Note: Line 23 can be more than the net total reported on Schedule D. Unrelated losses are not to be included in the computation of the deduction. An example of an unrelated loss is the sale of common stock at a loss..

Qualifying capital gains result from the sale of the following:

1. Real property used in a business in which the taxpayer materially participated* for 10 years prior to the sale, and which has been held for a minimum of 10 years immediately prior to its sale.
2. A business in which the taxpayer was employed or in which the taxpayer materially participated* for 10 years and which has been held for a minimum of 10 years immediately prior to its sale. The sale of a business means the sale of all or substantially all of the tangible personal property or service of the business which is intangible personal property such as client lists, goodwill, patents, trade names, and similar items. This means that the sale of the assets of a business during the tax year must represent at least 90% of the fair market value of all of the tangible personal property of the business on the date of sale of the business assets.
   • Sale to an individual who is a lineal descendent of the taxpayer eliminates the requirement for material participation.
3. Cattle and horses used for breeding, draft, dairy or sporting purposes and held for 24 months by the taxpayer who received in excess of 50% of his or her gross income from farming and ranching.
   • Sale to an individual who is a lineal descendent of the taxpayer eliminates the requirement to have in excess of 50% of gross income from farming and ranching. [40.38(8)]
4. Breeding livestock, other than cattle and horses, held for 12 months by the taxpayer who received in excess of 50% of his or her gross income from farming or ranching.
   • Sale to an individual who is a lineal descendent of the taxpayer eliminates the requirement to have in excess of 50% of gross income from farming and ranching.

     Note: The cattle, horses, and other livestock that are excluded from taxation are the sales of the same classes of livestock that qualify for capital gain treatment under section 1231 of the Internal Revenue Code.

5. Timber held by the taxpayer for more than one year. Timber includes evergreen trees, such as Christmas trees, that are more than six years old at the time they are cut and sold for ornamental purposes. Timber means timber that qualifies for capital gain treatment under section 1231 of the Internal Revenue Code.

For more information, please see the knowledge base or the Iowa instructions or Website.

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