General Information

Which form should I ﬁle?

File Form 740-EZ if you are a Kentucky

resident for the entire year and:

• are ﬁling federal Form 1040EZ.

• ﬁle as single.

• do not claim additional credits for

being age 65 or over, blind, or a

member of the Kentucky National

Guard at the end of 2014.

• had only wages, salaries, tips,

unemployment compensation, taxable

scholarship or fellowship grants, and

taxable interest was $1,500 or less.

File Form 740 if you are a full-year

Kentucky resident and:

• have farm, business, rental and/or

capital gain income or losses.

• itemize deductions.

• have additions to or subtractions from

federal adjusted gross income (see

instructions). Schedule M required.

• report on an accrual basis.

• claim Kentucky estimated tax

payments.

•have pension income.

File Form 740-NP if you are a nonresident

and:

•had income from Kentucky sources.

or are a part-year Kentucky resident and:

• moved into or out of Kentucky during

the taxable year.

•

had income while a Kentucky resident.

•had income from Kentucky sources

while a nonresident.

Computer-Generated

Returns and 2-D Bar

Code

Most software packages produce a 2-D

bar code. The Department of Revenue

scans the bar code that contains all of

the information needed to process your

return. The bar code is printed in the

upper right-hand corner of the return

when you prepare your return using

an approved software package. Last

minute changes should be entered into

the program and the entire return printed

again so that the bar code also contains

the correct information. This bar code

should not be covered up or marked

through. Using the bar code reduces

data entry errors for the department and

results in a faster refund for you.

Check to be sure your software gen-

erates an acceptable form. A list of

vendors whose software has been

approved is posted on the Internet at

www.revenue.ky.gov, the Department

of Revenue’s Web site.

Where to Get Forms

Forms and instructions are available

online from the Department of Revenue’s

Web site at www.revenue.ky.gov and at

all Kentucky Taxpayer Service Centers.

They may also be obtained by writing

FORMS, Kentucky Department of

Revenue, Frankfort, KY 40620, or by

calling (502) 564-3658.

Address Change

If you move after you ﬁle your tax return,

please notify the Kentucky Department of

Revenue of your new address. This can

be done by sending a change of address

card (available at your local post ofﬁce)

to: Taxpayer Assistance Section, Kentucky

Department of Revenue, P.O. Box 181,

Station 56, Frankfort, KY 40602-0181.

Notiﬁcation can also be made to any

Kentucky Taxpayer Service Center. A list

of locations is included in your packet.

Refund Inquiries

You may check the status of your refund

at www.revenue.ky.gov or by calling our

automated line at (502) 564-1600. These

systems are available 24 hours, 7 days

a week, and are updated nightly. The

following information from your return

will be required:

•

Your Social Security Number shown on

the return.

•The exact whole-dollar amount to be

refunded to you.

Information about electronically filed

returns should be available within 72

hours of receipt. Information about

other refund request ﬁled on paper will

be available after the return has com-

pleted initial processing (approximately

12 weeks).

Need a Copy of

Your Tax Return?

If you need a copy of your tax return,

you must send your request in writing to:

Taxpayer Assistance Section, Kentucky

Department of Revenue, P.O. Box

181, Station 56, Frankfort, KY 40602-

0181. Please include your name(s)

as it appeared on your return, Social

Security number(s), your complete

mailing address, and a photo ID. To

ensure conﬁdentiality, all requests must

include your signature.

How Long Should

Records be Kept?

Keep a copy of your tax return,

worksheets and records of all items

appearing on it (such as Forms W-2 and

1099 or other receipts) until the statute

of limitations runs out for that return.

Usually, this is four years

from the date the return was

due or ﬁled (with extensions),

or the date the tax was paid,

whichever is later. You should

keep some records longer.

For example, keep property

records (including those on your home)

as long as they are needed to ﬁgure

the basis of the original or replacement

property.

Filing as an Injured

Spouse on Your

Federal Form 1040?

Kentucky does not recognize the federal

injured spouse form. Income tax refunds

may be withheld by the department if you

owe money to the Kentucky Department

of Revenue, another state agency or the

Internal Revenue Service.

Kentucky law requires the offset of

the entire refund if a joint return is

ﬁled. If spouses want to keep their tax

liabilities and/or refunds separate, each

must file a separate tax form. If you

choose to ﬁle separately on a combined

return, for agencies other than the

Department of Revenue, the refund will

be apportioned between spouses, based

General Information

2014 Kentucky Individual Income Tax

Instructions for Forms 740 and 740-EZ

42A740(I) (10-14)

on each spouse’s income. The indebted

spouse’s refund will then be paid to the

appropriate agency.

Death of a Taxpayer

If a taxpayer died before ﬁling a return

for 2014, the taxpayer’s spouse or

personal representative may have to

ﬁle and sign a return for that taxpayer.

A personal representative can be an

executor, administrator or anyone who

is in charge of the deceased taxpayer’s

property. If the deceased taxpayer

did not have to ﬁle a return but had

tax withheld, a return must be ﬁled to

get a refund. The person who ﬁles the

return should enter “DECD” after the

deceased taxpayer’s name and write

“DECEASED” and the date of death

across the top of the return.

If your spouse died in 2014 and you did

not remarry in 2014, you can ﬁle jointly

or separately on a combined return. The

return should show your spouse’s 2014

income before death and your income

for all of 2014. You can also ﬁle jointly

or separately on a combined return if

your spouse died in 2015 before ﬁling

a 2014 return. Write “Filing as surviving

spouse” in the area where you sign the

return. If someone else is the personal

representative, he or she must also

sign.

Death of Military

Personnel Killed

in Line of Duty

KRS 141.010(10)(t) exempts all income

earned by soldiers killed in the line of

duty from Kentucky tax for the year

during which the death occurred and the

year prior to the year during which the

death occurred.

The exemption applies to tax years

beginning after December 31, 2001. The

income exclusion applies to all income

from all sources of the decedent, not

just military income. The exclusion

includes all federal and state death

beneﬁts payable to the estate or any

beneﬁciaries.

Amended returns may be ﬁled for the

year the soldier was killed in the line

of duty and the year prior to the year

of death. The amended returns must

be ﬁled within the statute of limitations

period; four years from the due date, the

extended due date or the date the tax

was paid, whichever is later.

If a combined return was filed, the

exclusion would apply to the income

reported in Column A or Column B of

the Kentucky return attributable to the

military member. If a joint return was

filed, the income must be separated

accordingly. Refunds will be issued

in the names on the original return.

Beneﬁciaries or estates that received

death beneﬁts that were included in a

Kentucky return may ﬁle an amended

return to request a refund of taxes paid

on the beneﬁt.

The Department of Revenue will use the

Veterans Administration deﬁnition for

“in the line of duty,” which states that

a soldier is in the line of duty when he

is in active military service, whether on

active duty or authorized leave; unless

the death was the result of the person’s

own willful misconduct.

Income Tax Withholding

for 2015

If the amount you owe or the amount

you overpaid is large, you may want

to change the amount of income tax

withheld from your 2015 pay. To do so

you must ﬁle a new Form K-4 with your

employer.

The Family Size Tax Credit is based on

modiﬁed gross income and the size of

the family. See instructions for Lines 20

and 21 for further explanation of these

limitations. Changes have been made

to the Special Withholding Exemption

Certificate (Form K-4E) to reflect the

Family Size Tax Credit. If you do not

expect to have any tax liability for the

current year and you meet the modiﬁed

gross income requirements, you may

be entitled to claim exemption from

withholding of Kentucky income tax.

The Special Withholding Exemption

Certificate (Form K-4E) can be

downloaded at http://revenue.ky.gov/

business/whtax.htm, the Department of

Revenue’s Web site.

2015 Estimated Tax

Payments

Persons who reasonably expect to have

income in excess of $5,000 from which

no Kentucky income tax will be withheld

may be required to make estimated tax

payments on Form 740-ES. However, if

the amount of estimated tax is $500 or

less, no estimated payments are required.

Persons who do not prepay at least 70

percent of the tax liability may be subject

to a 10 percent penalty for underpayment

of estimated tax. If you are required to

make estimated tax payments you may

also be subject to interest if the payments

are not made timely. Prepayments for

2015 may be made through withholding,

a credit forward of a 2014 overpayment

or estimated tax installment payments.

The instructions for Form 740-ES include

a worksheet for calculating the amount

of estimated tax due and for making

installment payments. These forms

may be obtained from the Kentucky

Department of Revenue, Frankfort, KY

40620, or any Kentucky Taxpayer Service

Center, or by calling (502) 564-3658.

Return Adjustments

If the Department of Revenue adjusts your

return and you do not understand the

adjustment, you may write to Taxpayer

Assistance, Kentucky Department of

Revenue, P.O. Box 181, Station 56,

Frankfort, KY 40602-0181 or call (502) 564-

4581. If you disagree with an adjustment

made to your return, you may appeal

that adjustment by submitting a written

protest within 45 days of notiﬁcation.

Amended Returns

If you discover that you omitted

deductions or otherwise improperly

prepared your return, you may obtain

a refund by ﬁling an amended return

within four years of the due date of

the original return. You are required

to ﬁle an amended return to report

omitted income. You may obtain

Form 740-X by contacting a Kentucky

Taxpayer Service Center or writing

FORMS, Kentucky Department of

Revenue, Frankfort, KY 40620. You

may also download Form 740-X at

www.revenue.ky.gov, the Department

of Revenue’s Web site.

Interest and penalty charges can be

avoided or reduced by sending payment

with your extension request by the due

date. If you wish to make a payment

prior to the due date of your return when

using the:

(1) Kentucky Extension—Complete

Section II, Kentucky Extension

Payment Voucher, of the Application

for Extension of Time to File, Form

40A102, and send with payment.

Write “KY Income Tax—2014” and

your Social Security number(s) on

the face of the check.

(2) Federal Automatic Extension—Make

a copy of the lower portion of the

federal Application for Automatic

Extension, Form 4868, and send

with payment. Write “KY Income

Tax—2014” and your Social Security

number(s) on the face of the check.

Personal Property

Forms

Kentucky business taxpayers are

reminded to report all taxable personal

property, except motor vehicles, owned

on January 1 to either the property

valuation administrator in the county

of residence (or location of business)

or the Ofﬁce of Property Valuation in

Frankfort. Tangible personal property is

to be reported on the Tangible

Personal Property Tax Return,

Form 62A500. The due date

for this return is May 15.

Do not mail this return with your income

tax return; use a separate envelope.



Federal Audit

Adjustments

axpayers who have received a ﬁnal

determination of an Internal Revenue

Service audit must submit a copy

to the department within 30 days

of its conclusion. The information

should be submitted to the Individual

Governmental Program Section,

Kentucky Department of Revenue,

P.O. Box 1074, Station 68, Frankfort,

KY 40602-1074.

Conﬁdentiality

Kentucky Revised Statute 131.190 requires

the Department of Revenue to maintain

strict confidentiality of all taxpayer

records. No employee of the Department

of Revenue may divulge any information

regarding the tax returns, schedules or

reports required to be ﬁled. However,

the Department of Revenue is not

prohibited from providing evidence to or

testifying in any court of law concerning

ofﬁcial tax records. Also, Department

of Revenue employees or any other

person authorized to access conﬁdential

state information are prohibited from

intentionally viewing such information

without an ofﬁcial need to view.

The department may provide official

information on a conﬁdential basis to the

Internal Revenue Service or to any other

governmental agency with which it has

an exchange of information agreement

whereby the department receives similar

or useful information in return.

Extension of Time

to File

Taxpayers who are unable to ﬁle a return

by April 15 may request an extension.

The request for the extension must be

submitted in writing to the Department

of Revenue on or before the due date

of the return. The request must state

a reasonable cause for the inability to

ﬁle. Inability to pay is not an acceptable

reason. Acceptable reasons include, but

are not limited to, destruction of records

by ﬁre or ﬂood and serious illness of

the taxpayer. Extensions are limited

to six months. A copy of the Kentucky

extension request must be attached to

the return.

Individuals who receive a federal

extension are not required to request a

separate Kentucky extension. They can

meet the requirements by attaching a

copy of the application for automatic

federal extension to the Kentucky

return.

IRS extensions by e-ﬁle (by

personal computer or a tax

professional)—Attach a

copy of Form 4868 with the conﬁrmation

number in the lower right-hand corner

of the form or a copy of the electronic

acknowledgment.

Military Personnel—Kentucky residents

who are in the military are often granted

extensions for tax ﬁlings when serving

outside the United States. Any extension

granted for federal income tax purposes

will be honored for Kentucky income tax

purposes.

Combat Zone Extension—Members

of the Army, Navy, Marines, Air Force,

or Public Health Service of the United

States government who serve in an

area designated as a combat zone by

presidential proclamation shall not be

required to ﬁle an income tax return and

pay the taxes, which would otherwise

become due during the period of service,

until 12 months after the service is

completed. Members of the National

Guard or any branch of the Reserves

called to active duty to serve in a combat

zone are granted the same extension.

Interest and Penalties—Interest at the

“tax interest rate” applies to any income

tax paid after the original due date of the

return. If the amount of tax paid by the

original due date is less than 75 percent

of the tax due, a late payment penalty

may be assessed (minimum penalty is

$10).

Kentucky Department of Revenue

Mission Statement

As part of the Finance and Administration Cabinet, the mission of the Kentucky

Department of Revenue is to administer tax laws, collect revenue, and provide services

in a fair, courteous, and efﬁcient manner for the beneﬁt of the Commonwealth and

its citizens.

* * * * * * * * * * * * * * * * * *

The Kentucky Department of Revenue does not discriminate on the basis of race,

color, national origin, sex, age, religion, disability, sexual orientation, gender identity,

veteran status, genetic information or ancestry in employment or the provision of

services.

2014 FEDERAL/KENTUCKY INDIVIDUAL INCOME TAX DIFFERENCES

The chart below provides a quick reference guide to the

major federal/Kentucky differences. It is not intended to be all

inclusive. Items not listed may be referred to the Department

of Revenue to determine Kentucky tax treatment.

Kentucky income tax law is based on the federal income

tax law in effect on December 31, 2013. The Department of

Revenue generally follows the administrative regulations and

rulings of the Internal Revenue Service in those areas where

no speciﬁc Kentucky law exists.

1. Interest from Federal Obligations Taxable Exempt

2. Retirement Income from:

Commonwealth of Kentucky Retirement Systems Taxable

Kentucky Local Government Retirement Systems Taxable

Federal and Military Retirement Systems Taxable

3. Pensions and Annuities Starting After 7/1/86 3-year recovery rule eliminated 3-year recovery rule retained

and Before 1/1/90

4. Other Pension and Annuity Income Taxable 100% excludable up to $41,110;

Schedule P may be required

5. Beneﬁts from U.S. Railroad Retirement Board May be taxable Exempt; Schedule P may be

required

6. Social Security Beneﬁts May be taxable Exempt

7. Capital Gains on Sale of Kentucky Turnpike Bonds Taxable Exempt

8. Other States’ Municipal Bond Interest Income Exempt Taxable

9. Kentucky Local Government Lease Interest Payments Taxable Exempt

10. Long-Term Care Insurance Premiums Paid With Limited deduction as self-employed 100% adjustment to gross

After-Tax Dollars health insurance income

11. Medical and Dental Insurance Premiums Paid With Limited deduction as self-employed 100% adjustment to gross

After-Tax Dollars health insurance income

12. Capital Gains on Property Taken by Taxable Exempt

Eminent Domain

13. Election Workers—Income for Training or Taxable Exempt

Working at Election Booths

14. Artistic Contributions Noncash contribution allowed as Appraised value allowed as

itemized deduction itemized deduction or

adjustment to income

15. State Income Taxes Deductible Nondeductible

16. Leasehold Interest—Charitable Contribution May be deductible Deductible; Schedule HH

required

17. Kentucky Unemployment Tax Credit No credit allowed $100 per certiﬁed employee;

Schedule UTC required

18. Work Opportunity Credit (federal Form 5884) Tax credit allowed; wage expense No credit allowed; entire wage

reduced by amount of credit expense is deductible

19. Welfare to Work Credit (federal Form 8861) Tax credit allowed; wage expense No credit allowed; wage expense

reduced by amount of credit reduced by amount of federal

credit

20. Child and Dependent Care Credit Tax credit based on expenses 20% of federal credit

21. Family Size Tax Credit No credit allowed Decreasing tax credit allowed

22. Education Tuition Tax Credit Tax credit based on expenses Credit allowed

Form 8863-K required

23. Taxpayer Who May be Claimed as Dependent May not claim self May claim self

on Another’s Return (i.e., full-time student)

24. Child’s Income Reported by Parent Permitted; taxed at parent’s rate Not permitted

25. National Tobacco Settlement TLAP Income Taxable Exempt

Quota Buyout (including imputed interest)

26. Domestic Production Activities Deduction Deductible Deductible; may be limited

27. Active Duty Military Pay Taxable Exempt

28. Certain Business Expenses of Reservists Deductible Nondeductible

PROVISION

FEDERAL

TAX TREATMENT

KENTUCKY

TAX TREATMENT

Partially exempt if retired

after December 31, 1997;

exempt if retired before

January 1, 1998;

Schedule P may be required

Chart B

Your Kentucky

Adjusted Gross Income

If Your Filing Status is: is greater than:

Single Person—

Under age 65 ........................ and ................. $ 2,900

Single Person—

Age 65 or over or blind ........ and ................. $ 4,900

Single Person—

Age 65 or over and blind ..... and ................. $ 6,400

Husband and Wife—

Both under age 65 ................ and ................. $ 3,400

Husband and Wife—

One age 65 or over .............. and ................. $ 5,400

Husband and Wife—

Both age 65 or over ............. and ................. $ 6,700

INSTRUCTIONS

2014 FORM 740

Do You Have to File a Kentucky Return?

