Kentucky Investment Fund Act Tax Credit
The Kentucky Investment Fund Act 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; insurance taxes imposed by KRS 136.320, 136.330, and 304.3-270; and the taxes on financial institutions imposed by KRS 136.300, and 136.310.
The Kentucky Investment Fund Act was established to encourage capital investment in the Commonwealth of Kentucky, to encourage the establishment or expansion of small businesses in Kentucky and create additional jobs. “Investment fund" means any entity that is organized by an investment fund manager in compliance with applicable state and federal securities laws and regulations. For qualified investments approved on or after January 1, 2022, an investor may claim the credit on the tax return filed for the taxable year in which the investment is made by the investment fund. This credit may be carried forward up to 15 taxable years after approval.
Application Process
Please contact the Cabinet for Economic Development for details regarding the application process.
Who Can Claim the Credit?
The tax credit may be claimed by an investor reflecting only the investor's participation in qualified investments properly reported to the authority by the investment fund manager. For qualified investments approved on or after January 1, 2022, an investor may claim the credit on the tax return filed for the taxable year in which the investment is made by the investment fund.
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 pass-through entity 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.