Iowa Veteran Benefits 2025: Property Tax, Income Tax & Financial Guide
Complete guide to Iowa veteran tax benefits: property tax exemptions, income tax treatment, financial benefits, and money-saving strategies for disabled veterans.
Iowa Veteran Benefits 2025: Property Tax, Income Tax & Financial Guide
Iowa offers exceptional tax benefits for veterans, combining 100% exemption of military retirement income with substantial property tax relief for disabled veterans. If you're a veteran considering Iowa or already living here, understanding these benefits can save you thousands of dollars annually while enjoying one of the most affordable states in the Midwest.
Bottom Line Up Front
Here's what Iowa offers veterans:
- Military retirement pay: 100% exempt from state income tax (since 2014)
- Property tax exemption: 100% disabled veterans pay zero property taxes on homestead
- Military service tax credit: $6,500 taxable value exemption for all qualified veterans
- VA disability pay: Completely tax-free (federal and state)
- Vehicle registration: Proposed expanded exemptions for disabled veterans
- Hunting/fishing licenses: Lifetime licenses for $7 for disabled veterans
Potential annual savings for a 100% disabled veteran: $2,000-$4,000+ depending on property value and location.
Income Tax Treatment for Veterans
Military Retirement Pay - Fully Exempt
Iowa doesn't tax military retirement pay. Period. This complete exemption has been in place since January 1, 2014, under Iowa Code Section 321.105.
What this means:
- Retire with $30,000/year military pension? Keep all of it
- Retire with $50,000/year? Still keep every penny
- No age restrictions, no income limits, no phase-outs
Unlike states like Colorado or Montana that offer partial exemptions, Iowa gives you the full amount. This puts Iowa among the 37 states that fully exempt military retirement pay - and among the best in the Midwest.
Bonus benefit: Military retirement pay doesn't count toward the filing threshold for Iowa income tax. This means you may not need to file an Iowa return at all if military retirement is your only income.
Additional Pension Exclusion (Age 55+)
Iowa offers a general pension exclusion in addition to the military retirement exemption:
- Age 55+: Exclude up to $6,000 (single) or $12,000 (married) of other pension income
- This stacks with military retirement exemption
Example: If you're 65, married, and receive $40,000 in military retirement plus $25,000 from a federal pension, you can exclude $52,000 ($40,000 military + $12,000 general) from Iowa income tax.
VA Disability Compensation - Tax-Free
All VA disability compensation is exempt from federal and state taxation. Whether you receive $171/month for a 10% rating or $3,900+/month for 100% with dependents, you won't pay a dime in taxes on it.
Survivor Benefit Program (SBP)
SBP payments and military survivor benefits are also exempt from Iowa state income tax under the same statute covering military retirement.
State Tax Rates (For Other Income)
Iowa has been reducing income tax rates significantly:
2025 Tax Rates (effective after 2023 reforms):
- Iowa is moving toward a flat 3.9% income tax by 2026
- Current brackets are transitioning, with top rate at 5.7% in 2024
Standard deduction: $2,210 (single), $5,450 (married) for 2024
This is excellent news for veterans with other income sources - Iowa's tax burden continues to decrease.
Comparison to Neighboring States
| State | Military Retirement | Income Tax Rate | Property Tax Exemption (100%) |
|---|---|---|---|
| Iowa | 100% exempt | 3.9%-5.7% (going to flat 3.9%) | Full exemption |
| Minnesota | Partial ($7,250-$10,250) | 5.35-9.85% | Limited |
| Wisconsin | Full exempt (age 65+) | 3.54-7.65% | Varies by county |
| Illinois | Full exempt | 4.95% flat | Limited to $5,000 |
| Nebraska | Full exempt | 2.46-5.20% | Varies |
Iowa's combination of zero tax on military retirement, low overall tax rates, and generous property tax exemptions makes it highly competitive in the Midwest.
Property Tax Exemptions for Veterans
Disabled Veteran Homestead Tax Credit - 100% Exemption
If you're rated 100% Permanent and Total (P&T) by the VA, or have a permanent and total disability rating based on individual unemployability (TDIU) paid at the 100% disability rate, you qualify for complete property tax exemption on your homestead.
This credit equals 100% of the actual tax levy.
