Alabama Irrigation Tax Credit (Qualified Irrigation System and Reservoir System Tax Credit)

The Alabama Irrigation Tax Credit is a state income tax credit authorized under Section 40-18-342, Code of Alabama 1975, which allows a credit for certain costs for irrigation equipment, fuel conversions, and reservoirs. Pursuant to Section 40-18-342(f)(1), any agriculture trade or business making qualified costs must file an annual informational report with the Alabama Department of Agriculture and Industries (ADAI) prior to claiming the income tax credit. Only qualified irrigation systems or reservoirs for which the agriculture trade or business has filed an annual information report with ADAI are eligible for the tax credit. An eligible taxpayer may claim one credit for qualifying equipment purchased and installed during tax years 2012 through 2017, one credit for tax years 2018 through 2024, and one credit for tax year 2024 or thereafter. The Alabama Department of Revenue requires completion of a precertification process before the credit can be claimed on a tax return.

Any agriculture trade or business that makes qualified costs for irrigation equipment, fuel conversions, or reservoirs. To be eligible, the business must file an annual informational report (questionnaire) with the Alabama Department of Agriculture and Industries prior to claiming the credit, and a copy of the questionnaire must be provided as part of the Alabama Department of Revenue precertification process.

This is a state income tax credit, not a cash grant — the benefit arrives as a reduction in your Alabama income tax. The Alabama Department of Revenue states: "The tax credit is equal to 20 percent of eligible costs up to a maximum of $10,000. The credit must be taken in the year in which the qualified irrigation equipment or the qualified reservoir is placed in service."

What counts: "For tax years beginning after December 31, 2022, Section 40-18-342, Code of Ala. 1975, provides an income tax credit to an agricultural trade or business for the purchase and installation of qualified irrigation equipment, eligible costs associated with converting irrigation equipment from fuel to electricity, or the construction of a qualified reservoir." So a $50,000 qualifying investment reaches the $10,000 ceiling; spending beyond that earns no additional credit.

How often you can claim it: "The eligible taxpayer may claim one credit for qualifying equipment purchased and installed during tax years 2012 through 2017, one tax credit for qualifying equipment purchased and installed during tax years 2018 through 2024, and one credit for qualifying equipment purchased and installed during tax year 2024 or thereafter."

Two procedural gates stand between you and the credit. First, the annual informational report to the Alabama Department of Agriculture and Industries: "Only qualified irrigation systems or reservoirs for which the required annual informational report has been filed are eligible for the credit" — the current questionnaire deadline is February 27, 2026. Second, ADOR precertification: an agricultural trade or business "must have an active My Alabama Taxes account and must precertify the credit through My Alabama Taxes before the Qualified Irrigation System/Reservoir System Tax Credit can be used to offset taxes on an income tax return." No match or cost-share applies.

Complete the Alabama Irrigation Tax Credit Questionnaire and submit it to ADAI - either through the online questionnaire (preferred; no mailing or emailing required) or by downloading the fillable document, completing all applicable fields, and uploading it or emailing it to irrigation@agi.alabama.gov. The deadline to submit the questionnaire is February 27, 2026. A copy of the completed questionnaire must be retained and provided as part of the Alabama Department of Revenue precertification process before the credit is claimed on the tax return.