Innovation Fund Tax Credit Program FAQ

A tax credit program designed to incentivize investments in early-stage venture capital funds (referred to as "innovation funds") that supports innovative businesses based in Iowa. The program provides a tax credit for eligible equity investments called into certified Innovation Funds.

An innovation fund is a private, early-stage capital fund certified by the Iowa Economic Development Authority (IEDA) to invest in innovative Iowa-based businesses. Certification allows the fund’s investors to claim a tax credit.

The tax credit equals 25% of the taxpayer's eligible cash equity investment in a certified Innovation Fund.

Only equity investments made for cash qualify.

Equity includes common or preferred stock, warrants to acquire stock, limited liability company membership interests, partnership interests, and near equity.

Investments made in exchange for services, property, or other noncash consideration do not qualify.

No. The tax credit applies to an investor's eligible equity investment in a certified Innovation Fund. The tax credit does not apply to investments subsequently made by the fund into portfolio companies.

A taxpayer that makes an eligible equity investment in a certified Innovation Fund and receives a tax credit certificate may claim the credit.

An individual may also claim a credit through a partnership, limited liability company, S corporation, estate, or trust electing to have income taxed directly to the individual. The credit is based on the individual's pro rata share of earnings from the entity.

The credit may be claimed against:

• Iowa individual income tax
• Iowa corporate income tax
• Iowa franchise tax
• Iowa insurance premiums tax
• Iowa moneys and credits tax under Iowa Code section 533.329

Yes. Any credit in excess of the taxpayer's tax liability may be carried forward for up to five tax years or until depleted, whichever occurs first.

No. Tax credits may not be carried back to a tax year prior to the year in which the taxpayer claims the credit.

Yes. Tax credit certificates may be transferred, in whole or in part, one time. The transferee must follow the procedures established in Iowa Code section 15E.52 and obtain replacement tax credit certificates from the Iowa Department of Revenue before claiming the credit.

For fiscal years beginning on or after July 1, 2026, applications must be submitted electronically between September 1 and December 31.

The Iowa Economic Development Authority may adjust the application period under extenuating circumstances and will provide notice on its website.

The investor applies for the tax credit.

Investors must submit an application to the Iowa Economic Development Authority for each eligible equity investment made in a certified Innovation Fund.

Tax credits are issued on a first-come, first-served basis until the maximum amount of tax credits available for the fiscal year has been allocated.

Applications are date and time stamped in the order received.

For investments made on or after July 1, 2026, an investor must apply during the first available application window following the investment for the investment to qualify for a tax credit.

If the first available application window closes before the applicable Innovation Fund receives certification approval, the investor may apply during the first available application window following certification.

An investment must:

• Be an eligible equity investment made for cash.
• Be made in a certified Innovation Fund.
• Not be made more than 120 days before the Innovation Fund applies for certification.
• Be submitted for a tax credit during the first available application window following the investment, unless the fund has not yet been certified.
• Meet all application requirements established by Iowa Code section 15E.52 and 261 Iowa Administrative Code Chapter 116.

An Innovative Business is a business applying novel or original methods to the manufacture of a product or the delivery of a service.

Innovative businesses include, but are not limited to, businesses engaged in advanced manufacturing, biosciences, and information technology.

An Innovation Fund must:

• Be organized to invest in promising early-stage companies with a principal place of business in Iowa.
• Propose to invest in innovative businesses.
• Seek private funding sources.
• Propose to provide multiple rounds of funding and early-stage private sector funding to innovative businesses with high growth potential.
• Evaluate prospective businesses using a rigorous approach.
• Collaborate with the Iowa Economic Development Authority, state and local entities, and Iowa regents institutions.
• Obtain at least $3 million in binding investment commitments and invest at least $3 million in companies with a principal place of business in Iowa.

For purposes of the Innovation Fund Tax Credit Program, a business has a principal place of business in Iowa if at least one of the following is true:

• At least 50% of all employees are located in Iowa.
• At least 50% of total payroll is paid to employees residing in Iowa.
• The home office for a substantial amount of executive employees is located in Iowa.

An Innovation Fund must submit its certification application within 120 days after the first eligible equity investment is made. Investments made more than 120 days before the certification application are not eligible for tax credits.

An Innovation Fund must secure at least $3 million in binding investment commitments within one year of certification by the Board.

Failure to meet this requirement may result in revocation of certification.

The Authority will allow the Innovation Fund up to 120 days after receiving notice of the failed capital call to secure additional investment commitments sufficient to meet the required minimum investment threshold.

A taxpayer does not obtain a vested right to a tax credit until a tax credit certificate has been issued by the Authority.

Yes. The Board may revoke certification if the fund:

• Fails to secure the required minimum investment commitments.
• Fails to submit required reports.
• Fails to maintain the eligibility criteria established by Iowa Code section 15E.52.
• The Board may forbear revocation for good cause shown or extenuating circumstances.

No. Certification of an Innovation Fund does not guarantee tax credits. Investors must submit a complete application during the required application window, satisfy all eligibility requirements, and receive a tax credit certificate from the Authority. Tax credits are awarded on a first come, first served basis until the annual allocation has been exhausted.