USA - IOWA Law and Practice Contributed by: David M Erickson, Robert J Douglas, Jr, Christopher S Talcott and Amy S Montgomery, Dentons Davis Brown
superior to all other liens upon the building or land, except those liens recorded prior to the original commencement of contractor’s work. However, liens resulting from construction mortgages are superior to all mechanics’ liens of claimants who commenced their particular work or improvement subsequent to the date of the recording of the construction mortgage lien. For public projects, subcontractors have the right to file claims against the retainage held by the public entity under Iowa Code Chapter 573, as well as claims against the payment bond. 7.7 Requirements Before Use or Inhabitation Iowa law requires that a certificate of occupancy be issued prior to construction being used or inhabited. The state statute delegates issuance of certificates of occupancy to the particular governmental subdivisions within the state. The certificate of occupancy must, at a minimum, state that the building complies with the Iowa state building code. No VAT or equivalent is payable on the sale or purchase of corporate real estate in Iowa, only transfer tax. See 2.10 Taxes Applicable to a Transaction . 8.2 Mitigation of Tax Liability The transfer tax due upon conveyance of Iowa real estate is only payable upon consideration given for real property. Accordingly, two meth - ods to reduce or avoid the payment of transfer tax are: 8. Tax 8.1 VAT and Sales Tax
• to allocate a portion of the total considera - tion paid in a transaction to personal property acquired, if any; and • to acquire equity interests in an entity that owns real estate rather than acquiring the real estate itself. 8.3 Municipal Taxes No municipal taxes are paid on the occupation of business premises or payment of rent in Iowa. 8.4 Income Tax Withholding for Foreign Investors Beginning in 2022, most Iowa pass-through enti - ties must file a composite tax return and pay Iowa income tax on behalf of its non-resident owners’ Iowa-source income from the pass- through entity. A non-resident owner and the related Iowa pass-through entity may annually file a joint election out of this requirement if the non-resident owner agrees to pay income taxes on its Iowa-source income independent from the entity in which it has an ownership interest. As in all states, withholding for federal income tax is often required. At the federal level, the sale of real property in Iowa is generally subject to withholding at a rate of 15% and foreign inves - tors must file a federal tax return to recoup this amount where no tax is ultimately due. 8.5 Tax Benefits Real estate investors benefit greatly from utilis - ing depreciation deductions from their federal and state tax returns. While this creates addi - tional gain on the eventual sale of the real estate, tax benefits such as 1031 exchanges or invest - ment in qualified opportunity funds can defer the recognition of that gain for long periods of time. Additionally, financing costs are generally amor - tised over the life of the loan and many opera - tional costs can be deducted currently, further reducing an investor’s taxable income.
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