KRS 141.019: Calculation of adjusted gross income and net income for taxpayers other

than corporations.

In the case of taxpayers other than corporations:

(1) Adjusted gross income shall be calculated by subtracting from the gross income of

those taxpayers the deductions allowed individuals by Section 62 of the Internal

Revenue Code and adjusting as follows:

(a) Exclude income that is exempt from state taxation by the Kentucky

Constitution and the Constitution and statutory laws of the United States;

(b) Exclude income from supplemental annuities provided by the Railroad

Retirement Act of 1937 as amended and which are subject to federal income

tax by Pub. L. No. 89-699;

(c) Include interest income derived from obligations of sister states and political

subdivisions thereof;

(d) Exclude employee pension contributions picked up as provided for in KRS

6.505, 16.545, 21.360, 61.523, 61.560, 65.155, 67A.320, 67A.510, 78.610,

and 161.540 upon a ruling by the Internal Revenue Service or the federal

courts that these contributions shall not be included as gross income until such

time as the contributions are distributed or made available to the employee;

(e) Exclude Social Security and railroad retirement benefits subject to federal

income tax;

(f) Exclude any money received because of a settlement or judgment in a lawsuit

brought against a manufacturer or distributor of "Agent Orange" for damages

resulting from exposure to Agent Orange by a member or veteran of the

Armed Forces of the United States or any dependent of such person who

served in Vietnam;

(g) 1. a. For taxable years beginning after December 31, 2005, but before

January 1, 2018, exclude up to forty-one thousand one hundred ten

dollars ($41,110) of total distributions from pension plans, annuity

contracts, profit-sharing plans, retirement plans, or employee

savings plans; and

b. For taxable years beginning on or after January 1, 2018, exclude

up to thirty -one thousand one hundred ten dollars ($31,110) of

total distributions from pension plans, annuity contracts, profit -

sharing plans, retirement plans, or employee savings plans.

2. As used in this paragraph:

a. "Annuity contract" has the same meaning as set forth in Section

1035 of the Internal Revenue Code;

b. "Distributions" includes but is not limited to any lump -sum

distribution from pension or profit -sharing plans qualifying for the

income tax averaging provisions of Section 402 of the Internal

Revenue Code; any distribution from an individual retirement

account as defined in Section 408 of the Internal Revenue Code;

and any disability pension distribution; and

c. "Pension plans, profit-sharing plans, retirement plans, or employee

savings plans" means any trust or other entity created or organized

under a written retirement plan and forming part of a stock bonus,

pension, or profit-sharing plan of a public or private employer for

the exclusive benefit of employees or their beneficiaries and

includes plans qualified or unqualified under Section 401 of the

Internal Revenue Code and individual retirement accounts as

defined in Section 408 of the Internal Revenue Code;

(h) 1. a. Exclude the portion of the distributive share of a shareholder's net

income from an S corporation subject to the franchise tax imposed

under KRS 136.505 or the capital stock tax imposed under KRS

136.300; and

b. Exclude the portion of the distributive share of a shareholder's net

income from an S corporation related to a qualified subchapter S

subsidiary subject to the franchise tax imposed under KRS

136.505 or the capital stock tax imposed under KRS 136.300.

2. The shareholder's basis of stock held in an S corp oration where the S

corporation or its qualified subchapter S subsidiary is subject to the

franchise tax imposed under KRS 136.505 or the capital stock tax

imposed under KRS 136.300 shall be the same as the basis for federal

income tax purposes;

(i) Exclude income received for services performed as a precinct worker for

election training or for working at election booths in state, county, and local

primaries or regular or special elections;

(j) Exclude any capital gains income attributable to property taken by eminent

domain;

(k) 1. Exclude all income from all sources for members of the Armed Forces

who are on active duty and who are killed in the line of duty, for the

year during which the death occurred and the year prior to the year

during which the death occurred.

