Qualified Research Facility Tax Credit

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Correlation ID:58db06a2-ba52-50d4-ca08-36bdc0d90246

Statutory Authority: KRS 141.395 Section 41 of the Internal Revenue Code

Applicable Forms:

Schedule QR
Schedule ITC (Individual Filers)
Schedule TCS (Corporate & Pass-Through Filers)

Download these forms here.

The qualified research facility tax credit is a nonrefundable credit equal to 5% of the qualified costs of construction of research facilities 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. Any unused credit may be carried forward 10 years.

Construction of research facilities – constructing, remodeling, and equipping facilities in this state or expanding existing facilities in this state for qualified research; includes only tangible, depreciable property; and does not included any amounts paid or incurred for replacement property

Qualified research – qualified research as defined in Section 41 of the Internal Revenue Code

Application Process

The Schedule QR, Qualified Research Facility Tax Credit, must be filed with the income tax return to determine the credit against the income tax liability and the LLET liability allowed for the completion of construction of research facilities. This schedule is also used to record the credit claimed each tax year by submitting a copy each year until the full credit is utilized or the 10-year carryforward period has expired, whichever occurs first. A supporting schedule listing the tangible, depreciable property along with the date purchased, date placed in service, description and cost must be included with the return. A separate Schedule QR is required to be filed each year that a new project qualifies.

Forms Required to Claim the Tax Credit

The Schedule QR, Qualified Research Facility Tax Credit, must be filed with the income tax return claiming the credit. A schedule of the tangible, depreciable property listing the date purchased, date placed in service, description and cost must be included with the return.

A copy of the Schedule QR is attached each year the credit is claimed on the filed income tax return. Taxpayers that receive a share of the qualified research facility credit via a Kentucky K-1 through their ownership in a pass-through entity must file Schedule TCS for corporations and pass-through entities or Schedule ITC for individuals. These schedules should be completed to reflect the taxpayer's share of the credit. The Schedule TCS or Schedule ITC is required to be attached to any return on which the credit is claimed, along with a copy of the Schedule QR. These forms may be found on the DOR Find a Form webpage.

Who Can Claim the Credit?

Pass-through Entities

A pass-through entity (partnership, S-Corporation, LLC, general partnership, trust, etc.) may apply the qualified research facility credit against the LLET on its Kentucky Income and LLET Return and pass the credit through to its members, partners, or shareholders in the same proportion as the distributive share of income is passed through with the ordering of the credits under KRS 141.0205.

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 members, partners, 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 for qualified cost of construction of research facilities under the business name. 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 if they constructed a qualified research facility and claimed the credit on the Schedule QR filed with their individual income tax return

If a taxpayer and spouse constructed the qualified research facility and contributed to the cost of equipment and both names are listed on the application, the credit may be wholly claimed if they file jointly, but must be split if they file separately. 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 qualified research facility 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.

Claiming the Qualified Research Facility Tax Credit on your Tax Return

Attach the Schedule QR to the tax return each year the credit is claimed. To claim the credit enter the amount of credit claimed for the taxable year against the LLET or income tax on Schedule TCS or Schedule ITC according to the instructions of each schedule. Any unused credit may be carried forward ten (10) years.