Iowa has introduced a significant update to its venture capital incentives with the passage of Senate File 657 in 2025, establishing the Seed Investor Tax Credit. This program aims to stimulate early-stage investment in Iowa-based startups, particularly those in STEM fields. For startups and investors, understanding the nuances of this new credit—and how it compares to the expiring Angel Investor Tax Credit—is crucial for planning capital raises and providing incentives for new investors.
Seed Investor Tax Credit vs. Expiring Angel Investor Tax Credit
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Feature
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Seed Investor Tax Credit (2025)
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Angel Investor Tax Credit (Expiring)
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Credit Percentage
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20% (urban) / 35% (rural)
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25%
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Investment Cap per Investor
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$100,000 per year
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$100,000 per year
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Business Age Limit
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5 years or less
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6 years or less
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Maximum Value of Qualifying Business
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$10 million
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$10 million
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Qualifying Industries
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Manufacturing, bioscience, insurance, finance, and technologies. Specifically excludes retail, real estate, provision of health care, and services requiring a professional license
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Any business excluding retail, real estate, provision of health care, and services requiring a professional license
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Investment Minimums
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Qualifying business must have at least two investors and an aggregate of $500,000 committed
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Qualifying business must have at least two investors and an aggregate of $500,000 committed
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Program Cap
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$10 million total (combined with Innovation Fund Tax Credit)
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$2 million total
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Refundability
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Refundable to individual income tax filers
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Refundable to individual income tax filers
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Key Takeaways for Startups and Investors
While the key aspects of the existing Angel Investor Tax Credit remain in place, the state is looking to revamp the program by providing enhanced incentives for rural businesses and investments and targeting the tax credit at certain specified business industries. The available pool of credits has also been increased from $2 million for the Angel Investor Tax Credit to $10 million on a combined basis with the Innovation Fund Tax Credit (which was previously allotted $8 million on its own). Expansion of the credit pool and a more limited business industry designation should result in a more expansive and streamlined application process.
Next Steps
New startup companies in the state of Iowa should review the eligibility and application requirements as a way to offer further incentives for potential investors. Providing a mechanism for a refundable tax credit can be a way to offer potential investors an even higher return on their investment, which could be a differentiator in the competition for capital.
The increased refund percentage for rural investments could call for a potential shift in where capital is being directed, bringing increased investment into Iowa’s rural areas. While the changes being made as part of the transition from the Angel Investor Tax Credit to the Seed Investor Tax Credit are not widespread, the subtle changes could have large implications for Iowa-based startups and early-stage investors within the state. Startups and investors should monitor the application periods and guidelines in order to have the opportunity to receive the credit given that there is a cap on the program.
The Seed Investor Tax Credit presents a valuable opportunity for fostering innovation and economic growth in Iowa. By understanding its benefits and requirements, startups and investors can strategically position themselves to take advantage of this new incentive. Reach out to William Daniel or your BrownWinick attorney with any questions you may have. BrownWinick is here to assist you in the most advantageous way for you.
