Form IT-223: Innovation Hot Spot Deduction (New York State, Tax Year 2025)

Form IT-223, Innovation Hot Spot Deduction, is a New York State tax form used by businesses and individuals who operate within a designated Innovation Hot Spot and want to claim the associated income deduction. It’s issued by the New York State Department of Taxation and Finance and applies to tax year 2025 filings.

An Innovation Hot Spot is a program sponsored by New York State that partners with incubator facilities affiliated with the State University of New York, other higher education institutions, or approved economic development organizations. Businesses accepted into these incubator programs get access to mentorship, resources, and space to grow, and in exchange for participating, they can deduct certain income earned from business activity conducted within the hot spot from their New York taxable income.

Who Needs Form IT-223

This form is meant for taxpayers—whether filing as a corporation, partnership, or individual owner of a pass-through entity—who are certified participants in an approved Innovation Hot Spot program. If your business has been formally accepted into one of these incubator locations and you’ve generated income tied to your operations there, you’re the intended filer.

Sole proprietors, partners in partnerships, and shareholders in S corporations that qualify for the deduction will typically receive the necessary allocation information from the business entity itself, then use Form IT-223 to claim their share of the deduction on their personal or entity-level New York return.

It’s worth noting this is a fairly narrow-use form. If your business isn’t part of a certified Innovation Hot Spot, this deduction and this form don’t apply to you. Most New York filers will never need it, but for those in qualifying incubator programs, it can meaningfully reduce state tax liability.

When Is Form IT-223 Used

You’d file this form alongside your regular New York State income tax return for the year in which you earned income eligible for the deduction. Since the Innovation Hot Spot program has specific certification and reporting requirements, you’ll want to confirm your eligibility status with the sponsoring incubator or economic development entity before assuming you qualify for tax year 2025.

Because this deduction interacts with how income is reported and modified on your state return, many filers claiming it will also need to reference other state modification forms. For example, if you’re already adjusting your federal amount to compute New York taxable income for other reasons, you may find yourself working with Form IT-225, New York State Modifications, in the same filing session, since both forms deal with adjustments made specifically at the state level.

How to Get and Fill Out Form IT-223

Form IT-223 is available directly from the New York State Department of Taxation and Finance website as a fillable PDF, meaning you can complete it digitally on your computer before printing or attaching it to your e-filed return. The form includes AcroForm fields, so there’s no need to print it blank and fill it out by hand—just download it, type in the required figures, and save your work as you go.

When completing the form, you’ll need documentation of your certification as an Innovation Hot Spot participant, along with a breakdown of the income earned from activities conducted within the designated location. If you’re a partner or shareholder receiving an allocated share of the deduction, make sure the entity provides you with the correct figures before you start filling in the form.

Since New York tax forms often work together depending on your filing situation, it’s a good idea to review your full return for other applicable credits or modifications before submitting. Filers juggling multiple New York-specific credits, such as those claiming Form IT-216 for child and dependent care expenses, should keep all relevant forms organized together since they’ll all factor into the same state return calculation.

Once completed, attach Form IT-223 to your New York State personal income tax or corporation return as instructed, keeping a copy along with your Innovation Hot Spot certification records in case the Department of Taxation and Finance requests verification later.