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Iowa State Taxes: What You’ll Owe in the 2026 Tax Season

Sarah Hollander,

AARP

Published March 31, 2026

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Iowa ranks better than average for state tax competitiveness, according to the Tax Foundation’s 2026 competitiveness rankings. In 2025, the state switched to a flat income tax and eliminated its inheritance tax. It does not tax most retirement income, including Social Security.

The big picture:

Income tax: Iowa’s flat tax rate of 3.8 percent took effect Jan. 1, 2025, replacing a previous system that taxed higher income at higher percentages.
Property tax: Property taxes vary depending on where you live, with an average effective property tax rate in Iowa of 1.33 percent of an owner-occupied home’s assessed value, according to the most recent data available from the Tax Foundation.
Sales tax: The state’s average combined state and local sales tax of 6.94 percent in 2026 fell below the national average, according to the Tax Foundation.

How is income taxed in Iowa?

Iowa transitioned to a flat income tax of 3.8 percent starting with 2025 earnings. As of 2025, 14 states used a flat tax, and two additional states have approved a switch. Iowa previously used a progressive system with higher tax rates for higher incomes. One rate now applies to all taxable income.

Exemptions exist based on the amount and source of income, age and other criteria, according to the Iowa Department of Revenue. For example, people who make less than the federal standard deduction amount for their filing status don’t pay state income tax. Also, qualified active-duty military pay is not subject to the state income tax.

In addition to personal income tax, localities can impose education and emergency medical service surtaxes based on a percentage of income tax liability, not income itself. Most school districts levy the surtax, which varies by location.

What about investment income?

Investment income, including capital gains, interest and dividends, is generally taxed like ordinary income, at 3.8 percent.

The state does, however, exempt many capital gains, such as those from the sale of real estate used in a farming business, certain livestock and qualifying corporate stock. When it comes to selling a primary home, Iowa conforms to federal rules and allows exemptions of up to $250,000 in capital gains, or $500,000 if you’re married filing jointly.

Does Iowa tax Social Security benefits?

No. Iowa hasn’t taxed Social Security benefits since 2014.

You may, however, owe federal taxes depending on your total combined income and filing status. Combined income includes half of your annual Social Security benefits, your adjusted gross income and tax-exempt interest income. Individuals with a combined income over $25,000 — or married couples, filing jointly, with income over $32,000 — will be taxed on up to 85 percent of their benefits, depending on income.

Are pensions or other retirement income taxed?

Iowa does not tax most retirement income. Excluding taxes on retirement income applies to filers who are 55 or older, disabled or a qualified survivor. Income eligible for the exclusion includes pensions, IRAs, 401(k)s and other deferred compensation plans. Qualified retired farmers can exclude income from farmland rental and crop-sharing agreements.

How is property taxed in Iowa?

The effective property tax rate in Iowa was 1.33 percent of an owner-occupied home’s value, according to the latest available data from the Tax Foundation.

Property taxes vary depending on your home’s taxable value, your address and allowable credits and exemptions.

The lowest effective property tax rate was 0.78 percent in Dickinson and Van Buren counties, and the highest was 1.57 percent in Polk County. The lowest median property tax paid was $1,111 in Pocahontas County, while the highest was $5,001 in Dallas County, according to the Tax Foundation.

City and county assessors determine market value every odd-numbered year. Local auditors determine annual tax rates based on the needs of local jurisdictions, schools, hospitals, townships and other local taxing authorities. Taxpayers who want to appeal their assessment can contact their local assessor or download a form from the Iowa State Association of Assessors website.

Iowa residents qualify for a homestead tax credit if they own and occupy their home on July 1 and for at least six months of the calendar year. The credit reduces the value on which taxes are calculated by up to $4,850. Residents 65 and older qualify for an additional $6,500 reduction in taxable value. One-time applications to your local assessor must be filed or postmarked by July 1, 2026. Find your assessor here.

Iowa also offers a military exemption of $4,000 in taxable property value for qualified veterans. Totally disabled veterans can apply for a full property tax exemption.