Eligibility Requirements
- 100% permanent service-connected disability rating (P&T or TDIU)
- Own and occupy the property as a homestead on July 1 each year
- Declare Iowa residency for income tax purposes
- Occupy the property for at least six months each year
Note: Military members and nursing home residents who don't occupy the home may still be eligible.
Important: The income restriction was removed - there's no longer an income limit to receive this credit.
Property Size Limits
- Within city limits: Maximum 1/2 acre (where home and buildings are located)
- Outside city limits: Maximum 40 acres (including house and buildings)
Real-World Examples
Des Moines (Polk County)
- Home value: $220,000
- Estimated property tax rate: 3.0%
- Annual savings: $6,600
Cedar Rapids (Linn County)
- Home value: $190,000
- Estimated property tax rate: 2.8%
- Annual savings: $5,320
Iowa City (Johnson County)
- Home value: $240,000
- Estimated property tax rate: 3.2%
- Annual savings: $7,680
Davenport (Scott County)
- Home value: $188,000
- Estimated property tax rate: 2.9%
- Annual savings: $5,452
Military Service Property Tax Exemption (All Veterans)
All qualified veterans receive a property tax exemption even without disability ratings:
Exemption amount: $6,500 of taxable value (as of assessment year 2024)
Eligibility:
- Honorably discharged veterans
- Iowa National Guard members (20+ years service after January 28, 1973)
- Reservists (20+ years service)
- Iowa National Guard/Reserves activated for federal duty 90+ days (other than training)
Annual savings: Approximately $150-$200 depending on local tax rates
How to Apply
File a claim with your local county assessor by July 1. Once filed, you don't need to reapply on the same property.
Surviving Spouse Benefits
Good news: A surviving spouse of a disabled veteran receiving DIC (Dependency and Indemnity Compensation) payments also qualifies for the Disabled Veteran Homestead Tax Credit.
Requirements:
- Reside in the qualified homestead
- Do not remarry
- Continue meeting other eligibility requirements
The spouse may continue receiving the credit as long as these conditions are met.
Important Restriction
If you claim the Disabled Veteran Homestead Tax Credit (100% exemption), you cannot claim any other real property tax exemption for veterans. You must choose one.
Most 100% disabled veterans will choose the homestead credit as it provides full exemption rather than the $6,500 military service exemption.
Vehicle Registration Benefits
Current Exemptions
VA-purchased vehicles: If the VA provided or assisted in providing your vehicle (through automobile allowance or adaptive equipment grants), you're exempt from:
- All registration fees
- All license plate fees
You must submit certification from the VA showing they provided or assisted with the vehicle purchase.
Proposed Expanded Benefits (2025 Legislation)
Iowa legislators are considering significant expansions:
House File 291: Would reduce annual registration fees for disabled veterans not otherwise exempt by a percentage equal to their VA disability rating.
Example:
- 70% disabled veteran: 70% reduction in registration fees
- 50% disabled veteran: 50% reduction in registration fees
Senate Study Bill 3036: Would exempt disabled veterans with 50%+ disability ratings from all registration fees for one vehicle.
Status: These are proposed bills for 2025 - check with the Iowa Department of Transportation for current status.
Disabled Veteran License Plates
Iowa offers specialized license plates for:
- Disabled veterans (all branches)
- Purple Heart recipients
- Medal of Honor recipients
- Former POWs
- Combat Action Ribbon/Badge recipients
- Branch-specific plates
Contact your county treasurer for specific fees and requirements.
Other Financial Benefits
Hunting and Fishing Licenses
Iowa offers exceptional value for veterans who enjoy the outdoors:
Lifetime licenses for $7:
- Disabled veterans (even 0% service-connected rating)
- Former POWs
- Lifetime hunting license
- Lifetime fishing license
- Lifetime combination hunting/fishing license
Annual licenses for all veterans: $7 for annual fishing or hunting/fishing combo
Important notes:
- You still need to purchase habitat fees ($15 if under 65)
- Tags, trout stamps, and other fees sold separately
- One-time application - once approved, available every year
Comparison: Iowa's standard Lifetime Sportsman License costs $511.50 for residents. Veterans save $504.50.
Sales Tax
Iowa does not offer general sales tax exemptions for veterans. The state sales tax rate is 6%, plus local option taxes (typically 1%), for a total of 7% in most areas.
However, Iowa's overall cost of living remains 10-20% below the national average, offsetting the lack of sales tax exemptions.
