Railroad Maintenance and Improvement Tax Credit
The railroad maintenance and improvement 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. This credit cannot be carried forward.
Qualified expenditures are expenditures that are made to improve railroads located in Kentucky including roadbeds, bridges, and related structures, that are owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures paid or incurred by the taxpayer during the taxable year not to exceed the product of $3,500 multiplied by the sum of the number of railroad track miles in Kentucky owned or leased by the eligible taxpayer as of the close of the taxable year; and the number of railroad track miles in Kentucky assigned to the eligible taxpayer by a Class II or Class III railroad.
The tax credit must be used in the tax year of the qualified expenditures which generated the tax credit using Schedule RR-I, Railroad Maintenance and Improvement Tax Credit, filed with the eligible taxpayer's Kentucky income tax return.
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 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.
Business Tax Credits