Recycling or Composting Equipment Tax Credit

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Correlation ID:420507a2-8a1e-50d4-ca08-3dfa5bd9493f

Major Recycling Credit Information Statutory Authority: KRS 141.390

Applicable Forms

Schedule RC

Schedule ITC (Individual Filers)

Schedule TCS (Corporate and Pass-Through Filers)

The recycling or composting equipment tax credit is a 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. This credit is for any taxpayer that purchases recycling or composting equipment to be used exclusively within this state for recycling or composting postconsumer waste materials. The total amount of tax credit shall be an amount equal to fifty percent (50%) of the installed cost of the recycling or composting equipment.

Application Process

The Schedule RC, Application for Income Tax/LLET Credit for Recycling and/or Composting Equipment or a Major Recycling Project, must be filed and post marked on or before the first day of the seventh month following the close of the taxable year in which the recycling or composting equipment is purchased or placed in service with the department. For taxable years beginning on or after January 1, 2020 but before January 1, 2024, an application for tax credit for a Major Recycling Project may also be made on or before the first day of the seventh month following either after the close of the taxable year in which the equipment is placed in service or the close of the taxable year immediately following the taxable year in which the recycling or composting equipment is purchased or placed in service.

Example: A calendar-year taxpayer with a major recycling project that puts qualified equipment into service April 1, 2021 can apply for the credit up to July 1, 2023.

The application is required to include a description of each item of recycling or composting equipment purchased, the date of purchase, and the installed cost of the equipment. The department will review all applications received to determine whether the expenditures meet the requirements and will advise the taxpayer of the amount of approved credit. No extension of time to file the Schedule RC can be granted and no prior approval will be granted.

Forms Required to Claim the Tax Credit

The approved Schedule RC is sent to the taxpayer for their records. A copy is attached each year the credit is claimed on the filed income tax return. Taxpayers that receive a share of the recycling 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 approved RC application. 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 recycling 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 recycling equipment purchased 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 received approval for recycling or composting equipment on their timely filed Schedule RC. If a taxpayer and spouse purchased the recycling 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 recycling 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 Recycling Credit on your Tax Return

The amount of credit claimed in the taxable year during which the recycling equipment is purchased shall not exceed ten percent (10%) of the amount of the total credit allowable or twenty-five percent (25%) of the total of each tax liability, which would be otherwise due for that taxable year.

In subsequent years, the amount of credit claimed shall not exceed twenty-five (25%) of the total of each tax liability, which would be otherwise due for that taxable year.