2. For the purposes of this paragraph, "all income from all sources" shall

include all federal and state death benefits payable to the estate or any

beneficiaries;

(l) Exclude all military pay received by members of the Armed Forces while on

active duty;

(m) 1. Include the amount deducted for depreciation under 26 U.S.C. sec. 167

or 168; and

2. Exclude the amounts allowed by KRS 141.0101 for depreciation;

(n) Include the amount deducted under 26 U.S.C. sec. 199A;

(o) Ignore any change in the cost basis of the surviving spouse's share of property

owned by a Kentucky community property trust occurring for federal income

tax purposes as a result of the death of the predeceasing spouse;

(p) Allow the same treatment allowed under Pub. L. No. 116 -260, secs. 276 and

278, related to the tax treatment of forgiven covered loans, deductions

attributable to those loans, and tax attributes associated with those loans for

taxable years ending on or after March 27, 2020, but before January 1, 2022;

(q) For taxable years beginning on or after January 1, 2020, but before March 11,

2023, allow the same treatment of restaurant revitalization grants in

accordance with Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c,

related to the tax treatment of the grants, ded uctions attributable to those

grants, and tax attributes associated with those grants;

(r) For taxable years beginning on or after January 1, 2026:

1. Include the amount deducted for domestic research or experimental

expenditures under 26 U.S.C. sec. 174A; and

2. Allow a subtraction equal to the amortization of domestic research or

experimental expenditures computed in accordance with 26 U.S.C. sec.

174, as that section existed on December 31, 2024;

(s) Include the amount deducted for any qualified film or television production,

any qualified live theatrical production, and any qualified sound recording

production under 26 U.S.C. sec. 181; and

(t) Include interest deducted under 26 U.S.C. sec. 139L for amounts paid to a

qualified lender on any qualified real estate loan; and

(2) Net income shall be calculated by subtracting from adjusted gross income all the

deductions allowed individuals by Chapter 1 of the Internal Revenue Code, as

modified by KRS 141.0101, except:

(a) Any deduction allowed by 26 U.S.C. sec. 164 for taxes;

(b) Any deduction allowed by 26 U.S.C. sec. 165 for losses, except wagering

losses allowed under Section 165(d) of the Internal Revenue Code;

(c) Any deduction allowed by 26 U.S.C. sec. 213 for medical care expenses;

(d) Any deduction allowed by 26 U.S.C. sec. 217 for moving expenses;

(e) Any deduction allowed by 26 U.S.C. sec. 67 for any other miscellaneous

deduction;

(f) Any deduction allowed by the Internal Revenue Code for amounts allowable

under KRS 140.090(1)(h) in calculating the value of the distributive shares of

the estate of a decedent, unless there is filed with the income return a

statement that the deduction has not been claimed under KRS 140.090(1)(h);

(g) Any deduction allowed by 26 U.S.C . sec. 151 for personal exemptions and

any other deductions in lieu thereof;

(h) Any deduction allowed for amounts paid to any club, organization, or

establishment which has been determined by the courts or an agency

established by the General Assembly and charged with enforcing the civil

rights laws of the Commonwealth, not to afford full and equal membership

and full and equal enjoyment of its goods, services, facilities, privileges,

advantages, or accommodations to any person because of race, color, reli gion,

national origin, or sex, except nothing shall be construed to deny a deduction

for amounts paid to any religious or denominational club, group, or

establishment or any organization operated solely for charitable or educational

purposes which restrict s membership to persons of the same religion or

denomination in order to promote the religious principles for which it is

established and maintained;

(i) A taxpayer may elect to claim the standard deduction allowed by KRS

141.081 instead of itemized deduct ions allowed pursuant to 26 U.S.C. sec. 63

and as modified by this section;

(j) For taxable years beginning on or after January 1, 2026, any deduction

allowed by 26 U.S.C. sec. 163(h)(3) as qualified residence interest shall be

limited to the amount of interest paid or accrued during the taxable year on the

acquisition and home equity indebtedness of the principal residence of the

taxpayer and shall not be claimed for more than one (1) qualified residence;

(k) Any deduction allowed by 26 U.S.C. sec. 224 for qualified tips;

(l) Any deduction allowed by 26 U.S.C. sec. 225 for qualified overtime

compensation; and

(m) Any deduction allowed by 26 U.S.C. sec. 163(h)(4) for qualified passenger

vehicle loan interest.