If you were a Kentucky resident for the entire year, your ﬁling

requirement depends upon your family size, modiﬁed gross

income, Kentucky adjusted gross income and income from

self-employment. You must ﬁle if your modiﬁed gross income

exceeds the amount in Chart A and your Kentucky adjusted

gross income exceeds the amount in Chart B.

Complete your federal tax return ﬁrst. If you are not required

to ﬁle a federal tax return, see instructions for Line 5.

MODIFIED GROSS INCOME AND FAMILY SIZE

(Use With Chart A)

Family Size—Consists of yourself, your spouse if married

and living in the same household and qualifying children.

For the purposes of computing the Family Size Tax Credit,

the maximum family size is four.

Qualifying Dependent Child—Means a qualifying child as

deﬁned in Internal Revenue Code Section 152(c), and includes

a child who lives in the household but cannot be claimed as a

dependent if the provisions of Internal Revenue Code Section

152(e)(2) and 152(e)(4) apply. In general, to be a taxpayer’s

qualifying child, a person must satisfy four tests:

• Relationship—The taxpayer’s child or stepchild (whether

by blood or adoption), foster child, sibling or stepsibling,

or a descendant of one of these.

• Residence—Has the same principal residence as the

taxpayer for more than half the tax year. A qualifying child

is determined without regard to the exception for children

of divorced or separated parents. Other federal exceptions

apply.

• Age—Must be under the age of 19 at the end of the tax

year, or under the age of 24 if a full-time student for at

least ﬁve months of the year, or be permanently and totally

disabled at any time during the year.

• Support—Did not provide more than one-half of his/her

own support for the year.

Modiﬁed Gross Income—Modiﬁed gross income is the greater

of federal adjusted gross income adjusted to include interest

income derived from municipal bonds (non-Kentucky) and

lump-sum pension distributions not included in federal

adjusted gross income; or Kentucky adjusted gross income

adjusted to include lump-sum pension distributions not

included in federal adjusted gross income.

KENTUCKY ADJUSTED GROSS INCOME

(Use Chart B if Modiﬁed Gross Income is Greater Than

the Amounts in Chart A)

Kentucky Adjusted Gross Income—Consists of your federal

adjusted gross income plus any additions and subtractions

from Schedule M, Modiﬁcations to Federal Adjusted Gross

Income.

TAXPAYERS WITH SELF-EMPLOYMENT INCOME—Must ﬁle

a Kentucky individual income tax return regardless of the

amount of Kentucky adjusted gross income used in the Chart

B if you have gross receipts from self-employment in excess

of modiﬁed gross income for your family size in Chart A.

TIP: Even though the ﬁling requirements

are not met, an income tax return must be

ﬁled to claim a refund of the Kentucky taxes

withheld.



Chart A

Your Modiﬁed Gross

If Your Family Size is: Income is greater than:

One .......................... and ......................... $11,670

Two .......................... and ......................... $15,730

Three ....................... and ......................... $19,790

Four or More .......... and .........................$23,850

FILING REQUIREMENTS (Continued)

Part-time or part-year workers may have income taxes

withheld from their paychecks even though the filing

requirements are not met. An income tax return must be ﬁled

to claim a refund of the Kentucky taxes withheld.

A child meeting the ﬁling requirements must ﬁle a return

even though being claimed as a dependent by the parent.

Kentucky income tax law contains no special provisions for

taxing the income of a minor child at the parent’s tax rates nor

the reporting of income of a child on the parent’s return.

Generally, all income of Kentucky residents, regardless of

where it was earned, is subject to Kentucky income tax.

Nonresidents and part-year residents must report income

on Form 740-NP.

Military Personnel—MILITARY PAY EXCLUSION—Effective

for taxable years beginning on or after January 1, 2010, all

military pay received by active duty members of the Armed

Forces of the United States, members of reserve components

of the Armed Forces of the United States, and members of

the National Guard will be exempt from Kentucky income

tax. KRS 141.010(10)(u)

Soldiers will claim the exemption by excluding military pay

when ﬁling a Kentucky individual income tax return start-

ing with the 2010 return. Provided the military member has

no income other than military pay, he or she would not be

required to ﬁle a Kentucky income tax return. The military

pay exemption applies to all Kentucky military members re-

gardless of where the member is stationed. Kentucky income

tax should no longer be withheld from checks received for

military pay, beginning January 1, 2010. If Kentucky income

tax is incorrectly withheld from a soldier’s military pay, the

Department of Revenue will refund the tax withheld.

Kentucky residents who are in the military are often granted

extensions for military service when serving outside the

United States. Any extension granted for federal income

tax purposes will be honored for Kentucky income tax

purposes.

For Fiscal Year Filers Only—Most people pay taxes for a

calendar year. However, if you ﬁle for a taxable year other

than a calendar year or for part of a year, enter the beginning

and ending dates of that year on the line at the top of the

form.

When and Where to File

The income tax return for calendar

year 2014 must be postmarked or

submitted electronically no later than

April 15, 2015, to avoid penalties and

interest. Mail to:

Refund/Other Returns

Kentucky Department of Revenue

Frankfort, KY 40618-0006

Pay Returns

Kentucky Department of Revenue

Frankfort, KY 40619-0008

Taxpayers who expect refunds should ﬁle as early as possible

to receive refunds promptly. If you have your tax return

prepared by another person, you may wish to mail the return

yourself in order to ensure prompt ﬁling.

Social Security Number—You are required to provide your

social security number per Section 405, Title 42, of the United

States Code. This information will be used to establish your

identity for tax purposes only.

Political Party Fund Designation

You may designate $2 of your taxes to either the Democratic

or Republican party if you have a tax liability of at least $2 ($4

for married persons ﬁling joint returns). Fifty cents will be paid

to the corresponding political organization in your county of

residence and the remainder will be paid to the respective

state political party. This designation will not increase your

tax or decrease your refund. You may make this designation

by checking the applicable box. A husband and wife may

each make a designation. Persons

making no designation should

check the “No Designation” box.

Reporting Periods and Accounting Procedures

Kentucky law requires taxpayers to report income on the

same calendar or ﬁscal year and to use the same methods of

accounting as required for federal income tax purposes. Any

federally approved change in accounting period or methods

must be reported to the Kentucky Department of Revenue.

Attach a copy of the federal approval.

Changes to federal income tax law made after the Internal

Revenue Code reference date contained in KRS 141.010(3)

shall not apply for purposes of Chapter 141 unless adopted

by the General Assembly.

Filing Status

Legal liabilities are affected by the choice of ﬁling status.

Married persons who ﬁle joint or combined returns are jointly

and severally liable for all income taxes due for the period

covered by the return. That is, each spouse may be held

legally responsible for payment of taxes on income earned by

the other. If spouses want to credit the refund of one against

the liability of the other or combine their tax liabilities or

refunds, they must ﬁle a combined return. If spouses want to

keep their tax liabilities and/or refunds separate, each must

ﬁle a separate tax form.

Check the box that describes your ﬁling status. If you

are married, ﬁled a joint federal return and both you

and your spouse had income, you may be able to reduce

your tax by using Filing Status 2 rather than Filing Status 3.

Filing Status 1, Single—Use this ﬁling status if you are

unmarried, divorced, widowed, legally separated by court

decree, or if you ﬁled as “Head of Household” or “Qualifying

Widow(er)” on your federal return.

APRIL 2015

S M T W T F S

1 2 3 4

5 6 7 8 9 10 11

12 13 14 15 16 17 18

19 20 21 22 23 24 25

26 27 28 29 30



federal adjusted gross income. For a list of differences, see

the Federal/Kentucky Individual Income Tax Differences chart

and the line-by-line instructions.

LINE 6—Additions to Federal Adjusted Gross Income—Enter

amount from Schedule M, Part I, Line 8.

LINE 8—Subtractions from Federal Adjusted Gross

Income—Enter amount from Schedule M, Part II, Line 20.

LINE 9—Kentucky Adjusted Gross Income—Subtract Line 8

from Line 7. This is your Kentucky Adjusted Gross Income.

Taxable Income

LINE 10, Deductions—Taxpayers may elect to itemize

deductions or elect to use the standard deduction of $2,400.

If one spouse itemizes deductions, the other must itemize.

See speciﬁc instructions for Schedule A.

Itemizers, complete Schedule A and enter allowable

deductions on Line 10.

Nonitemizers, enter the standard deduction of $2,400. If

married ﬁling separately on a combined return, enter $2,400

in both Columns A and B. If ﬁling a joint return, only one

$2,400 standard deduction is allowed.

LINE 11—Subtract Line 10 from Line 9. This is your Taxable

Income.

Ta x

LINE 12—Determining Your Tax

Tax Table or Computation—An optional tax table is located

elsewhere in this publication for your convenience. You may

use this table whether or not you itemize. Married taxpayers

ﬁling separately on a combined return may use the tax table

or the tax rate schedule, or one spouse may use the tax table

and the other the tax rate schedule. If you choose not to use

the tax table, compute your tax using the tax rate schedule

below.

Tax Rate Schedule

If taxable amount is: Tax is:

$3,000 or less ................. 2% of taxable amount

over $3,000

but not over $4,000 .... $60 plus 3% of amount over $3,000

over $4,000

but not over $5,000 .... $90 plus 4% of amount over $4,000

over $5,000

but not over $8,000 .... $130 plus 5% of amount over $5,000

over $8,000

but not over $75,000 ..

$280 plus 5.8% of amount over $8,000

over $75,000 ...................

$4,166 plus 6% of amount over $75,000

Farm Income Averaging, Schedule J—If you elect

farm income averaging on your federal return,

you may also use this method for Kentucky. The

amount of income you may average is limited

to the amount elected for federal purposes. Enter tax from

Schedule J, Line 22, on Form 740, Line 12, and check the box

for “Schedule J.” Attach completed Schedule J.

Filing Status 2, Married Filing Separately on This Com-

bined Return—Use this ﬁling status to report your incomes

individually but on only one tax form. You do this by ﬁlling

in both Columns A and B. You may ﬁle separately on this

combined return regardless of whether you ﬁled jointly or

separately for federal purposes if both you and your spouse

had income. This ﬁling status usually results in a lower tax

than Filing Status 3.

Each spouse must claim his or her own income and deduc-

tions. The total of Line 5, Columns A and B, must equal your

and your spouse’s federal adjusted gross income.

Filing Status 3, Married Filing Joint Return—Use this ﬁling

status if you and your spouse choose to ﬁle a joint return

even if one spouse had no income. Jointly means that you

and your spouse add your incomes together and report in

Column B. If both you and your spouse have income, it may

be to your beneﬁt to use Filing Status 2.

Filing Status 4, Married Filing Separate Returns—If using this

ﬁling status, you and your spouse must ﬁle two separate tax

forms. The husband’s income is reported on one tax form, the

wife’s on the other. When ﬁling separate returns, the name

and Social Security number of each spouse must be entered

on both returns. Enter the spouse’s Social Security number

in the block provided, and enter the name on Line 4.

Adjusted Gross Income

LINE 5, Federal Adjusted Gross Income

Enter the total amount of your federal adjusted gross income

from your federal income tax return in Column B if Filing

Status 1, 3 or 4 is used. Use Column A only when entering

your spouse’s income on a combined return (Filing Status 2).

When using Filing Status 2, Columns A and B, Line 5, must

equal your federal adjusted gross income. (Do not confuse

federal adjusted gross income with federal taxable income

shown on the federal return.)

Where husband and wife have ﬁled a joint return for federal

income tax purposes and have not elected to ﬁle a joint

Kentucky income tax return, each spouse must claim his or

her own income and deductions.

If you are not required to ﬁle a federal income tax return, enter

on Line 5 the total of wages, salaries, tips, fees, commissions,

bonuses, other payments for personal services, taxable

scholarships and fellowships, taxable interest and dividends,

trade or business income, unemployment compensation and

all other income from sources within and without Kentucky

including amounts not reported on attached wage and tax

statements. If you have income not supported by a wage

and tax statement, attach a supporting schedule showing

the source and amount.

Determining Kentucky Adjusted Gross Income—Kentucky

law requires that the individual income tax return begin

with federal adjusted gross income and be adjusted for any

differences to arrive at Kentucky adjusted gross income.

Schedule M is designed to make “additions to” federal

adjusted gross income and provides for “subtractions from”

LINE 13, Lump-sum Distribution—Special 10–Year Averaging—

Kentucky allows a special 10-year averaging method for

determining tax on lump-sum distributions received from

certain retirement plans that qualify for federal 10-year

averaging. If this special method is used for federal purposes,

Form 4972-K, Kentucky Tax on Lump-Sum Distributions, and

Schedule P, Pension Income Exclusion, must be ﬁled with

Form 740. Enter tax from Form 4972-K and check the box.

Recycling Composting Recapture—Enter amount from Sched-

ule RC-R and check the box.

If both Form 4972-K and Schedule RC-R are used, add the

amounts together and enter the total on Line 13.

LINE 15—Enter amounts from page 3, Section A. See instruc-

tions for Section A.

LINE 17—Enter amounts from page 3, Section B. See instruc-

tions for Section B.

LINE 19, Total Tax Liability—Married taxpayers ﬁling a com-

bined return must add the amounts on Line 18, Columns A

and B, and enter the sum on Line 19. Other taxpayers should

enter the amount from Line 18, Column B, on Line 19.

Family Size One Two Three Four or More

If MGI . . . is over is not over is over is not over is over is not over is over is not over

$ --- $ 11,670 $ --- $15,730 $ --- $19,790 $ --- $23,850 100

11,670 12,137 15,730 16,359 19,790 20,582 23,850 24,804 90

12,137 12,604 16,359 16,988 20,582 21,373 24,804 25,758 80

12,604 13,070 16,988 17,618 21,373 22,165 25,758 26,712 70

13,070 13,537 17,618 18,247 22,165 22,956 26,712 27,666 60

13,537 14,004 18,247 18,876 22,956 23,748 27,666 28,620 50

14,004 14,471 18,876 19,505 23,748 24,540 28,620 29,574 40

14,471 14,821 19,505 19,977 24,540 25,133 29,574 30,290 30

14,821 15,171 19,977 20,449 25,133 25,727 30,290 31,005 20

15,171 15,521 20,449 20,921 25,727 26,321 31,005 31,721 10

15,521 --- 20,921 --- 26,321 --- 31,721 --- 0

Credit

Percentage

2014

Step three—Use the Family Size Table to look up the percentage of credit and enter in the space provided on Line 21.

Step Four—Multiply tax from Line 19 by the percentage and enter on Line 21. This is your Family Size Tax Credit.

LINE 20 and LINE 21, Family Size Tax Credit— The Family Size Tax Credit is based on modiﬁed gross income (MGI) and the

size of the family. If your total MGI is $31,721 or less, you may qualify for Kentucky Family Size Tax Credit.

Step one—Determine your family size. Check the box on Line 20 to the right of the number that represents your family

size.

