Voluntary Environmental Remediation Tax Credit
The voluntary environmental remediation tax credit is a nonrefundable income tax credit that can 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.
Credit is allowed for taxpayer expenditures made at a qualifying voluntary environmental remediation property to correct the effect of a release of hazardous substances, pollutants, contaminants, petroleum, or petroleum products on the property consistent with a corrective action plan approved by the Energy and Environment Cabinet. Credit is allowed provided the cleanup was not financed through a public grant program or the petroleum storage tank environmental assurance fund.
The maximum credit for each taxpayer shall not exceed $150,000. An affiliated group of taxpayers filing a consolidated return under KRS 141.200 are treated as one taxpayer. Taxpayers claiming a credit under this section shall submit receipts to the Energy and Environment Cabinet as proof of the expenditures claimed. The credit may be claimed in the year in which the credit was certified. The amount of allowable credit for any taxable year shall be 25% of the maximum credit approved and it may be carried forward 10 years.
Please contact the Energy and Environment Cabinet for details regarding the application process. Once the receipts are verified by the Energy and Environment Cabinet, the Finance and Administration Cabinet will notify the taxpayer of eligibility for the credit.
Who Can Claim the Credit?
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.
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.
A corporation may apply the 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.