Use Form 4255 to figure the increase in tax for the recapture of investment credit claimed.
Who Must Refigure the Investment Credit
Generally, you must refigure the investment credit and may have to recapture all or part of it if any of the following apply:
- You disposed of investment credit property before the end of 5 full years after the property was placed in service (recapture period).
- You changed the use of the property before the end of the recapture period so that it no longer qualifies as investment credit property.
- The business use of the property decreased before the end of the recapture period so that it no longer qualifies (in whole or in part) as investment credit property.
- Any building to which section 47(d) applies will no longer be a qualified rehabilitated building when placed in service.
- Any property to which section 48(b) applies will no longer qualify as investment credit property when placed in service.
- Before the end of the recapture period, your proportionate interest was reduced by more than one-third in a partnership, S corporation, estate, or trust that allocated the cost or other basis of property to you for which you claimed a credit.
- You received a payment under section 1603 of the American Recovery and Reinvestment Tax Act of 2009 for investment credit property for which you figured a credit for any prior year.
- A net increase in the amount of nonqualified nonrecourse financing occurred for any property to which section 49(a)(1) applied. For more details, see the instructions for line 10.
- You returned leased property (on which you claimed a credit) to the lessor before the end of the recapture period.
- In the case of a project under the Phase II gasification program, failure at any time during the applicable recovery period (as defined in section 168(c)) to attain and maintain the separation and sequestration requirements in section 48B(d)(1)(B).
- In the case of a project under the Phase II qualifying advanced coal project program, failure during the applicable recovery period (as defined in section 168(c)) to attain and maintain the separation and sequestration requirements in section 48A(e)(1)(G).
Exceptions to recapture
Recapture of the investment credit does not apply to the following.
- A transfer because of the death of the taxpayer.
- A transfer between spouses or incident to divorce under section 1041. However, a later disposition by the transferee is subject to recapture to the same extent as if the transferor had disposed of the property at the later date.
- A transfer of an interest in an electing large partnership
- A transaction to which section 381 (a) applies (relating to certain acquisitions of the assets of one corporation by another corporation).
- A mere change in the form of conducting a trade or business if:
- The property is retained as investment credit property in that trade or business, and
- The taxpayer retains a substantial interest in that trade or business.
- A mere change in the form of conducting a trade or business includes a corporation that elects to be an S corporation and a corporation whose S election is revoked or terminated.
For more details on the recapture rules, see section 50(a).
Caution: See section 46(g)(4) (as in effect on November 4, 1990) to figure the recapture tax if you made a withdrawal from a capital construction fund set up under the Merchant Marine Act of 1936 to pay the principal of any debt incurred in connection with a vessel on which you claimed investment credit.
For more information see IRS Form 4255 General Instructions.