Family Size—Consists of yourself, your spouse if married and living in the same household and qualifying children.

Family Size 1 is an individual either single, or married living apart from his or her spouse for the entire year. You

may qualify for the Family Size Tax Credit even if you are claimed as a dependent on your parent’s tax return.

Family Size 2 is an individual with one qualifying child or a married couple.

Family Size 3 is an individual with two qualifying children or a married couple with one qualifying child.

Family Size 4 is an individual with three or more qualifying children or a married couple with two or more qualifying

children.

Qualifying Dependent Child—Means a qualifying child as deﬁned in Internal Revenue Code Section 152(c), and includes a

child who lives in the household but cannot be claimed as a dependent if the provisions of Internal Revenue Code Section

152(e)(2) and 152(e)(4) apply. In general, to be a taxpayer’s qualifying child, a person must satisfy four tests:

Relationship—Must be the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or

stepsibling, or a descendant of one of these.

Residence—Has the same principal residence as the taxpayer for more than half the tax year. A qualifying child is

determined without regard to the exception for children of divorced or separated parents.

Age—Must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least

ﬁve months of the year, or be permanently and totally disabled at any time during the year.

Support—Did not provide more than one-half of his/her own support for the year.

Step two—Determine modiﬁed gross income.

FORM 740 WORKSHEET FOR COMPUTATION OF MODIFIED GROSS INCOME FOR FAMILY SIZE TAX CREDIT

(a) Enter your federal adjusted gross income from Line 5. If zero or less, enter zero ............................................................ (a) __________________

(b) If married ﬁling separately on a combined return or married ﬁling separate returns and living

in the same household, enter your spouse’s federal adjusted gross income. If zero or less, enter zero ......................... (b) __________________

(c) Enter tax-exempt interest from municipal bonds (non-Kentucky) ....................................................................................... (c) __________________

(d) Enter amount of lump-sum distributions not included in federal adjusted gross income (federal Form 4972) .............. (d) __________________

(e) Enter total of Lines (a), (b), (c) and (d) .................................................................................................................................... (e) __________________

(f) Enter your Kentucky adjusted gross income from Line 9. If zero or less, enter zero ....................................................... (f) __________________

(g) If married ﬁling separately on a combined return or married ﬁling separate returns and living in the same

household, enter your spouse’s Kentucky adjusted gross income from Line 9. If zero or less, enter zero .................... (g) __________________

(h) Enter amount of lump-sum distributions not included in adjusted gross income (Kentucky Form 4972-K) ................... (h) __________________

(i) Enter total of Lines (f), (g) and (h) ........................................................................................................................................... (i) __________________

(j) Enter the greater of Line (e) or (i). This is your Modiﬁed Gross Income.

Use this amount to determine if you qualify for the Family Size Tax Credit ....................................................................... (j) __________________

LINE 27, Kentucky Use Tax

Important Reminder from the Department of Revenue About Out-of-State Purchases:

If you made untaxed purchases from out-of-state retailers, the use tax line on your return should contain a number.

Like every other state that has a sales tax, Kentucky has a use tax that requires that out-of-state purchases of tangible personal property or

digital property for use in Kentucky be taxed at the same amount as if they had taken place in Kentucky and subjected to Kentucky’s sales tax.

This ensures equality of treatment between in-state and out-of-state transactions. Although the use tax has been in the tax code since 1960, it

is now more relevant than ever because of the increasing percentage of online sales. Pursuant to KRS 139.330, a 6 percent use tax is due if you

make out–of–state purchases for storage, use or other consumption in Kentucky and did not pay at least 6 percent state sales tax to the seller at

the time of purchase. For example, if you order from catalogs, make purchases through the Internet, or shop outside Kentucky for items such

as clothing, shoes, jewelry, cleaning supplies, furniture, computer equipment, pre-written computer software, ofﬁce supplies, books, souvenirs,

exercise equipment or subscribe to magazines, you may owe use tax to Kentucky. It is important to remember that use tax applies only to items

purchased from a retailer outside Kentucky, including another country, which would have been taxed if purchased in Kentucky.

For your convenience, a Use Tax Calculation Worksheet and Optional Use Tax Table are provided below. The Optional Use Tax Table is designed

for those purchases of less than $1,000. If you made untaxed out-of-state purchases in amounts under $1,000, but do not have records readily

available that show the amount of those purchases, you may use the Optional Use Tax Table below to estimate the compensating use tax based

on your Kentucky Adjusted Gross Income (KYAGI). All untaxed purchases in the amount of $1,000 or greater must be accounted for on an actual

basis using the Use Tax Calculation Worksheet. Failure to timely report may result in assessment of penalty and interest in addition to the tax

amount due.

LINE 23, Education Tuition Tax Credit—Complete Form 8863–K

to claim this credit. See form and instructions.

LINE 25, Child and Dependent Care Credit—Enter in the

space provided the amount of credit calculated on federal

Form 2441, Line 9, for child and dependent care expenses.

Multiply this amount by 20 percent (.20), and enter result

on Line 25.

If you do not meet the ﬁling requirements to ﬁle a federal

income tax return but would have been entitled to the fed-

eral child and dependent care credit, you may claim the child

and dependent care credit for Kentucky purposes. Complete

and attach federal Form 2441, state on the form “did not

meet federal ﬁling requirements” and follow instructions

for Line 25.

Need more information about use tax?

Visit our Web site at: www.revenue.ky.gov

Call or write:

Kentucky Department of Revenue

Attention: Use Tax

P.O. Box 181, Station 53

Frankfort, KY 40602-0181



Optional Use Tax Table

KY AGI* Tax

$0 - $10,000 ....................................... $4

$10,001 - $20,000 ............................ $12

$20,001 - $30,000 ............................ $20

$30,001 - $40,000 ............................ $28

$40,001 - $50,000 ............................ $36

$50,001 - $75,000 ............................ $50

$75,001 - $100,000 .......................... $70

Above $100,000 .............................. Multiply AGI by 0.08%

(0.0008)

* AGI from Line 9 on KY Form 740 or KY Form 740-NP or Line

1 on KY Form 740-EZ.

Credit Against the Kentucky Use Tax Due

You may reduce or eliminate the amount of Kentucky use tax due by the amount of state sales tax paid to the out-of-state seller on the same

transaction. The reduction may not exceed the amount of Kentucky use tax due on the purchase. For example, if Georgia state sales tax of 4

percent is paid, only the additional 2 percent is due to Kentucky, or if Illinois state sales tax of 6.25 percent is paid, no additional Kentucky use

tax is due. Sales tax paid to a city, county or another country cannot be used as a credit against Kentucky use tax due.

Monday—Friday

8 a.m.—5:00 p.m., ET

(502) 564-5170

1. Purchases of $0 to $1,000

x 6 percent (.06)

OR Use Tax Table Amount

2. Purchases of $1,000 or more

x 6 percent (.06)

3. Total Use Tax Due (add lines 1 and

Use Tax Calculation Worksheet

Call 502-564-5170 for assistance.

Report this amount on Form 740 or 740-NP, Line 27; or 740-EZ,

Line 9.

LINE 30(a), Tax Withheld—Enter the amount of 2014 Kentucky

income tax withheld by your employer(s). This amount is

shown on wage and tax statements, including Forms 1099 and

W-2G, which you must attach to Form 740 in the designated

area.

You will not be given credit for Kentucky income tax withheld

unless you attach the wage and tax statements or other

supporting documents reﬂecting Kentucky withholding.

Employers are required to give these statements to employees

no later than January 31, 2015. If by March 1 you are unable to

obtain a wage and tax statement from an employer, contact

the Department of Revenue for instructions.

You may not claim credit for tax withheld by another state.

Within certain limitations, Kentucky residents may claim a

credit for nonrefundable individual income tax paid to other

states. See Section A, Line 5.

Local government occupational, license or income tax must

not be included on Line 30(a).

LINE 30(b), Estimated Tax Paid—Enter Kentucky estimated

tax payments made for 2014 and amounts credited from the

2013 return.

Also, include on Line 30(b) payments prepaid with extension

requests. Identify as “prepaid with extension.”

LINE 30(c), Refundable Certiﬁed Rehabilitation Credit—

Enter 2014 approved refundable certiﬁed rehabilitation

credit per KRS 141.382(1)(b).

LINE 30(d), Film Industry Tax Credit—Enter 2014 approved

refundable ﬁlm industy tax credit per KRS 141.383. Attach

Schedule K-1, if applicable.

LINE 31—Total of amounts on Lines 30(a) through 30(d).

Compare the amounts on Lines 29 and 31. If Line 31 is

larger than Line 29, subtract Line 29 from Line 31. Enter the

difference on Line 32. This is the AMOUNT OVERPAID.

If Line 31 is smaller than Line 29, you owe additional tax.

Subtract Line 31 from Line 29. Enter on Line 41. For instruc-

tions on payment, see Line 44, Amount You Owe.

LINE 32, Amount Overpaid—If you have an overpayment on

Line 32 you may have all of this amount refunded to you. You

also may contribute all or part of it to the Nature and Wildlife

Fund, the Child Victims’ Trust Fund, the Veterans’ Program

Trust Fund, the Breast Cancer Research and Education Trust

Fund, the Farms to Food Banks Trust Fund and/or credit all

or part of it toward your 2015 estimated tax.

Voluntary Refund Contributions

Donations to the following funds are voluntary and amounts

donated will reduce your refund. You may contribute all or

a portion of your overpayment to one or more of the fol-

lowing funds. Enter the amount you wish to contribute on

the appropriate lines.

LINE 33, Nature and Wildlife Fund—Contributions will

purchase and protect Kentucky’s ﬁnest natural areas as

state nature preserves and for nongame species protection.

The Kentucky Department of Fish and Wildlife Resources

and the Kentucky State Nature Preserves Commission

work together to protect Kentucky’s rare

plants and animals; and acquire the most

naturally outstanding forests, wetlands

and prairies in order to provide a home for

Kentucky’s unique and diverse wildlife. Your

tax deductible contributions play a critical

role in protecting the wildlands that make

Kentucky famous. Contributions may also be made directly to

the Nature and Wildlife Fund, c/o the Kentucky State Nature

Preserves Commission, or c/o the Kentucky Department of

Fish and Wildlife Resources, Frankfort, KY 40601.

Help keep the Bluegrass state green!

Kentucky Department of Fish and Wildlife Resources:

http://www.fw.ky.gov

Kentucky State Nature Preserves Commission:

http://naturepreserves.ky.gov

LINE 34, Child Victims’ Trust Fund (CVTF)—Contributions to

this fund ﬁnance regional and statewide prevention programs

which utilize innovative strategies to provide children with

personal safety skills, teach adults how to keep children safe

from child sexual abuse and exploitation,

and inform the public about mandatory

reporting of suspected child abuse. The

CVTF also provides partial reimbursement

for child sexual abuse medical exams

at Children’s Advocacy Centers across

the state. This fund is administered through the Attorney

General’s ofﬁce and relies on tax-deductible contributions

and private donations. Contributions may be made directly

to the Child Victims’ Trust Fund, Ofﬁce of Victims Advocacy,

1024 Capital Center Drive, Suite 200, Frankfort, KY 40601. For

more information call (502) 696-5312.

LINE 35, Veterans’ Program Trust Fund—Contributions to

this fund are administered by a Board

of Directors, who are all veterans. The

Trust Fund is used to provide services to

veterans that are not already resourced

by state law or federal appropriation.

In an effort to recognize the service

and sacrifice of Kentucky’s deserving

veterans, the fund supports programs such as state veterans

nursing homes, state veterans cemeteries, homeless veterans

transition facilities, transportation for disabled veterans and

other veteran related projects. Contributions may also be

made directly to the Kentucky Veterans’ Program Trust Fund,

1111B Louisville Road, Frankfort, KY 40601.

LINE 42(b), Interest—Interest will be assessed at the “tax

interest rate” from the original due date of the return until

the date of payment.

LINE 42(c), Late Payment Penalty—If the amount of tax due

as shown on Line 41 is not paid by the original due date of the

return, a penalty of 2 percent of the tax computed due may

be assessed for each 30 days or fraction thereof that the tax

is past due, not to exceed 20 percent. The minimum penalty

is $10. However, if the amount timely paid is 75 percent of

the tax determined due by the Department of Revenue, no

late payment penalty will be assessed.

LINE 42(d), Late Filing Penalty—If a return is not ﬁled by the

due date or the extended due date, a penalty of 2 percent of

the total tax due for each 30 days or fraction thereof that a

return is not ﬁled may be assessed, not to exceed 20 percent.

The minimum penalty is $10.

Note: Penalties but not interest may be reduced or waived if

reasonable cause for reduction or waiver can be shown.

LINE 44, Amount You Owe—When ﬁling the return, you

must pay any tax due shown on Line 44. Attach check

payable to Kentucky State Treasurer to your return. To

help identify your payment properly, write “KY Income

Tax—2014” and your Social Security number on the face of

the check. Attach check at the left side of Form 740. Place

the check on TOP of any wage and tax statements.

Pay by Credit Card or ACH Debit—Pay your 2014 Kentucky

individual income tax by MasterCard, VISA, Discover or

American Express credit card or by ACH Debit through

April 15, 2015.

Access the Department of Revenue’s

secure Web site (www.

revenue.ky.gov) to make electronic

payments over the Internet. Click on the KY E–Tax logo and

select E–Payments—Credit Cards and ACH Debits link. If

you do not have access to the Internet, you may call the

Department of Revenue at (502) 564–4581 for assistance

with payments.

To make a credit card payment, the following information

is needed: credit card type, credit card number, expiration

date, and the cardholder’s address as it appears on the credit

card billing statement. To make an ACH Debit payment, the

following information is needed: bank name, bank account

number, and bank routing number.

Note: If you cannot pay your tax in full, ﬁle your return and

pay as much as possible by April 15. Contact the Department

of Revenue for additional payment information.

LINE 36, Breast Cancer Research and Education Trust

Fund Contribution—Contributions will be used to fund

breast cancer research, education, awareness, treatment

and

screening. Additional information may be obtained

from the

Division of Women’s Health, (502) 564-3236 or at

http://chfs.ky.gov/dph/info/dwh/. Contributions

may also be made directly to the state

Department for Public Health, Division of

Administration and Financial Management, 275

East Main Street, HS1GWA, Frankfort, KY 40621,

(502) 564-6663.

LINE 37, Farms to Food Banks Trust Fund Contribution—

Contributions to this fund are used to offset farmers’ costs

for providing surplus Kentucky-grown fruits and vegetables

to food banks. Cash ﬂow for farmers is strengthened while

access to healthy food among struggling Kentuckians

is increased. This fund is administered by the Kentucky

Department of Agriculture. Contributions can also be made

directly to the Farms to Food

Banks Trust Fund, c/o the Kentucky

Department of Agriculture, 500

Mero Street, Capital Plaza Tower,

7th Floor, Frankfort, KY 40601.

(502) 564-4696.

LINE 39, Estimated Tax—You may credit all or part of the

overpayment toward your estimated tax liability for 2015.

Enter the amount you want credited on Line 39.

LINE 40—Subtract amounts entered on Lines 38 and 39 from

Line 32. Enter the difference, if any, on Line 40. This amount

will be refunded to you. If the total of Lines 38 and 39 equals

the amount on Line 32, enter a zero on Line 40.

Note: If the amount of Kentucky tax you overpaid is excessive,

obtain a copy of Form K-4A from your employer. If you are

entitled to additional allowances, ﬁle a new Form K-4 with your

employer to reduce the amount of Kentucky tax withheld.

LINE 41—This is your additional tax due before penalties

and interest.

Penalties and Interest

LINE 42(a), Underpayment of Estimated Tax and/or Interest—

If the amount owed is more than $500 and more than 30

percent of the income tax liability on Line 26, you may be

subject to a penalty of 10 percent of the underpayment of

estimated tax.

The amount of the penalty may be calculated on Form

2210–K. Form 2210–K may also be used by qualifying farmers

and others to claim exemption to the penalty. If paying the

penalty or claiming an exemption, complete Form 2210–K,

attach it to your return and check the box beside Line 42(a).

Enter the amount of the penalty on Line 42(a). The minimum

penalty is $25.

Failure to make four equal installment payments timely may

result in interest due. See Form 2210-K and instructions.

If your return is ﬁled after April 15, 2015, or any tax due on

the return is paid after April 15, 2015, you may be subject

to additional penalties and interest.

