KRS 171.398: Rehabilitation of certified historic structures -- Qualified rehabilitation

expenses -- Tax credit for applications on or after April 30, 2026 -- Penalty --

Administrative regulations.

(1) This section applies to applications received on or after April 30, 2026, but before

April 15, 2027, and on or after each April 15 thereafter.

(2) (a) There shall be allowed as a credit against the taxes imposed in KRS 136.320,

136.330, 136.340, 136.350, 136.370, 136.390, 304.3 -270, 141.020 or 141.040

and 141.0401.

(b) The amount of the credit shall be equal to:

1. Thirty percent (30%) of the qualified rehabilitation expenses, in the case

of owner-occupied residential property;

2. Thirty percent (30%) of the qualified rehabilitation expenses if the

commercial res idential property is affordable to households earning

eighty percent (80%) of the median family income or less; or

3. Twenty percent (20%) of the qualified rehabilitation expenses, in the

case of all other property.

(c) In the case of an exempt entity that has incurred qualified rehabilitation

expenses, the credit provided in this subsection shall be available to transfer

or assign as provided under subsection (8) of this section.

(d) The credit shall be ref undable if the taxpayer makes an election under

subsection (3)(b) of this section.

(e) An insurance company claiming a tax credit against the insurance premiums

tax is not required to pay additional retaliatory tax levied pursuant to KRS

304.3-270.

(3) (a) 1. A taxpayer seeking the credit provided under subsection (2) of this

section shall file an application for a preliminary determination of

maximum credit eligibility before:

a. April 15; or

b. August 15;

of the year in which the proposed project will begin.

2. The certified rehabilitation credit cap shall be allocated as follows,

including any amounts added to the certified rehabilitation credit cap

pursuant to paragraph (c) of this subsection:

a. Fifty million dollars ($50,000,000) for applications rece ived

before the date established in subparagraph 1.a. of this paragraph,

except that the amount shall not exceed one hundred million

dollars ($100,000,000), including any amounts added under

paragraph (c) of this subsection from a prior allocation period; and

b. Fifty million dollars ($50,000,000) for applications received

before the date established in subparagraph 1.b. of this paragraph,

except that the amount shall not exceed one hundred million

dollars ($100,000,000), including any amounts added under

paragraph (c) of this subsection from a prior allocation period.

3. In the event the full allocation in subparagraph 2.a. of this paragraph is

not utilized for applications received by April 15, the remainder shall be

made available for applications receive d in accordance with

subparagraph 1.b. of this paragraph, not to exceed fifty percent (50%) of

the total credit cap allocated in each application round under

subparagraph 2. of this paragraph.

4. If the total amount of preliminary approvals for all applica tions received

in a single application round under subparagraph 1.a. or 2.a. of this

paragraph exceeds the cap of fifty million dollars ($50,000,000) plus

any amounts added to the credit cap, the council shall apportion the

certified rehabilitation credit cap as follows:

a. The certified rehabilitation credit cap for the application round

under consideration shall be multiplied by a fraction, the

numerator which is the approved credit amount for an individual

taxpayer for an application round and the denomi nator which is

the total approved credits for all taxpayers for an application

round; and

b. Each taxpayer shall receive no more than their pro rata share of the

certified rehabilitation credit cap allocated for the corresponding

application round.

5. Applications submitted for preliminary approval shall be reviewed in the

order in which they are received based on the date of the application.

6. The application shall describe the project and shall include

documentation supporting the qualification of the pr oject for the credit,

the proposed start date, the proposed completion date, the projected

qualified rehabilitation expenses, and any other information the council

may require.

7. The council shall determine the preliminary maximum credit available

for each taxpayer and shall notify the taxpayer of that amount by:

a. June 30 for applications received on or before April 15 of the year

in which the application was filed; or

b. October 30 for applications received on or before August 15 of the

year in which the application was filed.

(b) 1. An application for a final determination of credit shall be submitted to

the council upon completion of the project. A taxpayer who is no longer

the owner of the certified historic structure may apply for final

determination of credit as long as the taxpayer received preliminary

approval under paragraph (a)7. of this subsection and substantially

rehabilitated the certified historic structure.

2. The application shall include an irrevocable election by the taxpayer to:

a. Use the credit, in which case, the credit shall be refundable; or

b. Transfer the credit in accordance with subsection (8) of this

section, in which case the credit shall be nonrefundable.

3. The council shall determine the final amount of credit approved for each

taxpayer based upon the actual expenditures, preliminary determination

of maximum credit, and a determination that the expenditures are

qualified rehabilitation expenses.

4. The council shall notify the taxpayer and Department of Revenue of the

final approved credit amount within sixty (60) days of the receipt of a

completed application from the taxpayer.