State Parks and Recreation
While Iowa doesn't offer blanket state park fee waivers for all veterans, some parks and facilities provide discounts. Check with individual parks.
Annual vehicle park pass: $35 (all vehicles) Daily vehicle pass: $5
Financial Impact Analysis
Let's calculate the 20-year financial impact for a 100% disabled veteran retiring in Iowa vs. other Midwest states.
Scenario: E-7 Retiree, 20 Years Service, 100% Disabled
Annual income:
- Military retirement: $35,000
- VA disability: $45,000 (100% with dependents)
- Total: $80,000
Home: $220,000 (median for Iowa)
Iowa Savings Over 20 Years
| Benefit | Annual Savings | 20-Year Total |
|---|---|---|
| Property tax exemption (100%) | $6,600 | $132,000 |
| Military retirement (vs 5% state tax) | $1,750 | $35,000 |
| Lifetime hunting/fishing license | $500 | $10,000 |
| Vehicle registration (if 50%+ bill passes) | $150 | $3,000 |
| TOTAL | $9,000 | $180,000 |
Note: This doesn't account for inflation or property value appreciation, which would increase savings over time. Property taxes in Iowa average 1.56% of assessed value, among the highest in the nation, making the exemption extremely valuable.
Comparison: Iowa vs. Illinois
Same scenario, but in Illinois (which also exempts military retirement but has higher property taxes and limited exemptions):
| State | Property Tax Savings | Income Tax Savings | Total 20-Year Savings |
|---|---|---|---|
| Iowa | $132,000 | $35,000 | $180,000 |
| Illinois | ~$20,000 | $35,000 | ~$70,000 |
Iowa advantage: $110,000 over 20 years
How to Claim Your Benefits
Step 1: Disabled Veteran Homestead Tax Credit
Timeline: Apply as soon as possible after receiving 100% P&T rating
Required documents:
- VA rating decision letter showing 100% P&T or TDIU
- Iowa driver's license or state ID
- Property deed or tax statement
- Completed Disabled Veteran Homestead Property Tax Credit application (Form 54-049)
Where to apply: Your county assessor's office
Processing time: 30-60 days typically
Deadline: File by July 1 for the following tax year. However, apply immediately after rating approval to maximize benefits.
Step 2: Military Service Property Tax Exemption
For veterans who don't qualify for 100% exemption:
Required documents:
- DD-214 showing honorable discharge
- Iowa residency proof
- Property ownership documentation
Where: County assessor's office by July 1
Note: Once approved, you don't need to reapply on the same property.
Step 3: Hunting and Fishing Licenses
Where: County recorder's office or online at iowadnr.gov
Required documents:
- DD-214 showing honorable discharge
- VA rating letter (for disabled veteran lifetime license)
- Iowa residency proof
Application: One-time submission; once approved, licenses available annually
Step 4: Vehicle Registration Exemption (VA-Purchased)
Where: County treasurer's office
Documents needed:
- VA grant approval letter
- Bill of sale showing VA payment or assistance
- Current vehicle registration
- Iowa driver's license
County Assessor Offices (Major Counties)
Polk County (Des Moines)
- Phone: (515) 286-3024
- Website: polkcountyiowa.gov/assessor
Linn County (Cedar Rapids)
- Phone: (319) 892-5500
- Website: linncountyiowa.gov/assessor
Scott County (Davenport)
- Phone: (563) 326-8642
- Website: scottcountyiowa.gov/assessor
Johnson County (Iowa City)
- Phone: (319) 356-6093
- Website: johnsoncountyiowa.gov/assessor
Black Hawk County (Waterloo)
- Phone: (319) 833-3008
- Website: blackhawkcounty.iowa.gov/assessor
Frequently Asked Questions
Do I need to reapply for the property tax exemption every year?
No. Once approved, the Disabled Veteran Homestead Tax Credit continues automatically as long as:
- You maintain 100% P&T or TDIU rating
- The property remains your primary residence
- You meet the six-month occupancy requirement
- You notify the county if you move
What if I'm rated 90% or 70%?
Iowa's Disabled Veteran Homestead Tax Credit only applies to 100% P&T or TDIU veterans. However, you still benefit from:
- Zero state income tax on military retirement
- Tax-free VA disability compensation
- $6,500 military service property tax exemption
- $7 lifetime hunting/fishing licenses
- Potentially reduced vehicle registration fees (if legislation passes)
Can I get the property tax exemption on a rental property or second home?
