63-3022H. DEDUCTION OF CAPITAL GAINS. (1) If an individual taxpayer reports capital gain net income in determining Idaho taxable income, eighty percent (80%) in taxable year 2001 and sixty percent (60%) in taxable years thereafter of the capital gain net income from the sale or exchange of qualified property shall be a deduction in determining Idaho taxable income.

(2) The deduction provided in this section is limited to the amount of the capital gain net income from all property included in taxable income. Gains treated as ordinary income by the Internal Revenue Code do not qualify for the deduction allowed in this section. The deduction otherwise allowable under this section shall be reduced by the amount of any federal capital gains deduction relating to such property, but not below zero.

(3) Property held by an estate, trust, S corporation, partnership, limited liability company or an individual is "qualified property" under this section if the property had an Idaho situs at the time of sale and is:

(a) Real property held at least twelve (12) months;

(b) Tangible personal property used in Idaho for at least twelve (12) months by a revenue-producing enterprise;

(c) Cattle or horses held for breeding, draft, dairy or sporting purposes for at least twenty-four (24) months in Idaho;

(d) Breeding livestock other than cattle or horses held at least twelve (12) months in Idaho;

(e) Timber grown in Idaho and held at least twenty-four (24) months;

(f) A partnership interest, other than a publicly traded partnership as defined by section 7704(b) of the Internal Revenue Code, held by an individual for at least twelve (12) months, but only to the extent the gain from sale or exchange of the interest is attributable to real property held by the partnership that is classified as a capital asset by section 1221 of the Internal Revenue Code and is qualified real property under paragraph (a) of this subsection. If the partnership holds property in addition to qualified real property, the portion of the capital gain attributable to qualified real property shall be determined under one (1) of the following methods at the option of the taxpayer:

(i) Fair market valuation. The capital gain from the sale or exchange of the interest attributable to qualified real property is the amount by which the fair market value of the qualified real property exceeds the adjusted basis of the qualified real property minus any gain taxable as ordinary income. For purposes of this section, fair market value must be established by:

1. A qualified appraisal as defined in 26 CFR 1.170A-13(c)(3);

2. A county assessor valuation; or

3. Other evidence acceptable to the state tax commission; or

(ii) Adjusted basis allocation. The capital gain from the sale or exchange of the interest attributable to qualified real property is the proportion of the capital gain included in Idaho taxable income that the adjusted basis of qualified real property held by the partnership on the date of sale or exchange of the partnership interest bears to the adjusted basis of all property held by the partnership at least twelve (12) months prior to the date of sale or exchange of the partnership interest. For this purpose, the adjusted basis shall be determined as provided in section 63-3022O, Idaho Code.

(4) In determining the period for which property subject to this section has been held by a taxpayer, the provisions of section 1223 of the Internal Revenue Code shall apply, except that the holding period shall not include the holding period of property given up in an exchange, when such property would not have constituted qualified property under this section without regard to meeting the holding period nor shall the holding period include any time period in which the property subject to this section was held by a corporation other than an S corporation. Notwithstanding the preceding sentence, the holding period of qualifying property that was distributed by an S corporation or an entity treated as a partnership to a person who was an owner, member or partner at the time of the distribution shall, for that person, include the amount of time that the S corporation or the entity held the property, regardless of whether the distribution was a liquidating distribution.

(5) As used in this section, "revenue-producing enterprise" means:

(a) The production, assembly, fabrication, manufacture, or processing of any agricultural, mineral or manufactured product;

(b) The storage, warehousing, distribution, or sale at wholesale of any products of agriculture, mining or manufacturing;

(c) The feeding of livestock at a feedlot;

(d) The operation of laboratories or other facilities for scientific, agricultural, animal husbandry, or industrial research, development, or testing.

(6) As used in this section, the term "real property" means land and includes the following:

(a) A "qualified conservation easement," as defined in section 2031(c)(8)(B) of the Internal Revenue Code, conveyed to a "qualified organization" as defined in section 170(h) of the Internal Revenue Code;

(b) Grazing permits or leases issued by the U.S. forest service, the bureau of land management or the Idaho department of lands, if such permit is transferred simultaneously with the transfer of the "base property"; and

(c) Any other property defined in section 1250(c) of the Internal Revenue Code as "section 1250 property" conveyed in perpetuity, the transfer of which would be required to be in writing by section 9-503, Idaho Code.

(7) Property that has been depreciated pursuant to section 1245 of the Internal Revenue Code is not eligible to be treated as real property for purposes of this deduction.

(8) Part-year resident and nonresident owners of multistate entities shall compute the allowable deduction as prescribed in the rules of the state tax commission.

History:

[63-3022H, added 1987, ch. 324, sec. 1, p. 680; am. 1994, ch. 39, sec. 2, p. 62; am. 1995, ch. 83, sec. 3, p. 244; am. 1995, ch. 111, sec. 15, p. 359; am. 1996, ch. 41, sec. 2, p. 111; am. 1997, ch. 56, sec. 1, p. 94; am. 1998, ch. 414, sec. 1, p. 1306; am. 2001, ch. 321, sec. 1, p. 1136; am. 2001, ch. 323, sec. 1, p. 1138; am. 2002, ch. 35, sec. 2, p. 68; am. 2005, ch. 208, sec. 1, p. 624; am. 2008, ch. 314, sec. 1, p. 873; am. 2010, ch. 5, sec. 1, p. 6; am. 2015, ch. 41, sec. 1, p. 93; am. 2015, ch. 70, sec. 1, p. 188; am. 2015, ch. 269, sec. 1, p. 1122; am. 2016, ch. 188, sec. 1, p. 511; am. 2018, ch. 186, sec. 1, p. 409.]