SECTION A—BUSINESS INCENTIVE AND OTHER TAX

CREDITS

Line 1, Nonrefundable Limited Liability Entity Tax Credit

(KRS 141.0401(2))

An individual that is a partner, member or shareholder of

a limited liability pass–through entity is allowed a limited

liability entity tax (LLET) credit against the income tax imposed

by KRS 141.020 equal to the individual’s proportionate share

of LLET computed on the gross receipts or gross proﬁts of

the limited liability pass–through entity as provided by KRS

141.0401(2), after the LLET is reduced by the minimum tax

of $175 and by other tax credits which the limited liability

pass–through entity may be allowed. The credit allowed an

individual that is a partner, member, or shareholder of a

limited liability pass-through entity against income tax shall

be applied only to income tax assessed on the individual’s

proportionate share of distributive income from the limited

liability pass–through entity as provided by KRS 141.0401(3)

(b). Any remaining LLET credit shall be disallowed and shall

not be carried forward to the next year.

Nonrefundable Kentucky limited liability entity tax credit

(KRS 141.0401(2))—The credit amount is shown on Kentucky

Schedule(s) K–1 from pass-through entities (PTEs) or Form(s)

725 for single member limited liability companies. Copies of

Kentucky Schedule(s) K-1 or Form(s) 725 must be attached

to your return.

Kentucky Limited Liability Entity Tax Credit Worksheet

Complete a separate worksheet for each LLE. Retain for your

records.

Name __________________________________________________

Address ________________________________________________

FEIN ___________________________________________________

Percentage of Ownership ....................... ______________ %

1. Enter Kentucky taxable income

from Form 740, Line 11 ....................... ________________

2. Enter LLE income as shown

on Kentucky Schedule K-1

or Form 725 ........................................ ________________

3. Subtract Line 2 from Line 1 and

enter total here ................................... ________________

4. Enter Kentucky tax on income

amount on Line 1 ................................ ________________

5. Enter Kentucky tax on income

amount on Line 3 ................................ ________________

6. Subtract Line 5 from Line 4. If Line 5

is larger than Line 4, enter zero.

This is your tax savings if income

is ignored ............................................ ________________

7. Enter nonrefundable limited liability

entity tax credit (from Kentucky

Schedule K-1 or Form 725) ............... ________________

8. Enter the lesser of Line 6 or Line 7.

This is your credit. Enter here and

on Form 740, Section A, Line 1 .......... ________________

Line 2, Kentucky Small Business Investment Credit—For

taxable years beginning after December 31, 2010, a small

business may be eligible for a nonrefundable credit of up

to one hundred percent (100%) of the Kentucky income tax

imposed under KRS 141.020 or 141.040, and the limited

liability entity tax imposed under KRS 141.0401.

The small business development credit program authorized

by KRS 154.60-020 and KRS 141.384 was amended to allow

the credit to apply to taxable years beginning after Dec. 31,

2010. The deﬁnition of base year for purposes of the credit

computation was changed to the ﬁrst full year of operation

that begins on or after Jan.1, 2009 and before Jan. 1, 2010.

Small businesses are eligible to apply for credits and receive

ﬁnal approval for these credits one (1) year after the small

business:

• Creates and ﬁlls one (1) or more eligible positions over

the base employment, and that position or positions are

created and ﬁlled for twelve (12) months; and

• Invests five thousand dollars ($5,000) or more in

qualifying equipment or technology.

The small business shall submit all information necessary to

the Kentucky Economic Development Finance Authority to

determine credit eligibility for each year and the amount of

credit for which the small business is approved.

A small business that is a pass-through entity not subject

to the tax imposed by KRS 141.040 and that has tax credits

approved under Subchapter 60 of KRS Chapter 154 shall apply

the credits against the limited liability entity tax imposed by

KRS 141.0401, and shall also distribute the amount of the

approved tax credits to each partner, member, or shareholder

based on the partner’s, member’s, or shareholder’s distributive

share of income as determined for the year during which the

tax credits are approved.

The maximum amount of credits that may be committed

in each ﬁscal year by the Kentucky Economic Development

Finance Authority shall be capped at three million dollars

($3,000,000).

The maximum amount of credit for each small business

for each year shall not exceed twenty-ﬁve thousand dollars

($25,000). The credit shall be claimed on the tax return for

the year during which the credit was approved. As per KRS

141.0205, individuals entitled to this credit will claim the

credit on Line 2, Section A – Business Incentive and Other

Tax Credits.

Unused credits may be carried forward for up to ﬁve (5)

years.

Line 3, Skills Training Investment Tax Credit—Enter the

amount of credit certified by the Bluegrass State Skills

Corporation. A copy of the Kentucky Schedule K-1 for the

year the credit was approved must be attached to the return

in the ﬁrst year the credit is claimed. The excess credit over

the income tax liability in the year approved may be carried

forward for three successive taxable years. For information

regarding the application and approval process for this credit,

contact the Cabinet for Economic Development, Bluegrass

State Skills Corporation at (502) 564-2021.

Credit for Taxes Paid to Other State Worksheet

Kentucky residents/part-year residents only. Complete a

separate worksheet for each state. See instructions for Form

740, Section A, Line 5.

TIP—Credit for taxes paid to another state may

be reduced or eliminated if gambling losses

are claimed on Schedule A.

Name of other state ......................................

1. List Kentucky taxable income from

Form 740, Line 11 ................................... ________________

2. List any gambling losses from

Schedule A, Line 28 ............................... ________________

3. Add Lines 1 and 2 and enter

total here ................................................ ________________

4. List income reported to other state

included on Kentucky return ................ ________________

5. Subtract Line 4 from Line 3 and

enter total here ...................................... ________________

6. Adjusted gambling losses. Compute

gambling losses allowed on Kentucky

return if income from other state is

ignored ................................................... ________________

7. Subtract Line 6 from Line 5 and

enter total here ...................................... ________________

8. Enter Kentucky tax on income

amount on Line 7 .................................. ________________

9. Enter Kentucky tax on income

amount on Line 1 .................................. ________________

10. Subtract Line 8 from Line 9. This is

the tax savings on return if other

state’s income is ignored ...................... ________________

11. Enter tax paid to other state on

income claimed on Kentucky return .... ________________

12. Enter the lesser of Line 10 or Line 11.

This is your credit for tax paid to

other state. Carry this total to

Form 740, Section A, Line 5 .................. ________________

Line 6, Employer’s Unemployment Tax Credit—If you hired

unemployed Kentucky residents to work for you during the

last six months of 2013 or during 2014, you may be eligible

to claim the unemployment tax credit. In order to claim a

credit, each person hired must meet speciﬁc criteria. For

each qualiﬁed person, you may claim a tax credit of $100.

The period of unemployment must be certiﬁed by the Ofﬁce

of Employment and Training, Education Cabinet, 275 East

Main Street, 2-WA, Frankfort, KY 40621-0001, and you must

maintain a copy of the certiﬁcation in your ﬁles. A copy of

Schedule UTC must be attached to your return.

Line 7, Recycling and/or Composting Tax Credit—Individuals

who purchase recycling or composting equipment to be

used exclusively in Kentucky for recycling or composting

postconsumer waste materials, are entitled to a credit

against the tax equal to 50 percent of the installed cost of the

equipment pursuant to KRS 141.390. Application for this credit

must be made on Schedule RC, which may be obtained from

the Department of Revenue. A copy of Schedule RC and/or

Schedule RC (K-1) reﬂecting the amount of credit approved by

the Department of Revenue must be attached to the return.

Line 8, Kentucky Investment Fund Tax Credit—Limits on

Kentucky Investment Fund Act (KIFA) Credits—An investor

whose cash contribution to an investment fund has been

certiﬁed by the Kentucky Economic Development Finance

Authority (KEDFA) is entitled to a nonrefundable credit

against Kentucky income tax equal to 40 percent of the cash

contribution. For investments before July 1, 2002, the amount



Line 4, Nonrefundable Certiﬁed Rehabilitation Credit—This

credit is available to owner–occupied residential and

commercial preservation projects for structures that are listed

in the National Register of Historic Places, or in a National

is 30 percent of certiﬁed rehabilitation expenses for owner–

occupied residential properties, not to exceed $60,000 per

project, and 20 percent for commercial and income-producing

properties. To qualify, an owner must spend at least $20,000

on rehabilitation.

Individuals or businesses can apply the credit against their

state income tax liability, carry the credit forward up to

seven years or transfer it to a banking institution to leverage

ﬁnancing. For applications submitted on or after April 30,

2010, the credit shall be refundable if the taxpayer makes

an election under KRS 171.397(2)(b). For more information

regarding this credit, visit the Kentucky Heritage Council’s

Web site at www.heritage.ky.gov, or call (502) 564–7005.

Line 5, Credit for Tax Paid to Another State—Kentucky

residents are required to report all income received including

income from sources outside Kentucky. Within certain

limitations, a credit for income tax paid to another state may

be claimed. The credit is limited to the amount of Kentucky

tax savings had the income reported to the other state

been omitted, or the amount of tax paid to the other state,

whichever is less.

You may not claim credit for tax withheld by another state.

You must ﬁle a return with the other state and pay tax on

income also taxed by Kentucky in order to claim the credit.

A copy of the other state’s return including a schedule of

income sources must be attached to verify this credit. If you

owe tax in more than one state, the credit for each state must

be computed separately.

Reciprocal States—Kentucky has reciprocal agreements with

speciﬁc states. These agreements provide for taxpayers to

be taxed by their state of residence, and not the state where

income is earned. Persons who live in Kentucky for more

than 183 days during the tax year are considered residents

and reciprocity does not apply. The states and types of

exemptions are as follows:

Illinois, West Virginia—wages and salaries

Indiana—wages, salaries and commissions

Michigan, Wisconsin—income from personal services

(including salaries and wages)

Ohio—wages and salaries. Note: Wages which an S

corporation pays to a shareholder–employee if the

shareholder–employee is a “twenty (20) percent or

greater” direct or indirect equity investor in the S

corporation shall not be exempt under the reciprocity

agreement.

Virginia—commuting daily, salaries and wages

Kentucky does not allow a credit for tax paid to a reciprocal

state on the above income. If tax was withheld by a reciprocal

state, you must ﬁle directly with the other state for a refund

of those taxes.

of credit that may be claimed in any given year is limited

to 25 percent of the total amount certiﬁed by the Kentucky

Economic Development Finance Authority (KEDFA). For

investments after June 30, 2002, the credit is claimed on the

tax return ﬁled for the tax year following the year in which the

credit is granted and is limited in any tax year to 50 percent

of the initial aggregate credit apportioned to the investor.

Attach a copy of the certiﬁcation by KEDFA in the ﬁrst year

claimed. Any excess credit may be carried forward. No credit

may extend beyond 15 years of the initial certiﬁcation.

Line 9, Coal Incentive Tax Credit—A company that owns and

operates an alternative fuel facility or a gasiﬁcation facility as

deﬁned in KRS 154.27-010 may be entitled to a coal incentive

tax credit. Application for this credit is made on Schedule

CI, Application for Coal Incentive Tax Credit, and a copy of

the credit certiﬁcate issued by the Kentucky Department of

Revenue must be attached to the return on which the credit

is claimed.

Line 10, Qualified Research Facility Tax Credit—A

nonrefundable credit is allowed against individual and

corporation income taxes equal to 5 percent of the cost

of constructing and equipping new facilities or expanding

or remodeling existing facilities in Kentucky for qualiﬁed

research. “Qualiﬁed research” is deﬁned to mean qualiﬁed

research as deﬁned in Section 41 of the IRC. Any unused

credit may be carried forward 10 years. Complete and attach

Schedule QR, Qualiﬁed Research Facility Tax Credit.

Line 11, Employer GED Incentive Tax Credit—KRS Chapter

151B.127 provides a nonrefundable income tax credit for

employers who assist employees in completing a learning

contract in which the employee agrees to obtain his or

her high school equivalency diploma. The employer shall

complete the lower portion of the GED-Incentive Program

Final Report (Form DAEL-31) and attach a copy to the return

to claim this credit. Shareholders and partners should

attach a copy of Schedule K-1 showing the amount of credit

distributed. For information regarding the program, contact

the Education Cabinet, Kentucky Adult Education, Council on

Postsecondary Education.

Line 12, Voluntary Environmental Remediation Credit—This

line should be completed only if the taxpayers have an

agreed order with the Environmental and Public Protection

Cabinet under the provisions of KRS 224.01-518 and have

been approved for the credit by the Department of Revenue.

Maximum credit allowed to be claimed per taxable year is 25

percent of approved credit. For more information regarding

credit for voluntary environmental remediation property,

contact the Environmental and Public Protection Cabinet at

(502) 564-3350. To claim this credit, Schedule VERB must be

attached.

Line 13, Biodiesel and Renewable Diesel Credit—Producers

and blenders of biodiesel and producers of renewable diesel

are entitled to a tax credit against the taxes imposed by KRS

141.020, KRS 141.040 and KRS 141.0401. The taxpayer must

ﬁle a claim for biodiesel and renewable diesel credit with the

Department of Revenue by January 15 each year for biodiesel

produced or blended and the renewable diesel produced in

the previous calendar year. The department shall issue a credit

certiﬁcation to the taxpayer by April 15. The credit certiﬁcation

must be attached to the tax return claiming this credit.

Line 14, Environmental Stewardship Tax Credit—An approved

company may be permitted a credit against the Kentucky

income tax imposed by KRS 141.020, KRS 141.040 or KRS

141.0401 on the income of the approved company generated

by or arising out of a project as determined under KRS 154.48-

020. An “environmental stewardship product” means any new

manufactured product or substantially improved existing

manufactured product that has a lesser or reduced adverse

effect on human health and the environment or provides for

improvement to human health and the environment when

compared with existing products or competing products that

serve the same purpose. A company must have eligible costs

of at least $5 million and within six months after the activation

date, the approved company compensates a minimum of 90

percent of its full-time employees whose jobs were created

or retained base hourly wages equal to either: (1) 75 percent

of the average hourly wage for the Commonwealth; or (2) 75

percent of the average hourly wage for the county in which

the project is to be undertaken. The maximum amount of

negotiated inducement that can be claimed by a company for

any single tax year may be up to 25 percent of the authorized

inducement. The agreement shall expire on the earlier of

the date the approved company has received inducements

equal to the approved costs of its project, or 10 years from

the activation date. For more information, contact the Cabinet

for Economic Development, Old Capitol Annex, 300 West

Broadway, Frankfort, KY 40601.

KRS 141.430 was amended to provide that for tax years

beginning on or after June 4, 2010, the base tax year is

reduced by ﬁfty percent (50%). The base tax year is the

combined income tax and LLET for the ﬁrst taxable year

after December 31, 2005, that ends immediately prior to

the activation date. If the base year is for a taxable year

beginning before January 1, 2007, the LLET will not apply.

Caution: An approved company under the Environmental

Stewardship Act shall not be entitled to the recycling credit

provided under the provisions of KRS 141.390 for equipment

used in the production of an environmental stewardship

project.

Line 15, Clean Coal Incentive Tax Credit—A nonrefundable,

nontransferable credit against taxes imposed by KRS 136.120,

KRS 141.020, KRS 141.040 or KRS 141.0401 shall be allowed

for a clean coal facility. As provided by KRS 141.428, a clean

coal facility means an electric generation facility beginning

commercial operation on or after January 1, 2005, at a cost

greater than $150 million that is located in the Commonwealth

of Kentucky and is certiﬁed by the Environmental and Public

Protection Cabinet as reducing emissions of pollutants

released during generation of electricity through the use

of clean coal equipment and technologies. The amount of

the credit shall be two dollars ($2) per ton of eligible coal

purchased that is used to generate electric power at a certiﬁed

clean coal facility, except that no credit shall be allowed if the

eligible coal has been used to generate a credit under KRS

141.0405 for the taxpayer, parent or a subsidiary.

