By attorneys Eric Boehlert and Kristin Cooper
Overview
On May 3, 2026, the Iowa General Assembly passed sweeping property tax reform legislation. Senate File 2472, as amended by H-8495, restructures levy rate caps for counties, cities, and school districts; creates a new FirstHome Iowa savings account program for first-time homebuyers; tightens local government budget and reserve fund rules; and modifies urban renewal, homestead credit, and assessment provisions. This bill was signed by the Governor on May 18, 2026. Most changes take effect January 1, 2027, and apply to fiscal years beginning on or after July 1, 2027, with some changes effective upon enactment.
The following is not intended to be an exhaustive list of all legislative changes made by the Act, but rather is a summary of its key provisions.
1. County Property Tax Levy Caps
The legislation amends Section 331.423 to phase in new growth-based limits on the general county services levy and the rural county services levy over a multi-year transition. After considerable debate between “soft” and “hard” caps, most levies will be limited to a hard 102% growth cap per year, subject to adjustment for new valuation (defined below).
General County Services Levy
• Through FY2027 (unchanged): The levy remains capped at the greater of $3.50 per $1,000 of assessed value or the adjusted prior-year levy rate.
• FY2028–2030: The levy is capped at 102% of the prior year’s actual certified property tax dollars, adjusted for new valuation (growth-adjusted cap).
• FY2031 and beyond: The lesser of the 102% growth-adjusted cap or $3.50 per $1,000 applies — permanently capping the levy at the hard statutory rate if revenue growth outpaces that ceiling.
Amounts received as replacement taxes under utility replacement tax chapters (437A/437B) are included in the property tax calculation for purposes of the above limits.
Rural County Services Levy
Identical phase-in applies to the rural county services levy, with the hard cap set at $3.95 per $1,000 of assessed value.
New Valuation Definition
"New valuation" is defined for the first time and means taxable value increases attributable to new construction, additions/improvements beyond normal repairs, and boundary adjustments (annexation, incorporation, consolidation, etc.). This definition is critical because growth from new valuation is excluded from the 102% cap calculation — only existing property value growth is counted against the limit.
Released valuations under Urban Renewal (TIF) and Urban Revitalization (abatement) are not explicitly designated as “new valuation” under this legislation.
Effective Date: January 1, 2027. Applicable to fiscal years beginning July 1, 2027.
2. City Property Tax Levy Caps
Section 384.1 is amended to impose phased growth-based levy caps on the city general fund levy:
• Through FY2027: The city general fund levy remains capped at the greater of $8.10 per $1,000 or the adjusted prior-year rate.
• FY2028–2030: The city general fund levy may not exceed 102% of the prior year’s actual certified property tax dollars, adjusted for new valuation (defined above).
• FY2031 and beyond: The lesser of the 102% growth-adjusted cap or $8.10 per $1,000 applies.
Amounts received as replacement taxes under utility replacement tax chapters (437A/437B) are included in the property tax calculation for purposes of the above limits.
Effective Date: January 1, 2027. Applicable to fiscal years beginning July 1, 2027.
3. Rate-Limited Property Tax Levy Caps (New Section 444.25)
A new statewide provision (Iowa Code §444.25) creates growth-based caps on most property tax levies that are set by statute as a fixed rate — so-called “rate-limited” levies. Beginning July 1, 2027:
• Each rate-limited levy is capped at 102% of the prior year’s actual certified property tax dollars (not adjusted for new valuation in this provision, unlike county/city caps).
• New levies imposed for the first time may be set at the full statutory maximum rate for the initial year.
• Voter-approved rate increases that were not in effect the prior year may be imposed at the newly approved rate without the 102% cap.
The provision explicitly excludes: school district foundation levy, county general and rural service levies, city general fund levy, physical plant and equipment levies, school bond levies, transit district levies under Chapter 28M, county hospital levies (Chapters 347/347A), and self-supported municipal improvement districts (Chapter 386).
