The Decontamination tax credit is a
refundable credit that may be applied against income taxes imposed by KRS 141.020 (individual income tax) or KRS 141.040 (corporation income tax) and the limited liability entity tax (LLET) imposed by KRS 141.0401 with the ordering of credits as provided in KRS 141.0205. This credit is for a taxpayer making a qualifying expenditure at a qualifying decontamination property to encourage investment in and decontamination or remediation of qualifying decontamination property.
Taxpayers claiming the decontamination tax credit cannot claim or apply for credit to the remediation or decontamination of the same qualifying property under KRS 141.418(VERB). Taxpayers awarded the tax credit may assign, sell, or transfer, in whole or in part, the tax credit to any other taxpayer. Within 30 days the taxpayer awarded the credit must provide the Department of Revenue (DOR) written notice with the intent to transfer or sell the tax credit along with supporting documents.
Effective for taxable years beginning on or after January 1, 2022, but before January 1, 2032.
The credit is equal to the amount of expenditures made by the taxpayer for decontamination or remediation of qualifying property not to exceed $30 million. The amount of credit to be taken in a taxable year shall not exceed 25% of the total amount of approved credit.
Application Process
The application process begins with the Energy and Environment Cabinet. The Energy and Environment Cabinet determines what properties qualify for the credit, the guidelines for each property and the maximum credit available for the qualifying remediation or decontamination property. Applications must be submitted to the Energy and Environment Cabinet 30 days prior to the date the qualifying expenditures will begin. Certification of the credit is received by DOR from the Energy and Environment Cabinet. A copy of the certification letter must be filed with the income tax return to determine the credit against the income tax liability and the LLET.
Who Can Claim the Credit?
| Pass-through Entities
The credit is passed through to the partners, members, or shareholders of a pass-through entity that are the partners, members, or shareholders at the time of the application and subsequent approval of the credit. The income is reported on the Kentucky Schedule K-1 and any credit that is passed through to the partners, members, or shareholders may be used against individual income tax or corporate income tax and LLET.
Individuals
A sole proprietor reporting business income on Schedule C (federal Form 1040) may claim the credit. An individual may also claim the credit if it is passed through to them from a partnership, LLC, or S-Corporation on a Kentucky Schedule K-1. An individual may also claim the credit on their individual income tax return. For a husband and a wife filing separate returns or filing separately on a joint return, the credit may be taken by either or divided equally. If the application lists only one of the spouse's names, the listed spouse is entitled to claim the full credit.
Corporations
A corporation may apply the decontamination tax credit against income tax and LLET on its Kentucky Corporation Income Tax and LLET Return. A corporation may also claim the credit if it is passed through to them from a pass-through entity on a Kentucky Schedule K-1.
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