Line 16, Ethanol Tax Credit—An ethanol producer shall be

eligible for a nonrefundable tax credit against the taxes

imposed by KRS 141.020 or 141.040 and 141.0401 in an amount

certiﬁed by the department. The credit rate shall be one dollar

($1) per ethanol gallon produced, unless the total amount

of approved credit for all ethanol producers exceeds the

annual ethanol tax credit cap. If the total amount of approved

credit for all ethanol producers exceeds the annual ethanol

tax credit cap, the department shall determine the amount

of credit each ethanol producer receives by multiplying the

annual ethanol tax credit cap by a fraction, the numerator

of which is the amount of approved credit for the ethanol

producer and the denominator of which is the total approved

credit for all ethanol producers. The credit allowed shall be

applied both to the income tax imposed under KRS 141.020

or 141.040 and to the limited liability entity tax imposed

under KRS 141.0401, with the ordering of credits as provided

in KRS 141.0205. Any remaining ethanol credit shall be

disallowed and shall not be carried forward to the next year.

“Ethanol producer” is deﬁned as an entity that uses corn,

soybeans, or wheat to manufacture ethanol at a location in

this Commonwealth.

Line 17, Cellulosic Ethanol Tax Credit—A cellulosic ethanol

producer shall be eligible for a nonrefundable tax credit

against the taxes imposed by KRS 141.020 or 141.040 and

141.0401 in an amount certiﬁed by the department. The

credit rate shall be one dollar ($1) per cellulosic ethanol

gallon produced, unless the total amount of approved credit

for all cellulosic ethanol producers exceeds the annual

cellulosic ethanol tax credit cap. If the total amount of

approved credit for all cellulosic ethanol producers exceeds

the annual cellulosic ethanol tax credit cap, the department

shall determine the amount of credit each cellulosic ethanol

producer receives by multiplying the annual cellulosic ethanol

tax credit cap by a fraction, the numerator of which is the

amount of approved credit for the cellulosic ethanol producer

and the denominator of which is the total approved credit for

all cellulosic ethanol producers. The credit allowed shall be

applied both to the income tax imposed under KRS 141.020

or 141.040 and to the limited liability entity tax imposed under

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

141.0205. Any remaining cellulosic ethanol credit shall be

disallowed and shall not be carried forward to the next year.

“Cellulosic ethanol producer” is deﬁned as an entity that

uses cellulosic biomass materials to manufacture cellulosic

ethanol at a location in this Commonwealth.

Line 18, Energy Efficiency Products Tax Credits—This

nonrefundable credit is available to taxpayers who install

energy efﬁciency products for residential and commercial

property located in Kentucky as provided by KRS 141.436

for taxable years beginning after December 31, 2008, and

before January 1, 2016.

Complete Form 5695-K, Kentucky Energy Efﬁciency Products

Tax Credit, to see if you meet the qualiﬁcations for this

credit.

Individuals or businesses can apply the credit against their

state income tax liability and carry the credit forward for

one (1) year if the credit cannot be taken in full in the year

in which the installation is completed.

Line 19, Railroad Maintenance and Improvement Credit—The

railroad maintenance and improvement credit provided by

KRS 141.385 is a nonrefundable credit that can be applied

against the taxes imposed by KRS 141.020, KRS 141.040 and

KRS 141.0401. The tax credit shall be used in the tax year of

the qualiﬁed expenditures which generated the tax credit and

cannot be carried forward to a return for any other period.

An eligible taxpayer means the owner of a Class II or Class III

railroad located in Kentucky, the transporter of property using

the rail facilities of a Class II or III railroad in Kentucky, or any

person that furnishes railroad-related property or services to

a Class II or Class III railroad located in Kentucky. A copy of

Schedule RR-I must be attached to your return.

Line 20, Endow Kentucky Credit—Effective for taxable years

beginning on or after Jan. 1, 2011, the Endow Kentucky Tax

Credit was created to encourage donations to community

foundations across the Commonwealth. KRS 141.438 was

created to allow a nonrefundable income tax and limited

liability entity tax credit of 20 percent of the value of the

endowment gift, not to exceed $10,000.

A taxpayer shall attach a copy of the approved Schedule

ENDOW to the tax return each year to claim the tax credit

against the taxes imposed by KRS 141.020 or 141.040 and

141.0401.

A partner, member or shareholder of a pass–through entity

shall attach a copy of Schedule K–1, Form 720S; Schedule

K–1, Form 765; or Schedule K–1, Form 765–GP to the

partner’s, member’s or shareholder’s tax return each year

to claim the tax credit.

Unused credit may be carried forward for use in a subsequent

taxable year, for a period not to exceed ﬁve years.

Line 21, New Markets Development Program Tax Credit—

A taxpayer that makes a qualiﬁed equity investment in a

qualiﬁed community development entity may be eligible for a

credit that may be taken against the corporation income tax,

individual income tax, insurance premiums taxes and limited

liability entity tax. The qualiﬁed community development

entity must ﬁrst submit an application to the Department of

Revenue for approval. The person or entity actually making

the loan or making the equity investment will be able to claim

a credit, subject to a $10 million credit cap each ﬁscal year,

by completing Form 8874(K)-A.

Line 22, Food Donation Credit—For taxable years beginning

on or after January 1, 2014, but before January 1, 2018, a

qualiﬁed taxpayer shall be allowed a nonrefundable credit

against the tax imposed by KRS 141.020, or 141.040 and

141.0401, with the ordering of credits as provided in KRS

141.0205, in an amount equal to ten percent (10%) of the

value of donated edible agriculture products to a nonproﬁt

organization operating a food program in Kentucky that is

exempt from federal income tax under Section 501(c)(3) of

the Internal Revenue Code.

A qualiﬁed taxpayer means a person responsible for and

deriving income from: (i) growing fruits, vegetables, or other

edible agriculture products; or (ii) raising beef, poultry, pork,

ﬁsh, or other edible agriculture products. Edible agriculture

products means fruits, vegetables, beef, poultry, pork, ﬁsh,

or any other edible product raised or grown in Kentucky that

is intended for and ﬁt for human consumption. For more

information, see KRS 141.392.

Attach a copy of the Schedule(s) FD. If this credit cannot be

taken in full in the year of the donation you may carry the

credit forward four (4) years.

SECTION B—PERSONAL TAX CREDITS

Line 1(a), Yourself—You are always allowed to claim a tax

credit for yourself (even if your parent(s) can claim a credit

for you on their return). On Line 1(a), there are eleven boxes

under four separate headings. Always check the box under

“Check Regular” to claim a tax credit for yourself. If 65 or

older, also check the next four boxes on the line. If legally

blind, also check the next four boxes on the line.

If you’re a member of the Kentucky National Guard on

December 31, 2014, also check the last two boxes on Line

1(a). Kentucky law speciﬁcally restricts this credit to Kentucky

National Guard members; military reserve members are not

eligible.

Line 1(b), Your Spouse—Do not ﬁll in Line 1(b) if (1) you are

single; (2) you are married and you and your spouse are ﬁling

two separate returns; or (3) your spouse received more than

half of his or her support from another taxpayer.

Fill in Line 1(b) if you are married and (1) you and your

spouse are ﬁling a joint or combined return, or (2) if your

spouse had no income or is not required to ﬁle a return. If

you meet these criteria, check the ﬁrst box on Line 1(b) for

your spouse. If your spouse is 65 or older, also check the

next four boxes. If your spouse was legally blind at the end

of the taxable year, also check the next four boxes on Line

1(b). If your spouse was a member of the Kentucky National

Guard on December 31, 2014, also check the last two boxes

on Line 1(b).

Dependents—You are allowed to claim a tax credit for each

person deﬁned as a dependent in the Internal Revenue Code.

Generally, dependents who qualify for federal purposes also

qualify for Kentucky.

Line 2, Dependents Who Live With You

Use to claim tax credits for your dependent children, including

stepchildren and legally adopted children, who lived with

you during the taxable year. If the dependent meets the

requirements for a qualifying child under the provisions of

IRC 152(c), check the box; this child qualiﬁes to be counted

to determine the family size.

Dependents Who Did Not Live With You

Also use Line 2 to claim tax credits for your dependent

children who did not live with you and to claim tax credits for

other persons who qualify as dependents. These dependents

do not qualify to be counted to determine the family size.

Children of Divorced or Separated Parents—Attach a copy of

federal Form 8332 ﬁled with your federal return. Children may

only be counted for family size by the custodial parent.

Tax Credits for Individuals Supported by More Than One

Taxpayer—Attach a copy of federal Form 2120 ﬁled with your

federal return.

Lines 3A and 3B, Dividing the Credits—Each taxpayer must

claim all of his or her own tax credits including the credits for

age and blindness. Therefore, if married, each spouse must

claim at least one credit. However, spouses may divide tax

credits for dependents, or one spouse may claim all depen-

dent credits and the other none.

Example I—A husband who is 65 and a wife who is 60 are

ﬁling separately on a combined return. The husband must

claim ﬁve credits (one regular and four for being 65 or older),

and the wife must claim one.

Example II—A husband and wife have two dependents. The

husband must claim his regular credit, and the wife must

claim hers. However, the two dependent credits may be

claimed by either spouse, or each spouse may claim one.

For married taxpayers, each spouse must claim all of his or

her own credits. Therefore, each spouse must claim at least

one credit. Credits for dependents may be divided between

the spouses, or one spouse may claim all the credits for

dependents and the other none.

TIP—Multiply credits by $10 and subtract from

tax on page 1. The tax table and the tax rate

schedule do not deduct for tax credits.

Remember to carry amounts from page 3,

Line 4A and/or 4B, to page 1, Line 17.

SECTION C—FAMILY SIZE TAX CREDIT

Children may only be counted for family size by the custodial

parent. Even if you have signed federal Form 8332 and may

not claim the child as a dependent, you may count children

who otherwise meet the requirements for the Family Size

Tax Credit.

You must include in Section C the names and Social Security

numbers of the qualifying children that are not claimed as

dependents in Section B in order to count them in your total

family size.

COPY OF FEDERAL RETURN

You must attach a complete copy of your federal return if you

received farm, business, or rental income or loss.

The Kentucky Department of Revenue does not require copies

if you ﬁled Form 1040EZ or 1040A. Check the box on Form

740, page 3 if you are not required to attach a copy of your

federal return.

SIGN RETURN

Be sure to sign on page 3 after completion of pages 1, 2 and

3 of your return. Each return must be signed by the taxpayer.

Joint and combined returns must be signed by both husband

and wife. Returns that are not signed may be returned to you

for signature.

Please enter a telephone number where you can be reached

during regular working hours. You may be contacted for

additional information needed to complete processing your

tax return.



Line 11, Pension Income Exclusion—The 2014 exclusion amount is 100 percent of taxable retirement beneﬁts or $41,110, whichever

is less. All pension and retirement income paid under a written retirement plan (qualiﬁed or unqualiﬁed) is eligible for exclusion.

This includes pensions, annuities, IRA accounts, 401(k) and similar deferred compensation plans, income received from convert-

ing a regular IRA to a Roth IRA, death beneﬁts, disability retirement beneﬁts and other similar accounts or plans.

This exclusion is for each taxpayer and must be computed independently of your spouse who may be ﬁling on the same return. A

husband and wife must complete and claim their own exclusion, regardless of ﬁling status. Joint ﬁlers—Combine the separately

computed pension exclusion amounts and enter on Schedule M, Line 11, Column B.

Pension Income Exclusion Worksheet

Step 1.

a. Enter taxable pension income reported on your federal Form 1040,

Line 15(b) or 16(b); Form 1040A, Line 11(b) or 12(b) .................................................. a

b. Enter disability retirement beneﬁts on Form 1040, Line 7 or

Form 1040A, Line 7 ....................................................................................................... b

c. Enter deferred compensation reported on Form 1040, Line 7 or

Form 1040A, Line 7 ....................................................................................................... c

d. Add Lines a, b and c ..................................................................................................... d

Step 2. Line d is $41,110 or less. Enter the amount from Line d on Schedule M, Line 11.

Step 3. Line d is more than $41,110. Do you have retirement income from the

federal government, the Commonwealth of Kentucky or a Kentucky local

government; or supplemental U.S. Railroad Retirement Board beneﬁts?.........................

 Yes  No  Yes  No

If you answered no, enter $41,110 on Schedule M, Line 11.

If you answered yes, you must complete Schedule P to determine your pension

exclusion.

Column A Column B

Spouse Yourself

Instructions for Schedule M—Modiﬁcations to Federal Adjusted Gross Income

Additions to Federal Adjusted Gross Income

Line 1—Interest on securities issued by other states and

their political subdivisions is taxed by Kentucky and must

be reported. Also report dividends received from regulated

investment companies (mutual funds) that are taxable for

Kentucky income tax purposes. Note: Interest from securities

of Kentucky and its political subdivisions is exempt.

Line 2—Enter the self-employed health insurance deduction

from federal Form 1040, Line 29.

Line 3—Enter resident adjustment from Kentucky Schedule

K-1. Partners, beneficiaries of estates and trusts and S

corporation shareholders, see Kentucky Schedule K-1

instructions.

Line 4—Enter total depreciation from federal Form 4562

if you have elected to take the 30 percent or 50 percent

special depreciation allowance or the increased Section 179

deduction for property placed in service after September 10,

2001. See Line 16 for additional instructions.

Line 5—Enter federal net operating loss reported on Line 21

of 2014 federal Form 1040.

Line 6—Enter federal domestic production activities deduction

from federal Form 8903, line 25.

Line 7—Enter other additions to federal adjusted gross

income not listed above (attach detailed schedule).

Include:

• Reservists and National Guard expenses reported on

federal Form 1040, line 24;

• the portion of a lump-sum distribution on which you have

elected the 20 percent capital gains rate for federal income

tax purposes (Schedule P and Form 4972-K required);

• the passive activity loss adjustment (see Form 8582-K and

instructions);

• differences in pension (3-year recovery rule) and IRA

bases;

• differences in gains (losses) from the sale of intangible

assets amortized under the provisions of the Revenue

Reconciliation Act of 1993; and

• differences in gains (losses) from the sale of depreciable

property placed in service after September 10, 2001.

Note: Before entering the difference on Line 7 you must take

into account any addition or subtraction affecting the at–risk

limitations. See instructions for Line 19.

Line 8, Total Additions—Add Lines 1 through 7. Enter on

Line 8 and on Form 740, page 1, Line 6.

Subtractions from Federal Adjusted Gross Income

Line 9—Enter the amount of taxable state income tax refund

or credit reported on your federal return and included as

income on Form 740, page 1, Line 5.

Line 10—Enter interest income from U.S. government

bonds and securities. Do not include taxable interest from

securities, such as FNMA (Fannie Mae), GNMA (Ginnie Mae)

and FHLMC (Freddie Mac), which are merely guaranteed by

the U.S. government.

Line 12—Enter Social Security and Social Security equivalent

U.S. Railroad Retirement Board beneﬁts included on Form

740, page 1, Line 5. These amounts are reported on federal

Form 1040, Line 20(b) (Form 1040A, Line 14(b)).

Line 13, Long–term Care Insurance Premiums—Enter long–

term care insurance premiums paid in 2014. Do not claim as

an itemized deduction.

Line 14, Health Insurance Premiums—Enter medical and

dental insurance premiums paid for yourself, your spouse

and your dependents. This deduction applies to premiums

paid with after-tax dollars. Note: You cannot deduct on Line

14 insurance premiums paid with pretax dollars (cafeteria

plans and vouchers already excluded from wage income)

because the premiums are not included in box 1 of your W-2

form(s). Do not include long-term care insurance premiums

included on Schedule M, Line 13. You may not deduct

premiums paid on your behalf (advance payments) and you

must reduce the amount you paid by the amount of health

coverage tax credit. (See federal Form 8885.)

Line 15—Enter resident adjustment from Kentucky Schedule

K-1. Partners, beneficiaries of estates and trusts and S

corporation shareholders, see Kentucky Schedule K-1

instructions. Subtract the distributive share of 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.

Line 16—Depreciation, Section 179 Deduction and Gains/

Losses From Disposition of Assets—Important: Use

Schedule M, Lines 4 and 16 only if you have elected for federal

income tax purposes to take the 30 percent or the 50 percent

special depreciation allowance or the increased Section 179

deduction for property placed in service after September

10, 2001. A copy of the federal Form 4562 if ﬁled for federal

income tax purposes must be submitted with Form 740 to

verify that no adjustments are required.

Reporting Depreciation and Section 179 Deduction Differences

for Property Placed in Service After September 10, 2001

Create a Kentucky Form 4562 by entering Kentucky at the

top center of a federal Form 4562 above Depreciation and

Amortization. In Part I, Line 1 enter the Kentucky limit of

$25,000 and in Part I, Line 3 enter the Kentucky phase-out

amount of $200,000. In Part II, strike through and ignore Line

14, Special depreciation allowance for qualiﬁed property

placed in service during the tax year.

