List items for Seed Investor Tax Credit Program FAQ
Itâs a program designed to stimulate earlyâstage investment in Iowa businesses by offering a tax credit for cash-for-equity investments in certified qualifying Iowa businesses.
Principal business operations and a majority of employees located in Iowa
In operation for five years or less
Operates in an eligible industry: advanced manufacturing, bioscience, finance and insurance, or technology
A business net worth of less than $10 million
Company leadership team has relevant experience with the industry
The business must have received, or secured through binding written commitments, at least $500,000 in qualifying equity investments from at least two outside investors.
The minimum qualifying investment is $10,000 per investor per certified qualifying business.
20% of the taxpayerâs equity investment for qualifying businesses in urban areas (towns with more than 15,000 people, based on 2020 census data)
35% of the taxpayerâs equity investment for qualifying businesses in rural areas (towns with equal to or less than 15,000 people, based on 2020 census data)
Any taxpayerâincluding individuals, corporations, estates, trusts, and pass-through entitiesâcan claim the credit, provided they invest in a certified qualifying business and meet all eligibility requirements.
Credits flow through for pass-through entities; the natural person owners may claim the credit based on their pro rata share.
Per natural person (including spouse/dependents): up to $100,000 per fiscal year.
Per corporation or other entity: up to $100,000 per fiscal year.
Per qualifying business: aggregate cap of $500,000 per fiscal year.
The program limits tax credits to $500,000 per qualifying business per fiscal year. Because the credit is calculated as a percentage of the investment, the maximum eligible investment depends on the credit rate:
At a 20% tax credit for businesses in urban areas, up to $2,500,000 in investments can qualify.
At a 35% tax credit for businesses in rural areas, up to $1,428,571 in investments can qualify.
The annual application window runs from September 1 through December 31 each year.
Applications are reviewed and tax credits are allocated on a first come, first served basis, subject to annual program limits. The Iowa Economic Development Authority may adjust the application window under extenuating circumstances and will post any changes on its website.
Qualifying businesses submit the list of investors who could be eligible for tax credits and the application for tax credits for their list of investors.
Investors will need to log into our system to confirm their eligibility and investment information within 30 days of the tax credit application.
Q: How long does an investor have to log into the system and confirm their eligibility and investment information after the Qualifying Business submits the tax credit application?
A: Investors will need to log into our system to confirm their eligibility and investment information within 30 days of the tax credit application.
A business may apply for certification at any time, as prescribed by IEDA.
Only investments made after the business submits an application for certification may qualify for tax credits.
Only investments made after the business submits an application for certification may qualify for tax credits.
Only cash investments in exchange for equity qualify. Equity includes common or preferred stock, LLC membership interests, or partnership interests. Investments made in exchange for services, property, or other noncash consideration do not qualify.
Convertible debt shall only be considered an investment in the form of cash to purchase equity as of the date of conversion. Investors that utilize convertible debt must document the date and terms of conversion to equity to be eligible for a tax credit. A simple agreement for future equity (SAFE) or comparable instrument may be evaluated by the authority to determine whether it constitutes an investment in the form of cash to purchase equity.
Q: Who can invest in the Qualifying Business in order to reach the $500k threshold of secured money from investors in order to get certified?
A: To meet the $500,000 investor threshold for certification, the qualifying business must secure funding from at least two non-affiliate investors. Investments from owners, principals, or their affiliates may be made into the business, but they do not count toward meeting the $500,000 requirement or two outside investor threshold.
Investments in the form of cash from a State of Iowa program will not count towards the $500k threshold. Examples include: InnoVenture Iowa, and the Innovation Acceleration Fund Continuum.
Q: Do prior investments or binding future committed investments that are convertible debt or a SAFE instrument count toward the $500k threshold?
A: At the time of application for certification, a business must meet the criteria of having total equity financing, binding investment commitments, or some combination thereof, equal to at least five hundred thousand dollars, from at least two outside investors.
An investment using a convertible debt instrument does count toward the $500,000 minimum threshold but will not be eligible for a tax credit until the date in which it converts into equity.
If a business continues to satisfy all eligibility requirements until it has been in operation for more than five years, the businessâs certification will expire on the date identified as the expected date of expiration pursuant to paragraph 261â114.2(4)âa.â Investments made after the identified date will not be eligible for a tax credit.
An investor is not eligible if the investor:
Is an affiliate of the qualifying business or its principals
Owns 70 percent or more of the qualifying business
Receives a tax credit for the same investment through another IEDA administered program
The credit may be claimed against Iowa individual income tax, corporate income tax, franchise tax, insurance premiums tax, and the moneys and credits tax.
Yes. If the credit exceeds the taxpayerâs Iowa tax liability, the excess amount is refundable.
Tax credits may not be carried back to prior tax years. Taxpayers may elect to apply an overpayment to the immediately succeeding tax year.
No. Tax credits issued under the Seed Investor Tax Credit Program are not transferable.
Credits are allocated in the order applications are received, until the annual cap approved by the IEDA Board is reached.
Applications that exceed statutory limits may be denied in whole or in part.
Most information submitted to IEDA is confidential. However, the following is public:
Identity of qualifying businesses
Identity of investors and the businesses they invested in
Number and total dollar amount of tax credits issued
Tax Credits for Investments in Qualifying Business (Angel Investor Tax Credits) were repealed. No new credits will be issued under that program. Credits issued prior to repeal remain valid under the law in effect at the time they were awarded.
The credit can flow through to individuals in a small fund or LLC, pro rata based on their ownership, as long as:
The entity is a pass-through for tax purposes.
The entity itself invests at least $10,000 in cash for equity.
Each individual is not excluded (affiliate or â„70% owner).
Proper documentation is submitted to the Authority.
Net worth is what your business owns minus what it owes (assets minus liabilities); to qualify for this program that amount must be $10 million or less.