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Individual & Corporate Income Tax

ADOR - Frequently Asked Questions for Irrigation Tax Credit

 

Frequently Asked Questions Irrigation Tax Credit

 

  • Do fish ponds, recreation ponds/lakes, livestock water ponds or any other type of pond/lake whose primary purpose is other than as a water reservoir for irrigation qualify for the credit?
  • No.

     

  • Can the reservoir water source be from a flowing spring or creek? 
  • No, the law prevents the damning of a stream, building within the stream bed or within the wet lands.

     

  • What is a qualified reservoir?
  • An off stream, upland pond or lake whose sole purpose is as a source of water for irrigation by an agricultural trade or business.

     

  • How is the credit calculated? 
  • The credit is equal to 20% of the total unreimbursed cost of the purchase and installation of any qualified irrigation equipment, any unreimbursed costs related to converting irrigation equipment from fuel to electricity or unreimbursed cost of construction of a qualified reservoir.

     

  • What if I receive cost share assistance for qualified purchase, conversion or construction of an irrigation system?   
  • All monetary assistance received must be deducted from the total cost before calculating the available credit.

     

  • If I already have stream/creek fed irrigation ponds do they qualify as a reservoir?
  • No, it must be a qualified up stream reservoir which does not dam a stream or creek.

     

  • Does the purchase of surface water irrigation equipment whose water source is a stream or creek fed pond qualify for the credit? 
  • No, the surface water system must operate using a qualified reservoir.

     

  • Does the purchase of surface water irrigation equipment whose water source is a river qualify for the credit?
  • Yes, when the river or stream’s average annual flow exceeds 8,000 cubic feet per second.

     

  • Does the purchase of irrigation equipment for a ground water withdrawal irrigation system qualify for the credit?     
  • Yes, a qualified reservoir is not required.

     

  • How much is the credit? 
  • 20% of the qualified unreimbursed cost up to $10,000.

     

  • Can I claim a credit in more than one year?   
  • The credit shall be taken in the year in which the qualified irrigation equipment or the qualified reservoir is placed in service. However, any excess credit remaining over the amount of tax due may be carried forward for 5 years.
    The credit may be carried to each of the five years following the taxable year the qualified irrigation system or reservoir is placed in service. The portion of the credit which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of credit over the sum of the income tax due for each of the prior taxable years to which the credit may be carried.

     

  • Can an individual qualify for the credit?
  • Yes, if the individual files a Schedule F for farm income or if the individual receives a K-1 from a pass through entity which has apportioned the credit to its owners based on their percentage of ownership.

     

  • Can I split the credit over more than one year or carryforward any unused credit?     
  • The credit may be carried to each of the five years following the taxable year the qualified irrigation system or reservoir is placed in service. The portion of the credit which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of credit over the sum of the income tax due for each of the prior taxable years to which the credit may be carried.

     

  • Is the credit refundable?  
  • No, the credit is limited to the Alabama income tax liability.

     

  • How do I determine if a river has adequate water flow?   
  • Water flow averages can be found at the US Geological Service web site www.al.water.usgs.gov and click on Streamflow under USGS Real-Time Data on the left side of the page.

 

Updated last: May 10, 2016