Iowa taxes capital gains at 3.8%. Combined with federal taxes, your effective rate on a home sale could reach 22.6%.
IA State Rate
3.8%
Flat tax (2026)
Federal Rate
15%
Most common long-term bracket
Combined Effective
22.6%
On $150K taxable gain (example)
After the $250K/$500K exclusion, here's what a typical seller might owe.
If Iowa is where your primary residence is located and you've lived there at least 2 of the last 5 years, you can exclude up to $250K (single) or $500K (married filing jointly) of your capital gain from both federal and state taxes.
Investment and rental properties in Iowa don't qualify for the exclusion. You'll owe 3.8% state tax plus federal tax on the full gain, plus 25% depreciation recapture on any depreciation claimed.
In Iowa, homes sold in October sell for 13% more than those sold in January (-17%). Timing your sale right can offset a significant portion of your tax bill.
Capital gains tax rates on home sales in Iowa and nearby states.
| State | Rate | Tax on $150K Gain | Notes |
|---|---|---|---|
| 0% | $0 | No state income tax | |
IowaYou | 3.8% | $5,700 | Flat tax (2026) |
| 4.8% | $7,200 | Top marginal rate | |
| 4.95% | $7,425 | Flat tax rate | |
| 5.84% | $8,760 | Top marginal rate | |
| 7.65% | $11,475 | Top rate; 30% deduction for long-term gains | |
| 9.85% | $14,775 | Top marginal rate |
Selling in South Dakota instead of Iowa would save $5,700 in state tax on a $150K gain.
Iowa has transitioned to a flat 3.8% tax rate for 2026, down from a graduated system. Capital gains are taxed as ordinary income at this rate.
Iowa's affordable housing market means most primary residence sellers have gains fully covered by the federal exclusion.
For investment properties, the 3.8% rate is competitive regionally, lower than neighboring Minnesota (9.85%) and Wisconsin (7.65%).
Iowa previously offered a capital gains exclusion for sales of certain business property, but this primarily applies to farm sales and closely-held businesses rather than residential real estate.
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