Schedule M: Kentucky Federal Adjusted Gross Income Modifications (2025)
Kentucky · Kentucky DOR · Used for tax years 2025
Kentucky Schedule M reports additions to and subtractions from federal adjusted gross income for your 2025 Kentucky Form 740. It includes adjustments for certain interest income, retirement benefits, depreciation, net operating losses and Kentucky Schedule K-1 amounts. Enclose it
Who files this form
Use 2025 Kentucky Schedule M with Form 740 to report additions to or subtractions from federal adjusted gross income.
The schedule covers items such as interest from other states’ bonds, Kentucky Schedule K-1 adjustments, depreciation differences, retirement income exclusions, taxable Social Security benefits, active duty military pay, and net operating losses.
What you'll need
Use the documents that apply to your adjustments:
- Federal Form 1040 or 1040-SR, including Schedule 1 when applicable, for amounts reported on your federal return.
- Kentucky Schedule K-1 for resident adjustments from partnerships, estates, trusts, or S corporations.
- Federal Form 4562, if filed for federal income tax purposes. Submit a copy with Form 740. Enclose the created Kentucky Form 4562 when reporting Kentucky depreciation.
- Schedule P if the retirement income exclusion entered on line 9 is more than $31,110 per taxpayer. Use the pension worksheet to determine whether Schedule P must be completed.
- Schedule KNOL if claiming a Kentucky net operating loss deduction. Enclose it with the return.
- Detailed schedules supporting other additions on line 5 or other subtractions on line 14.
Additional forms may apply, including Form 461-K for the Kentucky excess business loss limitation and Schedule P plus Form 4972-K for the specified lump-sum distribution addition.
How to file
Enclose Schedule M with Form 740. Enter your name or names as shown on the tax return and your Social Security number.
- Add lines 1 through 5. Enter the total on Schedule M, line 6, and Form 740, page 1, line 6.
- Add lines 7 through 14 and enter the total on line 15.
- Add lines 15 and 16. Enter the total on Schedule M, line 17, and Form 740, page 1, line 8.
- Include the supporting schedules and forms required for your adjustments.
The supplied text does not give a mailing address or e-filing directions.
Common mistakes
- Including merely government-guaranteed securities on line 8. Do not include taxable interest from FNMA, GNMA, or FHLMC securities. These are merely guaranteed by the U.S. government.
- Combining spouses’ retirement income before figuring the exclusion. Each spouse must calculate their own exclusion. Joint filers then combine the separately calculated exclusions on line 9, Column B.
- Using depreciation lines without the specified federal election. Use lines 3 and 12 only if you elected the 30% or 50% special depreciation allowance or increased Section 179 deduction for property placed in service after September 10, 2001.
- Ignoring at-risk adjustments. Before entering a difference on line 5, account for additions or subtractions affecting at-risk limitations.
- Omitting records for a 2025 net operating loss. Complete Schedule KNOL, Part I, to determine the loss carryforward. Keep a copy and enclose a copy with your return.
Questions people ask
What is the retirement income exclusion for 2025?
The stated exclusion is 100% of taxable retirement benefits or $31,110, whichever is less, calculated separately for each taxpayer. If the pension worksheet total exceeds $31,110 and includes federal, Kentucky state or Kentucky local government retirement income, or supplemental U.S. Railroad Retirement Board benefits, complete Schedule P to determine the exclusion.
Can I subtract taxable Social Security benefits?
Line 10 subtracts Social Security and Social Security equivalent U.S. Railroad Retirement Board benefits included on Form 740, page 1, line 5. These amounts appear on federal Form 1040 or 1040-SR, line 6(b).
Can active duty military pay be excluded?
Yes. All military pay received by Armed Forces members while on active duty can be excluded. Enter the active duty military pay included on Form 740, page 1, line 5, on Schedule M, line 13.
Where do I report a Kentucky net operating loss deduction?
Enter the amount from Schedule KNOL, Part II, Section A, line 8, on Schedule M, line 16. Complete and enclose Schedule KNOL when claiming this deduction.