On July 23, 2014, Kentucky Governor Steve Beshear signed into law House Bill 445, which expands the Kentucky Investment Fund Act and provides tax credits to “angel investors” with the aim of encouraging individuals to invest in small local startups and businesses.
Effective January 1, 2015, angel investors who invest a minimum of $10,000 dollars in local businesses with “high growth potential” in fields like information technology, bioscience and advanced manufacturing, can receive a tax credit equal to 50 percent of their investment if the startup is located in a county that the state has determined is economically depressed. Investors can receive up to a 40 percent tax credit of an investment in businesses located anywhere else within the Commonwealth. The maximum annual credit that can be awarded to an angel investor is $200,000 dollars. The law also provides some tax incentives to angel investors outside of Kentucky. Investors who reside outside of Kentucky can transfer tax credit to state residents and under the new law. If the Kentucky resident purchases the credit, the out of state investor can then recoup some of their investment.
As with any new tax law, there are additional provisions, such as those relating to forfeiture and carry forward matters. In addition, the law sets an annual three $3 million dollar cap on the amount of credit available to all angel investors in a given year and a $40 million dollar cap on the entire amount available as tax credit for the duration of the program.
Prior to the passage of House Bill 445, state tax credit for investment in startups, was only available to groups of angel investors that were headed by a fund manager. This change to Kentucky tax law provides a much needed competitive boost to the struggling Kentucky economy. Ohio has offered a successful angel investor tax credit program for several years. However, the Ohio Technology Investment Tax Credit program hit its $45 million maximum in 2012 and has been inactive ever since. This creates a business opportunity for Kentucky’s new angel investor credit program to become a major economic incentive in our region.
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