Use the created Kentucky Form 4562 to compute Kentucky

depreciation and Section 179 deduction in accordance with

the IRC in effect on December 31, 2001. Note: In determining

the Section 179 deduction for Kentucky the income limitation

on Line 11 is Kentucky net income before the Section 179

deduction instead of federal taxable income. Attach the

created Kentucky Form 4562 to Form 740 and enter the

amount of Kentucky depreciation from Line 22 on Line 16.

Line 17—Enter Kentucky net operating loss calculated from

prior years. Keep worksheet detailing the net operating loss

claimed with your records.

Note: If your net operating loss occurred in 2014, complete

Kentucky Schedule KNOL to determine the amount of

your loss to be carried forward in future years. Any

carry forward of a prior year loss claimed on Line 17 of

Schedule M should be calculated using a worksheet. Keep

a copy for your records and attach a copy to your return.

Line 18—Enter Kentucky domestic productions activities

deduction. Beginning on or after January 1, 2010 limit the

federal domestic productions activity by the six percent (6%)

in lieu of the rate provided by IRC§ 199(a).

Line 19—Enter other subtractions from federal adjusted

gross income not listed above (attach detailed schedule).

Include:

• income of active duty military pay;

• income received from the tobacco quota buyout;

• income received as a result of the Master Tobacco Settlement

Agreement, the secondary settlement fund referred to as

“Phase II”;

• income received from the Tobacco Loss Assistance

Program (TLAP);

• income of precinct workers for election training or working

at election booths;

• capital gains on property taken by eminent domain;

• passive activity loss adjustment (see Form 8582-K and

instructions);

• income of a child reported on the parent’s return;

• artistic charitable contributions (if you do not itemize

deductions);

• the federal work opportunity credit used to reduce wages;

• at-risk limitations (see instructions below);

• qualified farm networking project differences per KRS

141.0101(15);

• differences in the gains (losses) from the sale of intangible

assets amortized under the provisions of the Revenue

Reconciliation Act of 1993;

• differences in gains (losses) from assets purchased after

September 10, 2001; and

• income of military personnel killed in the line of duty.

Note: All income earned by soldiers killed in the line of duty

is exempt from Kentucky tax for the year during which the

death occurred and the year preceding the death. Federal and

state death beneﬁts payable to the estate or any beneﬁciaries

may also be excluded. Additional information may be found

in the General Information section of the instructions for

Form 740.

Determining and Reporting Differences in Gain or Loss

From Disposition of Assets—If during the year you dispose

of assets placed in service after September 10, 2001, on

which the 30 percent or the 50 percent special depreciation

allowance or the increased Section 179 deduction was taken

for federal income tax purposes, you will need to determine

and report the difference in the amount of gain or loss on

the assets as follows:

Create a Kentucky form by entering Kentucky at the top

center of a federal Schedule D, federal Form 4797 and other

applicable federal forms. Compute Kentucky gain or loss

from the disposed assets using the Kentucky basis. Enter the

difference in federal gain or loss and the Kentucky gain or loss

on the appropriate line. Attach the created Kentucky Schedule

D, Kentucky Form 4797 and other forms or schedules to

support the deduction.

At-Risk Limitations—Federal/Kentucky income (loss)

differences may create different allowable losses due to

at-risk limitations. If you have amounts invested in an

activity for which you are not at risk and used federal Form

6198, At-Risk Limitations, complete federal Form 6198 using

Kentucky amounts to determine if the Kentucky allowable loss

differs from the federal allowable loss. For a passive activity,

use the Kentucky allowable loss to complete Form 8582-K.

For all other activities (nonpassive), enter the difference as an

“other addition” or “other subtraction” on Line 7 or Line 19

Line 20, Total Subtractions—Add Lines 9 through 19. Enter

on Line 20 and on Form 740, page 1, Line 8.

Instructions for Schedule A

Do not include on Schedule A items deducted elsewhere, such as on Schedule C, C-EZ, E, F or Kentucky Schedule M.

You may itemize your deductions for Kentucky even if you do

not itemize for federal purposes. Generally, if your deductions

exceed $2,400, it will beneﬁt you to itemize. If you do not

itemize, you may elect to take the standard deduction of

$2,400.

Special Rules for Married Couples—If one spouse itemizes

deductions, the other must also itemize. Married couples

ﬁling a joint federal return and who wish to ﬁle separate

returns or a combined return for Kentucky may: (a) ﬁle

separate Schedules A showing the specific deductions

claimed by each, or (b) ﬁle one Schedule A and divide the

total deductions between them based on the percentage of

each spouse’s income to total income.

Limitations on Itemized Deductions for High–Income

Taxpayers—If your adjusted gross income on Form 740,

Line 9, exceeds $181,150 ($90,575 if married ﬁling separately

on a combined return or separate returns), your itemized

deductions are reduced by the lesser of:

(a) 3 percent of the amount by which your adjusted gross

income exceeds $181,150 ($90,575 if married filing

separately on a combined return or separate returns),

(b) 80 percent of your total itemized deductions except

medical and dental expenses, casualty and theft losses,

gambling losses and investment interest.

The limitations are computed on page 2, Part II, Schedule A

(Form 740).

Lines 1 through 4—Medical and Dental Expenses

You may deduct only your medical and dental expenses that

exceed 10 percent of Line 9, Form 740, but if you or your

spouse was born before January 2, 1950, then you may only

deduct your medical and dental expenses that exceed 7.5

percent of Line 9, Form 740. Include all amounts you paid

during 2014 but do not include amounts which have been

previously deducted; paid by hospital, health or accident

insurance; or paid by your employer. Federal rules apply for

reimbursement.

When you compute your deduction, you may include medical

and dental bills you paid for:

Yourself.

All dependents you claim on your return.

Your child whom you do not claim as a dependent because

of the rules for Children of Divorced or Separated

Parents.

Any person that you could have claimed as a dependent

on your return if that person had not received $3,950 or

more of gross income or had not ﬁled a joint return.

Examples of Medical and Dental Payments

You MAY Deduct

To the extent you were not reimbursed, you may deduct

what you paid for:

Medicines and drugs that required a prescription, or

insulin.

Medical doctors, dentists, eye doctors, chiropractors,

osteopaths, podiatrists, psychiatrists, psychologists,

physical therapists, acupuncturists and psychoanalysts

(medical care only).

Medical examinations, X-ray and laboratory services,

insulin treatment and whirlpool baths your doctor

ordered.

Nursing help. If you paid someone to do both nursing and

housework, you may deduct only the cost of the nursing

help.

Hospital care (including meals and lodging), clinic costs

and lab fees.

Medical treatment at a center for drug or alcohol

addiction.

Medical aids such as hearing aids (and batteries), false

teeth, eyeglasses, contact lenses, braces, crutches,

wheelchairs, guide dogs and the cost of maintaining

them.

Lodging expenses (but not meals) paid while away from

home to receive medical care in a hospital or a medical

care facility that is related to a hospital. Do not include

more than $50 a night for each eligible person.

Ambulance service and other travel costs to get medical

care. If you used your own car, you may claim what you

spent for gas and oil to go to and from the place you

received the care; or you may claim mileage. The mileage

rate is 23.5 cents per mile. Add parking and tolls to the

amount you claim under either method.

The supplemental part of Medicare insurance (Medicare B).

To claim these expenses, see instructions for Schedule

M, Line 14.

Surgery to improve vision including radial keratotomy or

other laser eye surgery.

Examples of Medical and Dental Payments

You MAY NOT Deduct

You may not deduct payments for the following:

Elective cosmetic surgery.

Hospital, medical and extra Medicare B insurance. To

claim these expenses, see instructions for Schedule M,

Line 14.

The basic cost of Medicare insurance (Medicare A).

(Note: If you are 65 or over and not entitled to Social

Security beneﬁts, you may deduct premiums you vol-

untarily paid for Medicare A coverage.)

Life insurance or income protection policies.

Long-term care insurance premiums. To claim, see

instructions for Schedule M, Line 13.

Lines 5 through 9—Taxes

Taxes You MAY Deduct

Line 5, Local Income Taxes—Enter the total amount of local

occupational (payroll) tax paid. Do not include state or federal

income taxes paid or withheld; they are not deductible.

Line 6, Real Estate Taxes—Enter the amount of local and state

property taxes you paid on real estate owned by you. Do not

report real estate taxes here that were paid in connection

with a business or profession and have been deducted on

Schedule C, E or F.

Line 7, Personal Property Taxes—Enter property taxes paid

on automobiles, intangible property (accounts receivable,

bonds, etc.) or other personal property.

Line 8, Other Taxes—Enter other taxes that are deductible.

Do not deduct on Schedule A taxes paid in connection with

a business or profession which are deductible on Schedule

C, E or F.

Taxes You MAY NOT Deduct

Foreign income taxes paid.

Sales and use taxes.

New motor vehicle taxes.

Usage taxes on motor vehicles.

State or federal income taxes.

State or federal inheritance or estate taxes.

State gasoline taxes.

Federal excise taxes on your personal expenditures, such

as taxes on theater admissions, furs, jewelry, cosmetics,

tires, telephone service, airplane tickets, etc.

Federal Social Security taxes.

Hunting, ﬁshing or dog licenses.

Auto inspection fees.

Auto license fees.

Cigarette or liquor taxes.

Taxes paid by you for another person.

Motorboat registration fees.

Drivers’ license fees.

Sewer assessments.

School taxes based on electric, water, sewer, gas and

telephone bills.

Local or state insurance premiums taxes or surcharges.

Lines 10 through 15—Interest Expense

You may deduct interest that you have paid during the tax-

able year on a home mortgage. You may not deduct interest

paid on credit or charge card accounts, a life insurance loan,

an automobile or other consumer loan, delinquent taxes or

on a personal note held by a bank or individual.

Interest paid on business debts should be deducted as a

business expense on the appropriate business income

schedule.

You may not deduct interest on an indebtedness of another

person when you are not legally liable for payment of the

interest. Nor may you deduct interest paid on a gambling

debt or any other nonenforceable obligation. Interest paid

on money borrowed to buy tax-exempt securities or single

premium life insurance is not deductible.

Line 10—List the interest and points (including “seller-paid

points”) paid on your home mortgage to ﬁnancial institutions

and reported to you on federal Form 1098.

Line 11—List other interest paid on your home mortgage and

not reported to you on federal Form 1098. Show name and

address of individual to whom interest was paid.

Line 12—List points (including “seller-paid points”) not

reported to you on federal Form 1098. Points (including loan

origination fees) charged only for the use of money and paid

with funds other than those obtained from the lender are

deductible over the life of the mortgage. However, points

may be deducted in the year paid if all three of the following

apply: (1) the loan was used to buy, build or improve your

main home, and was secured by that home, (2) the points

did not exceed the points usually charged in the area where

the loan was made, and were ﬁgured as a percentage of the

loan amount, and (3) if the loan was used to buy or build the

home, you must have provided funds (see below) at least

equal to the points charged. If the loan was used to improve

the home, you must have paid the points with funds other

than those obtained from the lender.

Funds provided by you include down payments, escrow

deposits, earnest money applied at closing, and other

amounts actually paid at closing. They do not include

amounts you borrowed as part of the overall transaction.

Seller-Paid Points—If you are the buyer, you may be able to

deduct points the seller paid in 2014. You can do this if the

loan was used to buy your main home and the points meet

item 2 above. You must reduce your basis in the home by

those points, even if you do not deduct them.

If you are the seller, you cannot deduct the points as interest.

Instead, include them as an expense of the sale.

This generally does not apply to points paid to reﬁnance your

mortgage. Federal rules apply. See federal Publication 936

for more information.

The hospital insurance beneﬁts (Medicare) tax withheld

from your pay as part of the Social Security tax or paid

as part of Social Security self-employment tax.

Nursing care for a healthy baby.

Illegal operations or drugs.

Medicines or drugs you bought without a prescription.

Travel your doctor told you to take for rest or change.

Funeral, burial or cremation costs.

See federal Publication 502 for more information on allow-

able medical and dental expenses including deductions

for capital expenditures and special care for persons with

disabilities.

Line 14, Interest on Investment Property—Investment interest

is interest paid on money you borrowed that is allocable to

property held for investment. It does not include any interest

allocable to a passive activity or to securities that generate

tax-exempt income.

Complete and attach federal Form 4952, Investment Interest

Expense Deduction, to ﬁgure your deduction.

Exception. You do not have to ﬁle federal Form 4952 if all

three of the following apply:

(a) your investment interest is not more than your invest-

ment income from interest and ordinary dividends,

(b)

you have no other deductible investment expenses,

and

from 2013.

For more details, see federal Publication 550, Investment

Income and Expenses.

Lines 16 through 20—Contributions

You may deduct what you actually gave to organizations that

are religious, charitable, educational, scientiﬁc or literary in

purpose. You may also deduct what you gave to organizations

that work to prevent cruelty to children or animals. In general,

contributions deductible for federal income tax purposes are

also deductible for Kentucky.

Line 13, Qualiﬁed Mortgage Insurance Premiums—Premiums

that you pay or accrue for “qualiﬁed mortgage insurance”

during 2014 in connection with home acquisition debt on

your qualiﬁed home are deductible as home mortgage

insurance premiums. Qualified mortgage insurance

is mortgage insurance provided by the Veterans

Administration, the Federal Housing Administration, or

the Rural Housing Administration, and private mortgage

insurance. Mortgage insurance premiums you paid or

accrued on any mortgage insurance contract issued before

January 1, 2007, are not deductible.

Limit on amount you can deduct. You cannot deduct your

mortgage insurance premiums if the amount on Form

740, line 9, is more than $109,000 ($54,500 if married ﬁling

separately on a combined return or separate returns). If the

amount on Form 740, line 9, is more than $100,000 ($50,000

if married ﬁling separately on a combined return or separate

returns), your deduction is limited and you must use the

worksheet below to ﬁgure your deduction.

1. Enter the total premiums you paid in 2014

for qualiﬁed mortgage insurance for a

contract entered into on or after January 1, 2007 ..... 1. ______________________ 1. _____________________

2. Enter the amount from Form 740, Line 9 ................... 2. _____________________ 2. ____________________

3. Enter $100,000 ($50,000 if married ﬁling

separately on a combined return or

separate returns) ........................................................... 3. _____________________ 3. ____________________

4. Is the amount on Line 2 more than the

amount on Line 3?

No. Your deduction is not limited.

Enter the amount from Line 1 above

on Schedule A, Line 13.

 Yes. Subtract Line 3 from Line 2. If the

result is not a multiple of $1,000

($500 if married ﬁling separately on

a combined return or separate returns),

increase it to the next multiple of

$1,000 ($500 if married ﬁling

separately on a combined return or

separate returns). For example,

increase $425 to $1,000, increase

$2,025 to $3,000; or if married ﬁling

separately on a combined return or

separate returns, increase $425 to

$500, increase $2,025 to $2,500, etc. ........... 4. _____________________ 4. ______________________

5. Divide Line 4 by $10,000 ($5,000 if married

ﬁling separately on a combined return or

separate returns). Enter the result as a

decimal. If the result is 1.0 or more,

enter 1.0 ......................................................................... 5. _____________________ 5. ______________________

6. Multiply Line 1 by Line 5 .............................................. 6. ____________________ 6. _____________________

7. Qualiﬁed mortgage insurance premiums

deduction. Subtract Line 6 from Line 1 ....................... 7. _____________________ 7. _____________________

8. Add Line 7, Columns A and B. Enter here and

on Schedule A, Line 13 ...................................................................................................................................................... 8. _____________________

A. Spouse B. Yourself (or Joint)

Qualiﬁed Mortgage Insurance Premiums Deduction Worksheet

See the instructions for Line 13 above to see if you must use this worksheet to ﬁgure your deduction.

PENDING

FEDERAL

LEGISLATION

Examples of qualifying organizations are:

Churches, temples, synagogues, Salvation Army, Red

Cross, CARE, Goodwill Industries, United Way, Boy

Scouts, Girl Scouts, Boys and Girls Clubs of America,

etc.

Fraternal orders if the gifts will be used for the purposes

listed above.

Veterans’ and certain cultural groups.