Prohibition on Using Debt for General Operations (New Section 444.26)
Effective July 1, 2026, local governments are prohibited from issuing bonds or other debt repaid from property taxes to fund general operations — defined to include salaries, benefits, and services for the general welfare of residents. Direct and indirect capital expenditures properly allocated under the Internal Revenue Code, capital leases, and services financed by statutory funds other than a debt service levy are excluded from this prohibition.
4. School District Foundation Levy Reductions
Section 257.3 is amended to step down the school district foundation property tax levy over the coming years:
• Budget years before FY2028: Foundation levy remains at $5.40 per $1,000 of assessed value.
• Budget year FY2028 (beginning July 1, 2028): Foundation levy reduced to $5.10 per $1,000.
• Budget year FY2029 and beyond: Foundation levy further reduced to $4.90 per $1,000.
Conforming changes update the agricultural land tax credit and family farm tax credit calculations to reference the new stepped-down levy rates. These credits apply against school taxes that exceed the applicable foundation levy rate for the prior year.
Applicability: Fiscal years and school budget years beginning on or after July 1, 2027.
5. SAVE Fund (K12) — Equity Transfer Percentage & Extended Sunset
The Secure an Advanced Vision for Education (SAVE) fund provisions are modified to accelerate the amount of money being diverted from the Secure an Advanced Vision for Education (SAVE) fund to the Property Tax Equity and Relief Fund, currently approximately 7.1%, and to push back the fund’s sunset from 2051 to 2071:
• FY2026: transfer percentage increased to 12.5%
• FY2027: 15%
• FY2028: 17.5%
• FY2029: 22.5%
• FY2030 and beyond: 25%
The sales and use tax rate reduction from 6% to 5% tied to the SAVE fund expiration is likewise deferred to January 1, 2071.
6. FirstHome Iowa Program — New Homebuyer Savings Accounts
A new chapter (Iowa Code Chapter 12L) creates the FirstHome Iowa Program Trust — a state-administered savings account program to allow investments in a public trust to help first-time Iowa homebuyers accumulate funds for qualified homebuyer expenses such as down payments and closing costs.
Transition from Prior First-Time Homebuyer Accounts
Existing first-time homebuyer accounts under the prior statutory program (Iowa Code Chapter 541B) may be transferred to the new FirstHome Iowa trust without penalty or Iowa tax. No new accounts may be opened under the old Chapter 541B program on or after July 1, 2026.
Applicability: Tax deductions and earnings exclusions apply to contributions made on or after July 1, 2026.
7. Homestead Credit & Exemption Restructuring
Iowa’s homestead credit program is significantly restructured effective for assessment years beginning January 1, 2026:
New Universal Homestead Exemption (Section 425.1A)
• For assessment year 2026 and beyond, every eligible homestead receives an exemption equal to 10% of taxable value, with a minimum exemption of $5,500 and a maximum of $20,000.
• The maximum exemption amount is indexed for inflation beginning January 1, 2027, using the annual inflation factor applied to individual income taxes.
• Senior homeowners (65+) retain their existing additional exemption of $6,500 in taxable value (for assessment years beginning January 1, 2024 and after).
Phase-Out of General Homestead Credit
The traditional homestead credit based on the first $4,850 of actual value (Section 425.15) is repealed. A two-year replacement funding mechanism is established: taxing authorities receive 2/3 of their FY2026 homestead credit payments in FY2027, and 1/3 in FY2028, funded by state appropriation. This transitional funding program sunsets July 1, 2030.
Retroactive Applicability: Assessment years beginning on or after January 1, 2026.
8. Property Assessment Procedures
Residential Assessment Transparency
For assessment years beginning January 1, 2027, if a residential property’s actual value increases 10% or more compared to either of the two preceding assessment years, the assessor must provide the taxpayer with a written statement explaining the reasons for the increase and identifying how much is attributable to revaluation, classification change, or new construction/improvement/renovation.
