Form 4255 Recapture of Investment Credit

Form

4255

(Rev. December 2010)
Department of the Treasury
Internal Revenue Service
Name(s) as shown on return

Properties

Recapture of Investment Credit
▶

OMB No. 1545-0166
Attachment
Sequence No.

Attach to your income tax return.

172

Identifying number

Type of property—State whether rehabilitation, energy, reforestation, qualifying advanced coal project, qualifying gasification project, qualifying advanced
energy project, or qualifying therapeutic discovery project property. (See the Instructions for Form 3468 for the year the investment credit property was
placed in service for definitions.) If rehabilitation property, also show type of building. If energy property, show type.

A
B
C
D

Original Investment Credit

1
2
3
4
5
6

Computation Steps:
(see Specific Instructions)
Original rate of credit
. . . . . . . .
Cost or other basis . . . . . . . . .
Original credit (see instructions) . . . . .
Date property was placed in service
. . .
Date property ceased to be qualified
investment credit property . . . . . . .
Number of full years between the date on line
4 and the date on line 5 . . . . . . . .

Properties

A

B

C

D

1
2
3
4
5
6

Recapture Tax
7 Recapture percentage (see instructions) . .
7
8 Tentative recapture tax. Multiply line 3 by the
percentage on line 7 . . . . . . . . .
8
9 Add all the amounts on line 8 . . . . . . . . . . . . . . . . . . . . . . .
10 Enter the tentative recapture tax from property for which there was an increase in nonqualified
nonrecourse financing. Attach a separate schedule (see instructions) . . . . . . . . . . .
11 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 Unused credits (see instructions) . . . . . . . . . . . . . . . . . . . . . . .
13 Subtract line 12 from line 11. See section 45K(b)(4) if you claim the nonconventional source fuel
credit. Electing large partnerships, see instructions . . . . . . . . . . . . . . . . .
14 Recapture of qualifying therapeutic discovery project grant. Attach statement (see instructions) . .
15 Total increase in tax. Add lines 13 and 14. Enter here and on the appropriate line of your tax return .

What's New
• The types of property subject to
recapture now include qualified
investments under the qualifying
therapeutic discovery project program.
• If you received a qualifying therapeutic
discovery project grant under section 9023
of the Affordable Care Act (ACA), and must
recapture any part of that grant, use Form
4255 to report the increase in tax.
• The qualifying therapeutic discovery
project credit was added as an investment
credit.

General Instructions

Section references are to the Internal
Revenue Code unless otherwise noted.

Purpose of Form
Use Form 4255 to figure the increase in
tax for the recapture of investment credit

claimed and for the recapture of a
qualifying therapeutic discovery project
grant.

Credit Recapture
Requirements and Special
Rules
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

For Paperwork Reduction Act Notice, see back of form.

Cat. No. 41488C

9
10
11
12
13
14
15

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 (other
than an electing large 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 grant 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.
Form 4255 (Rev. 12-2010)

Form 4255 (Rev. 12-2010)

• 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). For
more information, see Notice 2009-23,
2009-16 I.R.B. 802.
• 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). For more information, see Notice
2009-24, 2009-16 I.R.B. 817.
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:
1. The property is retained as
investment credit property in that trade or
business, and
2. 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.

Page

Recapture of Qualifying
Therapeutic Discovery
Project Grant
You may have to recapture all or part of a
qualifying therapeutic discovery project
grant paid under section 9023 of the ACA.
If you received a qualifying therapeutic
discovery project grant and the amount of
the grant is more than the amount of the
allowable grant, you must include the
difference as an increase in tax as if the
investment to which the excess portion of
the grant relates had ceased to be a
qualified investment immediately after the
grant was made. The increase in tax for
any recapture of a qualifying therapeutic
discovery project grant is imposed on the
person to whom the grant was made. In
the case of pass-through entities (including
partnerships, S corporations, estates, and
trusts), the tax is imposed at the entity
level.

Basis Adjustment on
Recapture
For property subject to investment credit or
qualifying therapeutic discovery project
grant recapture, increase the property’s
basis as follows.
• For rehabilitation credit property,
qualifying advanced coal project property,
qualifying gasification project property,
qualifying advanced energy project
property, or depreciable qualifying
therapeutic discovery project property,
increase the basis by 100% of the amount,
attributable to each such property, of the
recapture tax, adjustments to carrybacks
and carryforwards under section 39, or
adjustments to disallowed passive activity
credits.
• For energy property or qualified timber
property, increase the basis by 50% of the
amount, attributable to each such property,
of the recapture tax, adjustments to
carrybacks and carryforwards under
section 39, or adjustments to disallowed
passive activity credits.
If you are a partner or S corporation
shareholder, the adjusted basis of your
interest in the partnership or stock in the S
corporation is adjusted to take into
account the adjustment made to the basis
of property held by the partnership or S
corporation.
For more information, see section 50(c)
and Regulations section 1.469-3(f).