Nonproﬁt schools, hospitals and organizations whose

purpose is to ﬁnd a cure for, or help people who have

arthritis, asthma, birth defects, cancer, cerebral palsy,

cystic fibrosis, diabetes, heart disease, hemophilia,

mental illness or retardation, multiple sclerosis, muscular

dystrophy, tuberculosis, etc.

Federal, state and local governments if the gifts are solely

for public purposes.

If you contributed to a qualifying charitable organization

and also received a beneﬁt from it, you may deduct only

the amount that is more than the value of the beneﬁt you

received.

Contributions You MAY Deduct

Contributions may be in cash, property or out-of-pocket

expenses you paid to do volunteer work for the kinds of

organizations described above. If you drove to and from the

volunteer work, you may take 14 cents a mile or the actual

cost of gas and oil. Add parking and tolls to the amount you

claim under either method. (Do not deduct any amounts that

were repaid to you.)

Note: You are required to maintain receipts, cancelled checks

or other reliable written documentation showing the name of

the organization and the date and amount given to support

claimed deductions for charitable contributions.

Separate contributions of $250 or more require written

substantiation from the donee organization in addition to

your proof of payment. It is your responsibility to secure sub-

stantiation. A letter or other documentation from the qualify-

ing charitable organization that acknowledges receipt of the

contribution and shows the date and amount constitutes a

receipt. This substantiation should be kept in your ﬁles. Do

not send it with your return.

See federal Publication 526 for special rules that apply if:

your total contributions exceed 50 percent of Line 9, Form

740,

your total deduction for gifts of property is over $500,

you gave less than your entire interest in the property,

your cash contributions or contributions of ordinary

income property are more than 30 percent of Line 9,

Form 740,

your gifts of capital gain property to certain organizations

are more than 20 percent of Line 9, Form 740, or

you gave gifts of property that increased in value, made

bargain sales to charity, or gave gifts of the use of

property.

You MAY NOT Deduct as Contributions

Travel expenses (including meals and lodging) while away

from home unless there was no signiﬁcant element of

personal pleasure, recreation or vacation in the travel.

Political contributions.

Dues, fees or bills paid to country clubs, lodges, fraternal

orders or similar groups.

Value of any beneﬁt, such as food, entertainment or mer-

chandise that you received in connection with a contribu-

tion to a charitable organization.

Cost of rafﬂe, bingo or lottery tickets.

Cost of tuition.

Value of your time or service.

Value of blood given to a blood bank.

The transfer of a future interest in tangible personal

property (generally, until the entire interest has been

transferred).

Gifts to:

Individuals.

Foreign organizations.

Groups that are run for personal proﬁt.

Groups whose purpose is to lobby for changes in the

laws.

Civic leagues, social and sports clubs, labor unions and

chambers of commerce.

Line 16—Enter all of your contributions paid by cash or check

(including out-of-pocket expenses).

Line 17—Enter your contributions of property. If you gave

used items, such as clothing or furniture, deduct their fair

market value at the time you gave them. Fair market value is

what a willing buyer would pay a willing seller when neither

has to buy or sell and both are aware of the conditions of

the sale. If your total deduction for gifts of property is more

than $500, you must complete and attach federal Form 8283,

Noncash Charitable Contributions. If your total deduction is

over $5,000, you may also have to obtain appraisals of the

values of the donated property. See federal Form 8283 and

its instructions for details.

Also include the value of a leasehold interest property con-

tributed to a charitable organization to provide temporary

housing for the homeless. Attach Schedule HH.

Recordkeeping—If you gave property, you should keep a

receipt or written statement from the organization you gave

the property to, or a reliable written record, that shows the

organization’s name and address, the date and location of the

gift and a description of the property. You should also keep

reliable written records for each gift of property that include

the following information:

(a) How you ﬁgured the property’s value at the time you

gave it. (If the value was determined by an appraisal,

you should also keep a signed copy of the appraisal.)

(b) The cost or other basis of the property if you must reduce

it by any ordinary income or capital gain that would have

resulted if the property had been sold at its fair market

value.

your deduction for gifts of capital gain property.

(d) Any conditions attached to the gift.

(e) If the gift was a “qualiﬁed conservation contribution”

under IRC Section 170(h), the fair market value of the

underlying property before and after the gift, the type

of legal interest donated and the conservation purpose

furthered by the gift.

Line 18—Enter artistic charitable contributions. A deduction

is allowed for “qualiﬁed artistic charitable contributions” of

any literary, musical, artistic or scholarly composition, letter

or memorandum, or similar property.

An amount equal to the fair market value of the property on

the date contributed is allowable as a deduction. However, the

deduction is limited to the amount of the taxpayer’s artistic

adjusted gross income for the taxable year.

The following requirements for a deduction must be met:

(a) The property must have been created by the personal

efforts of the taxpayer at least one year prior to the

date contributed. The creation of this property cannot

be related to the performance of duties while an ofﬁcer

or employee of the United States, any state or political

subdivision thereof.

(b) A written appraisal of the fair market value of the

contributed property must be made by a qualified

independent appraiser within one year of the date of the

contribution. A copy of the appraisal must be attached

to the tax return.

tion as described in this section.

Line 19—Enter any carryover of contributions that you were

not able to deduct in an earlier year because they exceeded

your adjusted gross income limit. See federal Publication 526

for details on how to ﬁgure your carryover.

Line 21—Casualty and Theft Losses

Enter casualty or theft losses of property that is not trade,

business, rent or royalty property. Attach federal Form

4684, Casualties and Thefts, or a similar statement to ﬁgure

your loss.

Losses You MAY Deduct

You may be able to deduct all or part of each loss caused

by theft, vandalism, ﬁre, storm, and car, boat and other

accidents or similar causes. You may also be able to deduct

money you had in a ﬁnancial institution but lost because of

the insolvency or bankruptcy of the institution.

You may deduct nonbusiness casualty or theft losses only to

the extent that the amount of each separate casualty or theft

loss is more than $100.

Special rules apply if you had both gains and losses from

nonbusiness casualties or thefts. See federal Form 4684 for

details.

Losses You MAY NOT Deduct

Money or property misplaced or lost.

Breakage of china, glassware, furniture and similar items

under normal conditions.

Progressive damage to property (buildings, clothes,

trees, etc.) caused by termites, moths, other insects or

disease.

Deduct the costs of proving you had a property loss as a

miscellaneous deduction on Line 24, Schedule A. (Examples

of these costs are appraisal fees and photographs used to

establish the amount of your loss.)

For more details, see federal Publication 547, Nonbusiness

Disasters, Casualties, and Thefts. It also gives information

about federal disaster area losses.

Lines 22 through 27—Miscellaneous Deductions

Most miscellaneous deductions cannot be deducted in full.

You must subtract 2 percent of your adjusted gross income

from the total. Compute the 2 percent limit on Line 26.

Generally, the 2 percent limit applies to job-related expenses

you paid for which you were not reimbursed (Line 22). The

limit also applies to certain expenses you paid to produce

or collect taxable income (Line 24). See the instructions

for Lines 22 and 24 for examples of expenses to claim on

these lines.

The 2 percent limit does not apply to certain other miscellaneous

expenses that you may deduct. These expenses can be

deducted in full on Line 28. The Line 28 instructions describe

these expenses. Included are deductible gambling losses (to

the extent of winnings) and certain job expenses of disabled

employees. See federal Publication 529, Miscellaneous

Deductions, for more information.

Expenses You MAY NOT Deduct

Political contributions.

Personal legal expenses.

Lost or misplaced cash or property (but see casualty and

theft losses).

Expenses for meals during regular or extra work hours.

The cost of entertaining friends.

Expenses of going to or from your regular workplace.

Education needed to meet minimum requirements for

your job or that will qualify you for a new occupation.

Travel expenses for employment away from home if that

period of employment exceeds one year.

Expenses of:

(a) Travel as a form of education.

(b) A

ttending a seminar, convention or similar meeting

unless it is related to your employment.

needs.

Fines and penalties.

Expenses of producing tax-exempt income.

Amounts paid to organizations or establishments which

have been found to practice discrimination.

Expenses Subject to the 2 Percent Limit

Important: The increase in first-year luxury automobile

depreciation caps, the 30 percent and the 50 percent special

depreciation allowance, the additional New York Liberty

Zone Section 179 deduction for property placed in service

after September 10, 2001, and the increased Section 179

deduction limits and thresholds for property placed in service

after December 31, 2002, are not allowable for Kentucky

tax purposes. For passenger automobiles purchased

after September 10, 2001, you must compute Kentucky

depreciation in accordance with the IRC in effect on December

31, 2001. Create a Kentucky Form 2106 by entering Kentucky

at the top center of a federal Form 2106, Employee Business

Expenses. Complete Section D—Depreciation of Vehicles

in accordance with the IRC in effect on December 31, 2001.

Attach a copy of the federal Form 2106 ﬁled for federal income

tax purposes if no adjustments are required.

Line 22—Use this line to report job-related expenses you paid

for which you were not reimbursed. You MUST ﬁrst ﬁll out

Form 2106, Employee Business Expenses, or Form 2106-EZ,

Unreimbursed Employee Business Expenses, if you claim any

unreimbursed travel, transportation, meal or entertainment

expenses for your job; or your employer paid you for any of

your job-related expenses reportable on Line 22.

Enter the amount of unreimbursed employee busi-

ness expense from Form 2106 or 2106-EZ on Line 22 of

Schedule A.

If you do not have to ﬁll out Form 2106 or 2106-EZ, list the

type and amount of your expenses in the space provided. If

you need more space, attach a statement showing the type

and amount of the expense. Enter one total on Line 22.

Examples of expenses to include on Line 22 are:

Travel, transportation, meal or entertainment expense.

(Note: If you have any of these expenses, you must

use Form 2106 or 2106-EZ for all of your job-related

expenses.)

Union dues.

Safety equipment, small tools and supplies required for

your job.

Uniforms required by your employer, which you may not

usually wear away from work.

Protective clothing, required in your work, such as hard

hats and safety shoes and glasses.

Physical examinations required by your employer.

Dues to professional organizations and chambers of

commerce.

Subscriptions to professional journals.

Fees to employment agencies and other costs to look for

a new job in your present occupation, even if you do not

get a new job.

Business use of part of your home but only if you use

that part exclusively and on a regular basis in your work

and for the convenience of your employer. For details,

including limits that apply, see federal Publication 587,

Business Use of Your Home.

Education expenses you paid that were required by your

employer, or by law or regulations, to keep your salary

or job. In general, you may also include the cost of

keeping or improving skills you must have in your job.

For more details, see federal Publication 508, Educational

Expenses. Some education expenses are not deductible.

See “Expenses You MAY NOT Deduct.”

Line 23—Use this line to report tax return preparation fees

paid during the taxable year including fees paid for ﬁling

your return electronically.

Line 24—Use this line for amounts you paid to produce or

collect taxable income and manage or protect property held

for earning income. List the type and amount of each expense

in the space provided. If you need more space, attach a state-

ment showing the type and amount of each expense. Enter

one total on Line 24. Examples of these expenses are:

Safe deposit box rental.

Certain legal and accounting fees.

Clerical help and ofﬁce rent.

Custodial (e.g., trust account) fees.

Your share of the investment expenses of a regulated

investment company.

Certain losses on nonfederally insured deposits in an

insolvent or bankrupt ﬁnancial institution. For more

information (including limits on the amount you can

deduct), see federal Publication 529.

Deduction for repayment of amounts under a claim of

right if $3,000 or less.

Expenses related to an activity not engaged in for proﬁt.

These expenses are limited to the income from the

activity that you reported on federal Form 1040, Line 21.

See Not-for-Proﬁt Activities in federal Publication 535,

Business Expenses, for details on how to ﬁgure the

amount to deduct.

Line 28—Other Miscellaneous Deductions

Use this line to report miscellaneous deductions that are NOT

subject to the 2 percent adjusted gross income limit. Only the

expenses listed below can be deducted on Line 28.

Expenses NOT Subject to the 2 Percent Limit

Gambling losses to the extent of gambling winnings.

Gambling winnings must be included in federal adjusted

gross income (Form 740, Line 5). (Note: Gambling losses

must be veriﬁed by supplemental records. These include

a diary and unredeemed tickets, payment slips and

winning statements.)

Federal estate tax on income in respect of a decedent.

Amortizable bond premium on bonds acquired before

October 23, 1986.

Deduction for repayment of amounts under a claim of

right if more than $3,000. See federal Publication 525.

Unrecovered investment in a pension.

Impairment-related work expenses of a disabled person.

Casualty and theft losses of income-producing property.

List the type and amount of each expense. Enter one total

on Line 28. For more information on these expenses, see

federal Publication 529.

Note: A credit for tax paid to another state on gambling

income may be allowed if the income is taxed by both Ken-

tucky and the other state. However, if you have paid tax on

gambling income in another state and you claimed an item-

ized deduction on your Kentucky Schedule A for losses, the

allowable credit may be reduced or eliminated.

Line 29—Total Itemized Deductions

If the amount on Form 740, Line 9, exceeds $181,150 ($90,575

if married ﬁling separately on a combined return or separate

returns), skip Part I and complete Part II on page 2.

Dividing Deductions Between Spouses—Married taxpayers

who are ﬁling separate returns or a combined return but using

only one Schedule A must divide the itemized deductions.

Complete page 2, Part I, Lines 1 through 5. If one spouse is

not required to ﬁle a Kentucky return, total deductions may

be divided between them based on the percentage of each

spouse’s income to total income or separate Schedules A

may be ﬁled.

Instructions for Form 2210-K

Purpose of Form—Use this form to determine if you owe an

underpayment of estimated tax penalty for failing to prepay

70% of your tax liability and/or interest for failing to make

four equal estimated tax installments timely. You may be

subject to one or both even if you are due a refund when

you ﬁle your tax return.

Underpayment of Estimated Tax Penalty—You may be

charged an underpayment of estimated tax penalty if you

did not prepay 70% of your tax liability and you did not meet

one of the exceptions listed in Part I.

Estimated Tax Interest—You may also be charged interest if

you failed to make four equal installments timely pursuant

to KRS 141.305. These payments are due by April 15, June

15, September 15 of the taxable year, and on January 15 of

the succeeding taxable year. Failure to make these equal

installments timely may result in interest due pursuant to

KRS 141.985. The interest is computed separately for each

due date.

Part I—Exceptions and Exclusions—The underpayment of

estimated tax penalty may not apply if one of the exceptions

listed in Part I is met. If you meet one or more of the

exceptions, check the appropriate box(es), complete the lines

associated with the exception and check the “Form 2210-K

attached” box on Form 740, line 42a (Form 740-NP, line 42a).

If none of the exceptions apply, go to Part II.

Part II—Figuring the Underpayment and Penalty—Only

complete this section if the additional tax due exceeds $500

and you do not meet one of the exceptions listed in Part I.

Do not include amounts that were prepaid with extension or

payments made after the due date of the fourth declaration

installment. To avoid this penalty in the future, obtain and

ﬁle Form 740-ES.

Part III—Required Annual Payment and Interest Calculation—

This section is used to calculate your required annual

payment. The required annual payment is used to calculate

the amount of payment that you should have made each

quarter. If you do not pay the required amount in each quarter,

you will be subject to interest until that payment is made.

You may not be required to pay estimated tax payments if

you meet one of the following exceptions:

• Taxpayer died during the taxable year

• Declaration was not required until after September 1,

2014, and the taxpayer ﬁles a return and pays the full

amount of the tax computed on the return on or before

January 31, 2015.

• Two–thirds (2/3) or more of the gross income was from

farming; this return is being ﬁled on or before March 2,

2015; and the total tax due is being paid in full.

• Prepaid your last years tax liability with timely

payments.

Lines 1–7—Calculates your required annual payment which

is the lesser of your current years income tax liability or your

previous years tax liability. If you have paid withholding that

exceeds the lesser of the two, you do not owe interest and

you do not need to complete the rest of the form.

Line 8—Multiply line 7, page 2, by 25 percent (.25) and enter

amount in columns A through D. However, if your source(s)

of income changed unexpectedly throughout the year or your

income was received later in the year, the required number

of installments may be fewer.

A taxpayer who is not required to pay estimated tax in four

equal installments at the beginning of the year may be

required to make installment payments during the remainder

of the year. Refer to the payment due dates at the top of

columns A – D to determine how many installments you are

required to make based on when your income changed or

was received.