Property taxes are due twice a year: March 31 and Sept. 30. Visit the Iowa Department of Revenue website to learn more about how property is taxed in the state.

What about sales and other taxes?

Sales tax: Iowa levies a 6 percent sales tax statewide. Cities and counties can impose an additional 1 percent, called a local option sales tax, and most do. When sales tax isn’t collected on purchases outside of Iowa — for example, through catalogs and online vendors — those items and services are subject to Iowa’s 6 percent use tax. Major exemptions to sales taxes include most groceries, qualifying prescription drugs and medical supplies, and vehicles. Iowa also has an annual two-day sales tax holiday in August for eligible clothes and footwear items sold for less than $100. More on the state’s sales tax here.
Gas and diesel: Iowa taxes fuel by the gallon. The rate ranges from 26.5 cents to 65 cents, depending on the type of fuel. Examples include gasoline and propane at 30 cents and diesel at 32.5 cents. Charging electric vehicles at public charging stations is taxed at 2.6 cents per kilowatt-hour.
Vehicle tax: Purchasers pay a one-time new registration fee equal to 5 percent of the sale or lease price plus $10. The fees apply to dealer and private sales.
Alcohol: All retail sales of alcohol are subject to sales tax. Additional taxes are levied on wholesalers of beer and wine, as well as wine shipped directly to consumers within the state.

Will my estate or my heirs have to pay inheritance and estate tax in Iowa?

No. Iowa doesn’t have an inheritance or estate tax.

The state does, however, tax income generated by estates at the flat 3.8 income tax percent rate. Beneficiaries file a fiduciary return for income earned after the date of death. Federal taxes still apply to large estates, defined as those worth more than $13.99 million in 2025.

What are the tax breaks for older Iowa residents?

Low-income exemption: There’s no state income tax for those 65 or older with net incomes of $24,000 or less if filing single, or $32,000 if married, the head of the household or a surviving spouse. Tax-exempt retirement income does not figure into the amounts above. When determining what counts as net income for this purpose, taxpayers must add back various deductions and exemptions they may have used for other calculations. Find more details on Iowa’s Department of Revenue website.
Homestead 65+ tax exemption: The exemption is on $6,500 of taxable property value for those 65 and older. This is in addition to the regular homestead exemption.
Senior and disabled property tax credit: Low-income Iowans 65 and older, or totally disabled adults, may qualify for a property tax credit or rent reimbursement of up to $1,000 per household. Eligibility rules include a total household income less than $26,895 for those 65 to 69, or less than 250 percent of the federal poverty level ($39,125 for single claimants) for those 70 and older. Claims must be filed by June 1, 2026.
Special assessment credit: This credit is for Iowans 65 and older, or totally disabled adults, with a total household income not exceeding $13,855. The credit applies to 100 percent of special assessments on homesteads for public improvements like street paving, new sewer systems or sidewalks. Claims must be filed with your county treasurer by Sept. 30, 2026, and annually thereafter.
Additional personal income tax credit: This is worth $20 for those 65 or older. If you’re married and filing jointly, both spouses can claim the credit.

Are military benefits taxed in Iowa?

No. The state doesn’t tax military retirement income, regardless of age. The exclusion also applies to survivor benefits.

What is the deadline for filing Iowa taxes in 2026?

Iowa’s filing deadline for personal income taxes is April 30, 2026, later than the April 15 federal deadline. The state provides an automatic filing extension until Nov. 2, 2026, if at least 90 percent of your total taxes are paid by the April 30 deadline. No separate extension form is required. The state may charge interest or penalties for unpaid taxes after April 30. Farmers and fishers who make a certain percentage of their income from those lines of work have different deadlines.

More AARP Financial Resources

AARP Retirement Calculator Determine if you are saving enough to retire when — and how — you want.
AARP’s Social Security Calculator Figure out when to claim and how to maximize your Social Security benefits.
AARP Tax Tools Explore resources to help you calculate and prepare taxes.