No. The exemption applies only to your homestead - the property you own and occupy as your primary residence.
What if I'm 100% but not permanent and total (P&T)?
Check with your county assessor. The Iowa law specifically references "permanent and total" disability. If you're 100% schedular but not P&T, you may need to work with the VA to pursue permanent status, or the assessor may interpret the law to include you.
Does the 40-acre limit (outside city limits) need to be contiguous?
Yes. The property must be adjacent to your primary residence. You cannot claim exemption on separate parcels.
What happens if I sell my home and buy another in Iowa?
You'll need to reapply for the exemption with your new county assessor. Bring:
- Your previous exemption approval (helpful but not required)
- New property documentation
- Your VA rating letter
- Iowa residency proof
File by July 1 to ensure exemption for the following tax year.
Are military retirement benefits taxed if I move to Iowa from another state?
No. As long as you establish Iowa residency, all military retirement pay is exempt from Iowa income tax regardless of where you served or previously lived.
Can my surviving spouse keep the property tax exemption after I die?
Yes, if your spouse receives DIC (Dependency and Indemnity Compensation) payments. The spouse may continue receiving the exemption as long as they:
- Reside in the qualified homestead
- Do not remarry
- Continue meeting other eligibility requirements
What if my county assessor denies my exemption application?
You have the right to appeal. Contact:
- Iowa Department of Veterans Affairs: (515) 252-4698
- County assessor (request formal appeals process)
- County veterans service officer
- County board of review
You can also contact your local state legislators for assistance.
Does Iowa tax my TSP or 401(k) withdrawals?
Yes, but at Iowa's rates (currently transitioning to a flat 3.9%). Qualified retirement account withdrawals are treated as regular income. However, if you're 55+, you may also qualify for the pension exclusion ($6,000 single/$12,000 married) on top of the military retirement exemption.
How does Iowa's high property tax rate affect me if I don't have a disability rating?
Iowa's property taxes are among the highest in the nation (average 1.56% of assessed value). Without the 100% disabled veteran exemption, you'll pay full property taxes minus the $6,500 military service exemption (saves ~$150-200/year).
However, Iowa's low cost of living (10-20% below national average) and zero income tax on military retirement often offset higher property taxes for most veterans.
Do I pay property taxes while my application is pending?
Yes. Pay your property taxes on time while your application is being processed. If approved, the exemption typically applies prospectively, not retroactively. However, policies vary by county - ask your assessor about their specific process.
Can I claim both the military service exemption ($6,500) and the disabled veteran exemption (100%)?
No. Iowa law states that if you claim the Disabled Veteran Homestead Tax Credit, you cannot claim any other property tax exemption for veterans. Since the 100% exemption is far more valuable, 100% disabled veterans should choose it.
Key Takeaways
Iowa delivers substantial financial value for veterans:
- 100% disabled veterans can save $120,000-$150,000+ over 20 years through property tax exemptions alone
- All military retirees keep their entire retirement check - no state taxes
- All qualified veterans get $6,500 property tax exemption
- Outdoor enthusiasts save $500+ with $7 lifetime hunting/fishing licenses
- Low cost of living (10-20% below national average) stretches retirement dollars further
Combined with Iowa's affordable housing market (median home $226,900 vs. national $428,000), strong agricultural economy, and genuine Midwest hospitality, Iowa offers veterans an excellent quality of life at a lower cost than most states.
If you're 100% P&T and haven't applied for the homestead exemption yet, do it today. The difference between paying full property taxes and paying nothing is substantial - potentially $6,000-8,000 annually in Des Moines or Iowa City.
Resources
- Iowa Department of Veterans Affairs: (515) 252-4698 | dva.iowa.gov
- Property Tax Exemption Info: Contact your county assessor
- Veterans Service Officers: Available in every Iowa county
- Home Base Iowa (Veteran relocation): homebaseiowa.gov
- VA Central Iowa Health Care: (515) 699-5999 | va.gov/central-iowa-health-care
- VA Iowa City Health Care: (319) 338-0581 | va.gov/iowa-city-health-care
Information current as of January 2025. Tax laws and benefit amounts may change. Verify specific details with your county assessor and the Iowa Department of Veterans Affairs.