If you are required to make 3 installments, multiply line 7 by

33.3 percent (.333) and enter in columns B through D.

If you are required to make 2 installments, multiply line 7 by

50 percent (.50) and enter in columns C and D.

If you are required to only make 1 installment, multiply line

7 by 100 percent (1.00) and enter in column D.

Line 9—Enter the sum of estimated tax payments made and

Kentucky withholding for each quarter. If you have Kentucky

income tax withheld, multiply the total by 25 percent (.25)

and enter in columns A through D. If you had a credit forward

from a prior year return, enter the total amount in Column

A only.

Note: Complete lines 10 through 17 for Column A before

going to Column B, etc.

Line 10—Enter amount from line 17 of the previous column.

This amount should be the overpayment if any from the

previous column.

Line 12—Enter amount from line 16 of the previous column.

This amount should be the underpayment amount from the

previous column that will be carried over to each column

until the payment is made.

Line 16—This is the underpayment amount for that column

and any underpayment from the previous columns. The

underpayment will continue to carryover to the next column

until the payment is made or the due date, whichever is

earlier.

Figuring the Interest—Interest will be calculated on each

underpayment in each column from the payment due date

written above line 8 to the date on line 18 or the date the

payment was made, whichever is earlier. The underpayments

will carryover to the next column and be added to that columns

underpayment to calculate interest on that balance.

Line 18—Use this date to calculate the number of days that

the current interest amount will be based upon, unless the

underpayment was paid prior to this date.

Line 19—This is the number of days from the payment due

date shown above line 8 to the date the amount on line 16

was paid or the date shown on line 18 for the column in which

you are calculating interest.

For example, if your underpayment on line 16 for column A

is $1,000, you would calculate the interest from 4–15–14 to

6–15–14 and enter 61 days on line 19. If this $1,000 remains

unpaid, it will be added to any underpayment in column B

and you would calculate interest from 6–15–14 until 9–15–14

which would be 92 days for that period, etc.

Line 20—The annual interest rate is established by the

Department of Revenue for each calendar year. The interest

rate for calendar years 2014 and 2015 is 6 percent. The interest

calculation for the required third installment payment may

be calculated using two different interest rates.

INSTRUCTIONS FOR FORM 5695–K

Purpose of Form—This form is used by a taxpayer to claim a tax

credit for installation of energy efﬁciency products for residential

and commercial property as provided by KRS 141.436. The

nonrefundable credit shall apply against tax imposed under KRS

141.020 or 141.040, and KRS 141.0401 for taxable years beginning

after December 31, 2008, and before January 1, 2016. An unused

tax credit may be carried forward one year.

PART I – QUALIFICATIONS

The tax credit provided by KRS 141.436 shall apply in the tax year in

which the installation is complete. If the installation was completed

before January 1, 2014, or after December 31, 2014, you do not

qualify for this credit. If you have taken the ENERGY STAR home

or the ENERGY STAR manufactured home tax credit provided by

KRS 141.437, you do not qualify for this credit.

A taxpayer and spouse may each ﬁle Form 5695-K, Kentucky Energy

Efﬁciency Tax Credit, regardless of their ﬁling status, and each of

them may claim up to the maximum credit subject to the limitation

provided for each type of energy efﬁciency product. However, the

cost of qualiﬁed energy efﬁciency products shall not be claimed

more than once.

PART II – INSTALLATION OF ENERGY EFFICIENCY PRODUCTS

Taxpayer’s Residence or Single–family or Multifamily Residential

Rental Unit:

Line 1—Enter the installed cost of qualiﬁed upgraded insulation.

KRS 141.435(15) provides that “upgraded insulation” means

insulation with the following R–value ratings: (a) Attic insulation

rated R–38 or higher; (b) Exterior wall, crawl space, and basement

exterior wall insulation rated R–13 or higher; and (c) Floor insulation

rated R–19 or higher.

Line 2—Enter the amount on Line 1 multiplied by 30 percent (.30).

Line 3—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 27 and from Form 765 or Form 765–GP, Schedule K–1,

Line 28.

Line 4—Enter the total of Lines 2 and 3.

Line 6—Enter the smaller of Line 4 or Line 5.

Line 7—Enter the installed cost of qualified energy–efficient

windows and storm doors. KRS 141.435(8) provides that “energy–

efﬁcient windows and storm doors” means windows and storm

doors that are: (a) ENERGY STAR–labeled; and (b) Certiﬁed by the

National Fenestration Rating Council as meeting the North–Central

U.S. climate zone performance standards for U–factor (nonsolar

heat conductance), solar heat gain coefﬁcient, air leakage, visible–

light transmittance, and condensation resistance.

Line 8—Enter the amount on Line 7 multiplied by 30 percent (.30).

Line 9—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 28 and from Form 765 or Form 765–GP, Schedule K–1,

Line 29.

Line 10—Enter the total of Lines 8 and 9.

Line 12—Enter the smaller of Line 10 or Line 11.

Line 13—Enter the installed cost of qualiﬁed energy property.

KRS 141.435(12) provides that “qualiﬁed energy property” means

the following property that meets the performance, quality, and

certiﬁcation standards of and that would have been eligible for

the federal tax credit for residential energy property expenditures

under 26 U.S.C. § 25C, as it existed on December 31, 2007: (a) An

electric heat pump water heater; (b) An electric heat pump; (c) A

closed loop geothermal heat pump; (d) An open loop geothermal

heat pump; (e) A direct expansion (DX) geothermal heat pump; (f)

A central air conditioner; (g) A natural gas, propane, or oil furnace

or hot water heater; (h) A hot water boiler including outdoor wood–

ﬁred boiler units; or (i) An advanced main air circulating fan.

Line 14—Enter the amount on Line 13 multiplied by 30 percent (.30).

Line 15—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 29 and from Form 765 or Form 765–GP, Schedule K–1,

Line 30.

Line 16—Enter the total of Lines 14 and 15.

Line 18—Enter the smaller of Line 16 or Line 17.

Line 19—Enter the total of Lines 6, 12, and 18.

Line 21—Enter the smaller of Line 19 or Line 20.

Taxpayer’s Residence or Single–family Residential Rental Unit:

Line 22—Enter the installed cost of a qualified active solar

space–heating system. KRS 141.435(1) provides that “active solar

space–heating system” means a system that: (a) Consists of solar

energy collectors that collect and absorb solar radiation combined

with electric fans or pumps to transfer and distribute that solar

heat; (b) May include an energy storage space–heating system to

provide heat when the sun is not shining; and (c) Is installed by a

certiﬁed installer.

Line 23—Enter the installed cost of a qualiﬁed passive solar space–

heating system. KRS 141.435(11) provides that “passive solar

space–heating system” means a system that: (a) Takes advantage

of the warmth of the sun through the use of design features such

as large south–facing windows and materials in the ﬂoors or walls

that absorb warmth during the day and release that warmth at

night; (b) Includes one or more of the following designs: (i) Direct

gain which stores and slowly releases heat energy collected from

the sun shining directly into the building and warming materials

such as tile or concrete; (ii) Indirect gain which uses materials that

are located between the sun and the living space such as a wall to

hold, store, and release heat; or (iii) Isolated gain which collects

warmer air from an area that is remote from the living space,

such as a sunroom attached to a house, and the warmer air ﬂows

naturally to the rest of the house; and (c) Meets the guidelines and

technical requirements for passive solar design.

Line 24—Enter the installed cost of a qualiﬁed combined active solar

space–heating and water–heating system. KRS 141.435(3) provides

that a “combined active solar space–heating and water–heating

system” means a system that meets the requirements of both

an active solar space–heating system and a solar water–heating

system and is installed by a certiﬁed installer.

Line 25—Enter the installed cost of a qualiﬁed solar water–heating

system. KRS 141.435(14) provides that a “solar water–heating

system” means a system that: (a) Uses solar–thermal energy to

heat water; (b) Is an indirect pressurized glycol system that uses

propylene glycol or an indirect drainback system that uses distilled

water or propylene glycol; (c) Uses OG–100 solar thermal collectors

that are certiﬁed by the Solar Rating and Certiﬁcation Corporation

and covered by a manufacturer’s warranty of not less than ﬁve

years; (d) Is installed by a certiﬁed installer; and (e) Is warranted

by the certiﬁed installer for a period of not less than two years.

Line 26—Enter the installed cost of a qualiﬁed wind turbine or

wind machine. KRS 141.435(16) provides that a “wind turbine” or

“wind machine” means a turbine or machine used for generating

electricity that: (a) Is certiﬁed as meeting the U.S. Wind Industry

INSTRUCTIONS FOR FORM 5695–K

Consensus Standards developed by the American Wind Energy

Association in partnership with the U.S. Department of Energy;

(b) Is covered by a manufacturer’s warranty of not less than

ﬁve years; (c) Is in compliance with all relevant building codes,

height restriction variances, other special code requirements,

and zoning ordinances; (d) Has been installed in accordance

with all building codes and all permits were received prior to the

start of construction and installation; (e) Is in compliance with all

applicable Federal Aviation Administration regulations; (f) Meets

all requirements of Article 705 of the National Electrical Code for

electrical components and installations; and (g) Is rated and listed

by Underwriters Laboratories.

Line 27—Enter the total of Lines 22 through 26.

Line 28—Enter the amount on Line 27 multiplied by 30 percent (.30).

Line 29—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 30 and from Form 765 or Form 765–GP, Schedule K–1,

Line 31.

Line 30—Enter the total of Lines 28 and 29.

Line 31—Enter the total watts of direct current (DC) (enter watts

in space provided on this line) of the rated capacity of a qualiﬁed

solar photovoltaic system multiplied by $3. KRS 141.435(13)

provides that a “solar photovoltaic system” means a system for

electricity generation that: (a) Includes solar photovoltaic panels,

structural attachments, electric wiring, inverters for converting

direct current output to alternating current, and appropriate

controls and safety measures for output monitoring; (b) Meets

the requirements of Article 690 of the National Electrical Code;

and listed by Underwriters Laboratories; and (d) Is installed by a

certiﬁed installer.

Line 32—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 31 and from Form 765 or Form 765–GP, Schedule K–1,

Line 32.

Line 33—Enter the total of Lines 31 and 32.

Line 34—Enter the larger of Line 30 or Line 33.

Line 36—Enter the smaller of Line 34 or Line 35.

Multifamily Residential Rental Unit or Commercial Property:

Line 37—Enter the installed cost of a qualiﬁed active solar space–

heating system. See instructions for Line 22 to determine qualiﬁed

cost.

Line 38—Enter the installed cost of a qualified passive solar

space–heating system. See instructions for Line 23 to determine

qualiﬁed cost.

Line 39—Enter the installed cost of a qualiﬁed combined active

solar space–heating and water–heating system. See instructions

for Line 24 to determine qualiﬁed cost.

Line 40—Enter the installed cost of a qualiﬁed solar water–heating

system. See instructions for Line 25 to determine qualiﬁed cost.

Line 41—Enter the installed cost of a qualiﬁed wind turbine or wind

machine. See instructions for Line 26 to determine qualiﬁed cost.

Line 42—Enter the total of Lines 37 through 41.

Line 43—Enter the amount on Line 42 multiplied by 30 percent (.30).

Line 44—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 32 and from Form 765 or Form 765–GP, Schedule K–1,

Line 33.

Line 45—Enter the total of Lines 43 and 44.

Line 46—Enter the total watts of direct current (DC) (enter watts

in space provided on this line) of the rated capacity of a qualiﬁed

solar photovoltaic system multiplied by $3. See instructions for

Line 31 to determine qualiﬁed cost.

Line 47—Enter the total of the amounts from Form 720S, Schedule K–1,

Line 33 and from Form 765 or Form 765–GP, Schedule K–1, Line 34.

Line 48—Enter the total of Lines 46 and 47.

Line 49—Enter the larger of Line 45 or Line 48.

Line 51—Enter the smaller of Line 49 or Line 50.

Commercial Property:

Line 52—Enter the installed cost of a qualiﬁed energy–efﬁcient

interior lighting system. KRS 141.435(6) provides that “energy–

efficient interior lighting system” means an interior lighting

system that meets the maximum reduction in lighting power

density requirements for the federal energy efﬁcient commercial

building deduction under 26 U.S.C. § 179D, as in effect December

31, 20 07.

Line 53—Enter the amount on Line 52 multiplied by 30 percent (.30).

Line 54—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 34 and from Form 765 or Form 765–GP, Schedule K–1,

Line 35.

Line 55—Enter the total of Lines 53 and 54.

Line 57—Enter the smaller of Line 55 or Line 56.

Line 58—Enter the installed cost of a qualiﬁed energy–efﬁcient

heating, cooling, ventilation, or hot water system. KRS 141.435(7)

provides that “energy–efﬁcient heating, cooling, ventilation, or hot

water system” means a heating, cooling, ventilation, or hot water

system that meets the requirements for the federal energy–efﬁcient

commercial building deduction under 26 U.S.C. § 179D, as in effect

December 31, 2007.

Line 59—Enter the amount on Line 58 multiplied by 30 percent

(.30).

Line 60—Enter the total of the amounts from Form 720S, Schedule

K–1, Line 35 and from Form 765 or Form 765–GP, Schedule K–1,

Line 36.

Line 61—Enter the total of Lines 59 and 60.

Line 63—Enter the smaller of Line 61 or Line 62.

Line 64—Enter the total of Lines 57 and 63.

Line 65—Enter the total of Lines 21, 36, 51 and 64.

Line 66—Enter the carryforward balance of any Energy Efﬁciency

Products Tax Credit earned in 2013, if applicable.

Line 67—Enter the total of Lines 65 and 66.

Instructions for Form 8863-K

Purpose of Form—Use Form 8863-K to calculate and claim your

2014 education tuition tax credits. The education credits are:

the American Opportunity Credit and the Lifetime Learning

Credit. These credits are based on qualiﬁed undergraduate

education expenses paid to an eligible postsecondary

educational institution located in Kentucky. If you elected to

claim the education credit for federal purposes rather than

the tuition and fees deduction, you must make that same

election for Kentucky purposes.

Part I, Qualiﬁcations—All questions in Part I must be answered

“Yes” to be eligible to claim the Kentucky education tuition

tax credit.

Qualiﬁed Education Expenses—See the federal instructions

to determine the qualiﬁed expenses for the American

Opportunity Credit and the Lifetime Learning Credit. The

allowable expenses may be different for each credit.

Eligible Educational Institution located in Kentucky—An

eligible educational institution is generally any accredited

public, nonproﬁt, or private college, university, vocational

school, or other postsecondary institution. The institution

must be eligible to participate in a student aid program

administered by the Department of Education. The institution

must be physically located in Kentucky to qualify.

Part II, American Opportunity Credit—You must enter

the student’s name and Social Security number, the name

and address of the Kentucky institution, and the qualiﬁed

expenses. Use the federal instructions to determine if each

student meets the qualiﬁcations. For Kentucky, the credit is

limited to 25% of the allowable federal credit with a maximum

amount allowed of $625 for each qualifying student.

Part III, Lifetime Learning Credit—You must enter the student’s

name and Social Security number, the name and address of

the Kentucky institution, and the qualiﬁed expenses. Use

the federal instructions to determine if each student meets

the qualiﬁcations. For Kentucky, the credit is limited to 25%

of the allowable federal credit with a maximum allowed of

$500 per return.

Part IV, Allowable Education Credits—

Line 12—Multiply Line 11 by 25% (.25). This is your tentative

Kentucky allowable credit.

Line 13—Enter the tentative tax from Form 740 or Form 740-

NP, page 1, Line 22.

Line 14—Enter the amount from page 2, Part V, Line

34. This is the allowable credit carryforward from

prior year(s). If there is no carryforward, enter zero.

Line 15—Subtract Line 14 from Line 13.

Line 16—Enter the smaller of Line 15 or Line 12.

Line 17—Add Lines 14 and 16. Enter here and on Form 740 or

Form 740-NP, Line 23. This is your allowable 2014 education

credit.

Line 18—If Line 15 is smaller than Line 12, subtract Line 15

from Line 12. This is the amount of unused credit carryforward

from 2014 to 2015. Maintain records for following years.

Part V, Credit Carryforward from Prior Years—The Kentucky

education tuition tax credit can be carried forward for up to

5 years if unused during the preceding tax year(s). You must

have completed Form 8863-K for any prior year(s) in which

you are claiming a credit carryforward.