H. 1974. “Differential Tax Incidence of State Educational Grant-in-Aid Programs in Iowa: Abstract.” National Tax Journal 27(1): 9–19.

Iowa Department of Revenue. “Iowa Property Tax Overview.” https://tax.iowa.gov/iowa-property-tax-overview.

———. 2024a. “History of Assessment Limitations.” https://revenue.iowa.gov/media/101/download?inline.

———. 2024b. “Order Certifying Percentages for Assessment Limitations.” https://revenue.iowa.gov/media/102/download?inline.

Legislative Services Agency. 2022. “HF 2552 – Department of Revenue Omnibus (LSB5321HV).” Fiscal Note. Iowa Legislature. https://www.legis.iowa.gov/docs/publications/FN/1288468.pdf.

Merriman, David. 2018. Improving Tax Increment Financing (TIF) for Economic Development. Policy Focus Report. Cambridge, MA: Lincoln Institute of Land Policy. www.lincolninst.edu/publications/policy-focus-reports/improving-tax-increment-financing-tif-economic-development.

Mullenix, Erin. 2023. “Summary of the New Property Tax Law - House File 718.” Cityscape. June. https://mydigitalpublication.com/publication/?i=793125&p=18&pp=2&view=issueViewer.

———. 2024. “Senate File 2442: Property Tax Changes.” Cityscape. July. https://mydigitalpublication.com/publication/?i=825588&p=24&view=issueViewer.

Nguyen-Hoang, Phuong. 2014. “Tax Increment Financing and Education Expenditures: The Case of Iowa.” Education Finance and Policy 9(4): 515–40.

Polk County Assessor. 2018. “Big Box Retailers’ Tax Appeals and the Dark Store Theory.” Real Talk. (Fall). https://www.assess.co.polk.ia.us/info/web/realtalk/2018/RealTalkFall18.pdf.

Ross, Justin, and Phuong Nguyen-Hoang. 2013. “School District Income Taxes: New Revenue or a Property Tax Substitute.” Public Budgeting & Finance 32(2): 19–40.

SchoolFunding.Info. “Iowa.” https://cee.tc.columbia.edu/schoolfundinginfo/states/iowa/.

Significant Features of the Property Tax. https://www.lincolninst.edu/data/significant-features-property-tax/. Lincoln Institute of Land Policy and George Washington Institute of Public Policy.

Stroka, Mary. 2022. “Iowa Legislature Passes Bill Switching Business Property Tax Credits to Exemptions.” Iowa Torch, March 22. https://iowatorch.com/2022/03/22/iowa-legislature-passes-bill-switching-business-property-tax-credits-to-exemptions/.

Winkler, Donald R. 1979. “Fiscal Limitations in the Provision of Local Public Services: The Case of Education.” National Tax Journal 32(2): 329–43.

Wolters Kluwer Editorial Staff. 2022. U.S. Master Property Tax Guide. Riverwoods, IL: Wolters Kluwer CCH.