Shifted Burden of Proof
For residential property, if the actual value increases 10% or more (excluding new construction, improvements, renovation or classification changes), the assessor — not the taxpayer — bears the burden of proof in protest or appeal proceedings to demonstrate the valuation is not excessive, inequitable, or capricious. This is a significant departure from the prior rule requiring taxpayers to initiate proof of overvaluation.
Ex Parte Communication Prohibition
Ex parte communications with board of review members are expressly prohibited in property tax protest proceedings.
Declaration of Value Adjustments
The real estate transfer declaration form is updated to capture factors that distort market value, including built-to-suit sales, sale-leaseback transactions, leased fee sales, related-party sales, foreclosure sales, and similar abnormal transactions. These factors must now be disclosed and may be excluded or adjusted in the assessor’s market value determination. This provision applies retroactively to assessment years beginning January 1, 2026.
9. Property Classifications — Multiresidential Transition
As of January 1, 2027, the “multiresidential” property classification is re-introduced (after having been removed as of January 1, 2022). Properties meeting the criteria for “multiresidential” property will be treated the same as residential property for purposes of equalization, but will have assessment valuations determined pursuant to a formula that increases the assessment value by a percentage:
• For FY2027 (assessment year January 1, 2027): Multiresidential property is assessed at the residential percentage plus 3%, capped at 100%.
• For FY2028 and beyond: Multiresidential property is assessed at the residential percentage plus 6%, capped at 100%.
10. Urban Renewal (TIF) Modifications (See also, Ahlers & Cooney Client Alert: Changes to Iowa's Urban Renewal Act and Urban Revitalization Act Under the 2026 Property Tax Bill)
Tax Increment Financing (TIF) rules under Iowa Code Chapter 403 are amended, with the most significant changes being new durational limits on the collection of TIF revenues:
• New TIF ordinances adopted on or after the effective date are limited to 23 years for TIF revenue collections from the calendar year following the calendar year from the first certification of indebtedness. (Prior law imposed no limit on slum or blighted areas, a 20-year limit for economic development areas (commercial, industrial, or LMI housing), or a 10-year or 15-year limit for market rate residential development areas.)
• For existing unlimited-duration TIF ordinances, after 20 years from enactment (or 20 years from the first certification of TIF debt, whichever is later), TIF revenue captures are capped at 60% of the otherwise-applicable increment. Municipalities may exceed the 60% cap only to pay bonds or other indebtedness incurred before May 18, 2026 (the enactment date of the law), but may not issue new debt while exceeding it.
• School district foundation property taxes (Section 257.3) are excluded from TIF revenue captures for new TIF ordinances adopted on or after January 1, 2027. School districts may voluntarily contribute their foundation taxes to a municipality’s TIF fund by board resolution, but such contributions are not required.
• The prior Section 403.22 TIF provisions applicable to market-rate housing projects, including those requiring an LMI-set-aside fund and imposing a shortened (10 or 15 year) TIF sunset, are repealed.
Effective Date: Immediate upon enactment (TIF provisions).
11. Local Government General Fund Reserve Limits (New Section 24.35)
A new statutory framework limits how much unassigned general fund reserves local governments (cities, counties, and other property-taxing entities — excluding school districts and governmental entities with the highest bond rating) may accumulate:
• For budget years beginning July 1, 2027 and after, unassigned reserves may not exceed 35% of budgeted general fund expenditures for the current fiscal year.
• If a governmental entity’s budget does not comply, the Department of Management may not certify the entity’s taxes back to the county auditor until the entity remedies the violation.
• Governmental entities must establish a separate "obligated funds account" within the general fund to hold restricted, committed, assigned, or nonspendable funds (e.g., vehicle replacement reserves, infrastructure reserves). Only unassigned funds count against the 35% ceiling.
• Annual audits of governmental subdivisions must verify compliance with the reserve limit beginning with fiscal years starting July 1, 2027.
