Kentucky Qualified Research Facility Tax Credit
Kentucky Department of Revenue
5% of facility construction costs
Kentucky R&D facility construction credit — capital costs only
Kentucky's Qualified Research Facility Tax Credit (KRS 141.395) provides a 5% nonrefundable credit on construction, remodeling, and equipping of qualified research facilities. Unlike most state R&D credits, this credit applies to capital expenditures — tangible, depreciable property used in qualified research — NOT to operating expenses such as wages or supplies. Unused credits carry forward for up to 10 years. The credit can be claimed against individual income tax (KRS 141.020), corporation income tax (KRS 141.040), and the limited liability entity tax (KRS 141.0401), making it accessible to all entity types including pass-through entities.
- Funding type
- Tax Credit
- Level
- State
- Amount
- 5% of qualified construction costs incurred to construct, remodel, or equip a qualified research facility in Kentucky. 'Qualified construction costs' means the cost of tangible property that is depreciable property under IRC §168 and is used in the conduct of qualified research. Does not include wages, salaries, contractor services, or supplies used in R&D operations.
- Realistic amount
- A Kentucky biotech company spending $2M to build a new research lab (including construction, lab build-out, and fixed eq…
- Deadline
- Ongoing — claimed with annual Kentucky income tax return
- Status
- active
- States
- KY
- Payment model
- tax offset
Who qualifies
- Must incur qualified construction costs in Kentucky for constructing, remodeling, or equipping a qualified research facility
- Costs must be for tangible, depreciable property under IRC §168 used in the conduct of qualified research
- All entity types eligible: individuals, corporations, partnerships, S-corporations, limited liability companies, and limited liability partnerships
- Pass-through entities (partnerships, S-corps, LLCs) distribute the credit to owners in proportion to their distributive share
- The research conducted at the facility must constitute 'qualified research' under IRC §41(d)
- No minimum capital expenditure threshold specified in statute
- Kentucky nexus required — the facility must be located in Kentucky
What it covers
Eligible expenses
- Construction costs for building a new research facility in Kentucky
- Remodeling costs for converting existing space into a qualified research facility
- Fixed equipment and laboratory instruments that are tangible, depreciable property under IRC §168
- Costs of equipping the facility with permanently installed research equipment
- Infrastructure improvements directly tied to the research facility
Ineligible expenses
- Wages and salaries of researchers, technicians, or support staff
- Supplies and materials consumed in research experiments
- Contractor service fees for professional services (not construction)
- Land acquisition costs (land is not depreciable under IRC §168)
- Intangible assets (software, patents, licenses) unless specifically depreciable
- Portable equipment not permanently associated with the facility
- Leased property (credit applies to costs incurred by the taxpayer, not lease payments)
How to apply
-
1
Identify qualifying construction or equipment costs
Determine which capital expenditures on your Kentucky research facility qualify: construction costs, building remodel costs, and costs of fixed, depreciable equipment placed in service at the facility. Wages paid to workers and supplies consumed in research operations do NOT qualify for this credit (those might qualify for other R&D credits if Kentucky creates a QRE-based credit in the future). Only tangible property depreciable under IRC §168 qualifies.
~4 hrs
-
2
Confirm the facility is used for qualified research
The facility must be used in the conduct of qualified research as defined under IRC §41(d). Review whether the research activities conducted at the facility meet the four-part test: technological in nature, intended to discover information, involves a process of experimentation, and relates to a qualified purpose (new or improved business component). Facilities used primarily for routine testing or quality control may not qualify.
~3 hrs
-
3
Complete Schedule QR
Complete Schedule QR (Qualified Research Facility Tax Credit) to calculate the credit. Report the total qualified construction costs, calculate 5%, and enter the credit amount. If the credit exceeds Kentucky tax liability, the unused portion carries forward for up to 10 years. Retain documentation of all qualifying capital expenditures, invoices, contractor agreements, and property records linking each asset to the research facility.
~3 hrs
-
4
Attach to Kentucky tax return
For corporations: attach Schedule QR to Form 720 (Kentucky Corporation Income Tax and LLET Return). For individuals (including pass-through recipients): attach Schedule QR and Schedule ITC to Form 740. For pass-through entities (partnerships, S-corps): use Schedule TCS (Tax Credit Schedule) to report credits passed through to owners. File with the Kentucky Department of Revenue by the applicable deadline.
~2 hrs
-
5
Track carryforward credits
Maintain a credit carryforward schedule by year. Unused credits may be carried forward for up to 10 years from the year of origination. Each carryforward year expires independently, so oldest credits must be applied first. If your Kentucky tax liability is consistently low (common for early-stage or pass-through-heavy companies), model whether the carryforward will be usable before expiration.
~1 hrs
KY's credit targets facility CONSTRUCTION costs, not wages. Businesses building a new research lab or retrofitting space get 5% back on tangible depreciable assets — plan equipment purchases before year-end.
Deadline & timing
No application deadline. Credit is claimed on Schedule QR (Qualified Research Facility Tax Credit) attached to the annual Kentucky tax return (Form 720 for corporations, 740 for individuals). The tax return deadline applies (typically April 15 for individuals; 15th day of 4th month after fiscal year end for corporations, with extensions available).
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Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.