(c) 1. If the total amount of credits finally approved for a taxpayer under

paragraph (b) of this subsection is less than the amount of the credits

initially approved for a taxpayer under paragraph (a) of this subsection,

the difference between the two (2) amount s shall be added to the

certified rehabilitation credit cap for the next calendar year, except that

in no case shall the amount allocated under paragraph (a)2.a. or b. of this

subsection exceed one hundred million dollars ($100,000,000),

including any amou nts added to the certified rehabilitation credit cap

from prior calendar years. Any amount exceeding the one hundred

million dollars ($100,000,000) threshold is null and void as a carryover

to any other allocation period.

2. If the total amount of credits approved under paragraph (a) of this

subsection in any calendar year is less than the certified rehabilitation

credit cap, the difference between the credits actually awarded and the

certified rehabilitation credit cap shall be added to the certified

rehabilitation credit cap for the next calendar year.

3. If the entire credit cap allocated for applications in paragraph (b) of this

subsection is not entirely utilized for preliminary applications received

under paragraph (a) of this subsection, the remaining portion shall be

made available for all other properties having submitted preliminary

applications within the same application round regardless of property

type.

(4) (a) The maximum credit which may be claimed with regard to owner -occupied

residential property shall be one hundred twenty thousand dollars ($120,000)

subject to subsection (6) of this section. The credit in this section shall be

claimed for the taxable year in which the certified rehabilitation is completed.

(b) The maximum credit which may b e claimed with regard to all other property

that is not owner -occupied residential shall be ten million dollars

($10,000,000) subject to subsection (6) of this section. The credit in this

section shall be claimed for the taxable year in which the certified

rehabilitation is completed.

(5) In the case of two (2) spouses filing separate returns or filing separately on a joint

return, the credit may be taken by either or divided equally, but the combined credit

shall not exceed one hundred twenty thousand doll ars ($120,000) if subject to the

limitation in subsection (4)(a) of this section, or ten million dollars ($10,000,000) if

subject to the limitation in subsection (4)(b) of this section, subject to the provisions

of subsection (6) of this section.

(6) The credit amount approved for a calendar year for all taxpayers under subsection

(3)(a) of this section shall be limited to the certified rehabilitation credit cap.

(7) (a) The credit shall apply against the tax imposed by:

1. KRS 141.020 or 141.040 and the li mited liability entity tax imposed by

KRS 141.0401, with the ordering of the credits as provided in KRS

141.0205; and

2. KRS 136.320, 136.330, 136.340, 136.350, 136.360, 136.370, 136.390,

or 304.3-270.

(b) If the taxpayer is a pass -through entity not subject to the tax imposed by KRS

141.040, the taxpayer shall apply the credit at the entity level against the

limited liability entity tax imposed by KRS 141.0401, and shall also pass the

credit through in the same proportion as the distributive share of incom e or

loss is passed through.

(8) (a) Credits received under this section may be transferred or assigned if an

election is made under subsection (3)(b) of this section, for some or no

consideration, along with any related benefits, rights, responsibilities, and

liabilities to any person or entity subject to the taxes imposed in:

1. KRS 141.020 or 141.040 and 141.0401; or

2. KRS 136.320, 136.330, 136.340, 136.350, 136.360, 136.370, 136.390,

or 304.3-270.

(b) Within thirty (30) days of the date of any transfer of credits, the party

transferring the credits shall notify the Department of Revenue of:

1. The name, address, employer identification number, and bank routing

and transfer number, of the party to which the credits are transferred;

2. The amount of credits transferred; and

3. Any additional information the Department of Revenue deems

necessary.

(c) Any taxpayer receiving transferred credit under this subsection may carry

forward unused credit for a period not to exceed seven (7) taxable years from

which the certified rehabilitation was complete.

The provisions of this subsection shall apply to any credits that pass through to a

successor or beneficiary of a taxpayer.

(9) For purposes of this section, a lessee of a certified historic structure shall be tre ated

as the owner of the structure if the remaining term of the lease is not less than the

minimum period promulgated by administrative regulation by the council.

(10) The taxes imposed in KRS 141.020, 141.040, and 141.0401 shall not apply to any

consideration received for the transfer, sale, assignment, or use of a tax credit

approved under this section.

(11) (a) The Department of Revenue shall assess a penalty in an amount equal to one

hundred percent (100%) of the tax credit allowed on the rehabilitation on any

taxpayer or exempt entity that:

1. Performs disqualifying work, as determined by the Kentucky Heritage

Council, on a certified historic structure for which a rehabilitation has

been certified; and

2. If credit allowed based on affordability, fails to maintain compliance

with the commercial residential property requirement established in

KRS 171.396(5), as determined by the council and the Kentucky

Housing Corporation.

(b) Any penalties shall be assessed under paragraph (a) of this subsection shall be

assessed against the property owner and not against any transferee of the

credits.

(12) The council may impose fees for processing applications for tax credits, not to

exceed the actual cost associated with processing the applications.

(13) The council may authorize a local government to perform an initial review of

applications for the credit allowed under this section and forward the applications to

the council with its recommendations.

(14) The council an d the Department of Revenue may promulgate administrative

regulations in accordance with the provisions of KRS Chapter 13A to implement

this section.