12. School District Unspent Balances & On-Time Funding
For school budget years beginning July 1, 2026:
• A school district’s prior-year unspent balance used to calculate its authorized budget is capped at 35% of the preceding year’s authorized expenditures, unless a larger amount is authorized by the school budget review committee.
• Each school district board must adopt a policy defining a targeted range and maximum amount of unspent balance, with annual review.
Effective Date: Immediate upon enactment.
13. Emergency Medical Services Levy Increase
Counties authorized to levy a property tax for emergency medical services (Chapter 422D) may increase the maximum levy rate from 75 cents per $1,000 to $1.50 per $1,000 of assessed value, beginning in fiscal years on or after July 1, 2027. Counties currently levying at the 75-cent rate must obtain voter approval (at an election held on or after July 1, 2026) before imposing a rate above 75 cents.
14. County Hospital Property Tax Levy Caps
County hospital levy rates (under Chapters 347 and 347A) are subject to new growth-based caps beginning July 1, 2027. Hospital levies may not exceed 104% of the prior year’s actual certified property tax dollars, adjusted for new valuation. This is slightly more generous than the 102% cap applicable to general county and city levies, recognizing the capital-intensive nature of hospital operations.
15. Regional Transit District Tax Caps
Beginning July 1, 2027, regional transit district property tax collections (from both district levies and contributing cities/counties) are capped at 103% of the prior year’s total collections. This cap applies both to levy rates under Section 28M.5 and to city transit levies under Section 384.12.
16. Utility Replacement Tax Task Force
The Utility Replacement Tax Task Force shall study the accuracy of (and possibly eliminate or simplify) taxes under chapters 437A and 437B, and ways to modernize the administration thereo, while retaining tax stability, based on data through December 31, 2026. The Department of Management shall transmit any task force recommendations to the general assembly
17. Payments in Lieu of Property Taxes (PILOT) Task Force
The Department of Revenue is directed to convene a task force and submit a report to the General Assembly by January 10, 2027 on the feasibility of a county-administered program for collecting payments in lieu of property taxes from tax-exempt property owners (excluding government-owned property). The task force will include Polk County supervisors, city and tax-exempt entity representatives, and legislative members.
18. Enhanced Property Parcel Data Reporting
County auditors are required to submit annual parcel-level property data to the Department of Management by September 1 each year, beginning September 1, 2027. The report must include parcel identification, location, size, valuation, classification, improvements, exemptions, credits, and tax amounts due.
19. Local Government Budget Statement Improvements
The budget notice statement process (Section 24.2A) is updated for fiscal years beginning July 1, 2027:
• Counties may provide the required property tax statement to property owners by posting it on the county’s website by March 15, in lieu of regular mail.
• Governmental entities with social media accounts must also post the statement or a link to it on each social media platform by March 15.
• Statements must include a year-over-year comparison of combined property taxes for the city, county, and school district, along with the percentage change.
• Statements must include public hearing dates, times, and locations, and instructions for accessing the political subdivision’s internet site for additional budget documents.
• A link to the department of management’s internet site where the property owner or taxpayer may view an example of the statement and a brief explanation of the information included on the statement.
20. Agricultural Extension Levy Cap
The county agricultural extension education levy (Section 176A.10) is restructured to conform to the new Section 444.25 rate-limited levy cap framework. Beginning July 1, 2027, the annual levy may not exceed the prior year’s levy plus any allowable increase under the new 102% growth cap. The prior static levy limits (expressed as fixed cents-per-$1,000 amounts) remain as ceiling rates.
21. Iowa Economic Emergency Fund & Taxpayer Relief Fund
For fiscal year 2027–2028, the state general fund expenditure limitation is reduced by $125 million. For fiscal year 2028–2029, excess Iowa Economic Emergency Fund balances above the statutory cap are directed to the taxpayer relief fund rather than the general fund, along with an additional $125 million transfer.
This article is only a summary of the changes implemented by the property tax bill SF 2472. We encourage you to consult with legal counsel if you have specific questions about the impact of the bill.
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