Schedule RR-I: Railroad Maintenance and Improvement Tax Credit (2024)

Who files this form

Use Schedule RR-I to compute and claim the Kentucky railroad maintenance and improvement tax credit for 2024. Eligible taxpayers are:

• Owners of Class II or Class III railroads located in Kentucky.
• People who transport property using those railroads, or furnish railroad-related property or services to them, but only for track miles assigned to them by a Class II or Class III railroad for this credit.

Qualified expenditures must maintain or improve Kentucky railroads, including roadbeds, bridges, and related structures, on property owned or leased by a Class II or Class III railroad as of January 1, 2008.

You do not qualify if you claimed the railroad expansion tax credit on the same expenditures, or if another taxpayer claimed either credit on those expenditures.

What you'll need

To complete Schedule RR-I, have the following information available:

• Entity name, mailing address, location address, federal identification number, and Kentucky Corporation/LLET account number, if applicable.
• Qualified expenditures paid or incurred during the tax year.
• Kentucky track miles you owned or leased at the close of the tax year.
• Kentucky track miles assigned to you by a Class II or Class III railroad for the credit.

Attach Schedule RR-I to the applicable return: Form 720, 720U, PTE, 725, 740, 740-NP, or 741. Use Schedule TCS to report credits against LLET or corporation income tax. A pass-through entity must include each recipient’s pro rata share of the approved credit on Schedule K-1.

How to file

1. Answer the three qualification questions in Part I. If any answer is “yes,” stop. You do not qualify for the credit.
2. In Part II, enter qualified expenditures and calculate 50% of that amount. Add eligible owned or leased track miles to assigned track miles, then multiply the total by $3,500. The credit is the smaller of these two amounts.
3. In Part III, enter the credit used against each applicable tax. Report the LLET credit on Schedule TCS, Part II, Column E; the corporation income tax credit in Column F; and the individual income tax credit on Form 740, 740-NP, or 741.
4. Attach Schedule RR-I to the tax return claiming the credit: Form 720, 720U, PTE, 725, 740, 740-NP, or 741, as applicable.

The supplied text does not provide a mailing address or e-filing directions.

Common mistakes

• Continuing after a disqualifying answer. A “yes” to any Part I question means you do not qualify.
• Claiming both railroad credits for the same expenditures. You must choose either the maintenance and improvement credit or the expansion credit, not both.
• Carrying unused credit forward. The credit must be used in the tax year of the qualified expenditures and cannot be carried forward.
• Reducing LLET below $175. The credit cannot reduce LLET below that minimum.
• Missing the track basis adjustment. If a credit is taken under KRS 141.385(2), the basis of the track must be reduced by the credit taken.
• Omitting required attachments or reporting. Attach Schedule RR-I to the return claiming the credit. Pass-through entities must report each recipient’s pro rata share of the approved credit on Schedule K-1.

Questions people ask

How much is the credit?

The credit is 50% of qualified expenditures paid or incurred during the tax year, limited to $3,500 multiplied by the total eligible Kentucky track miles owned, leased, or assigned to the taxpayer.

What expenses qualify?

Expenses to maintain or improve Kentucky railroads, including roadbeds, bridges, and related structures, qualify if the property was owned or leased by a Class II or Class III railroad as of January 1, 2008. The expenses may qualify whether or not they are otherwise chargeable to a capital account.

Is the credit refundable or available for a later year?

No. The credit is nonrefundable, must be used in the tax year of the expenditures that generated it, and cannot be carried forward to another period.

Which taxes can the credit offset?

The credit can apply against individual income tax, corporation income tax, and the limited liability entity tax (LLET). It cannot reduce LLET below the $175 minimum.

How are Class II and Class III railroads defined?

They are railroad companies classified as Class II or Class III carriers by the federal Surface Transportation Board.

Official sources

• https://revenue.ky.gov/Forms/Schedule%20RR-I%202024.pdf