Specific Instructions
Note. Do not figure the recapture tax on
lines 1 through 9 if there is an increase in
nonqualified nonrecourse financing related
to certain at-risk property. Figure the
tentative recapture tax for these properties
on separate schedules and enter the
recapture tax on line 10. Include any unused
credit for these properties on line 12.

2

Partnerships, S corporations, estates,
and trusts. For a partnership, S
corporation, estate, or trust that allocated
any or all of the investment credit to its
partners, shareholders, or beneficiaries,
provide the information they need to
refigure the credit. See Regulations
sections 1.47-4(a) and (c), 1.47-5, and
1.47-6. See the instructions for
Form 1065-B for information on recapture
of the investment credit by electing large
partnerships.
For a partnership, S corporation, estate,
or trust that must recapture any part of a
qualifying therapeutic discovery project
grant, figure the increase in tax at the entity
level. Do not complete lines 1 through 13 to
figure this increase in tax. Figure the
increase in tax on a separate statement
and enter the result on line 14. See the
instructions for line 14.
Partners, shareholders, and
beneficiaries. If your Schedule K-1 shows
recapture of investment credit claimed in
an earlier year, you will need your copy of
the original Form 3468 to complete lines 1
through 6 of this Form 4255.
Lines A through D. Describe the property
for which you must refigure the credit.
Complete lines 1 through 8 for each
property on which you are refiguring the
credit. Use a separate column for each
item. If you need more columns, use
additional Forms 4255 or other schedules
that include all the information shown on
Form 4255. Enter the total from all the
separate sheets on line 9.
Line 1. Enter the rate you used to figure
the original credit from the Form 3468 that
you filed.
Line 2. Enter the cost or other basis that
you used to figure the original credit. If
there has been a net increase in
nonqualified nonrecourse financing with
respect to the property that you have
disposed of or that has otherwise ceased
to be investment credit property, enter the
cost or other basis you used to figure the
original credit reduced by the amount of
that net increase. If there has been a net
decrease in nonqualified nonrecourse
financing with respect to the property,
enter the cost or other basis you used to
figure the original credit plus the amount of
that net decrease. For more details, see
section 49(b).
Line 3. Enter the amount of the credit
determined under section 46. If the credit
determined for the property for which you
must refigure the credit was limited (for
example, by the kilowatt limit in section
48(c)(1)(B)), do not enter on line 3 more
than the amount of the applicable limit.
Line 4. Enter the date (month/day/year) on
which the property was placed in service,
using the first day of the month in which
the property is placed in service. For
example, if the property was placed in
service on February 20, 2008, enter
02/01/2008 on line 4. See Regulations
section 1.47-1(c) for more information.

Form 4255 (Rev. 12-2010)

Page

Line 5. Generally, this will be the date you
disposed of the property. For more details,
see Regulations section 1.47-1(c).
Line 6. Do not enter partial years. If the
property was held less than 12 months,
enter zero. In case of failure to attain or
maintain the separation and sequestration
requirements applicable to a Phase II
gasification program or a Phase II
advanced coal program, enter zero. For
more information, see Notice 2009-23,
2009-16 I.R.B. 802, and Notice 2009-24,
2009-16 I.R.B. 817.
Line 7. Enter the recapture percentage
from the following table.
IF the number of full
years on line 6 of
Form 4255 is . . .

0
1
2
3
4
5 or more

THEN the recapture
percentage is . . .

100
80
60
40
20
0

Line 9. If you have used more than one
Form 4255, or separate sheets to list
additional items on which you figured an
increase in tax, write to the left of the entry
space “Tax from attached” and the total
tax from the separate sheets. Include the
amount in the total for line 9.
Line 10. For certain taxpayers, the basis or
cost of property is limited to the amount
the taxpayer is at risk for the property at
the end of the tax year. The basis or cost
must be reduced by the amount of any
“nonqualified nonrecourse financing”
related to the property at the end of the tax
year. If there is an increase in nonqualified
nonrecourse financing, recapture may be
required. See section 49(b) for details. For
each property for which there is a net
increase in nonqualified nonrecourse
financing, figure the tentative recapture tax
by multiplying the net increase by the
percentage originally used to figure the
credit. Enter the total tentative recapture
tax for all such properties on line 10.
Line 12. Generally, enter the amount of
unused credits from line 3 plus the amount
of any other general business credit
carrybacks and carryforwards that would
have been allowed instead of the refigured
credit. If you did not use all the credit you
originally figured, either in the year you
figured it or in a carryback or carryforward
year, you do not have to recapture the
amount of the credit you did not use. In
refiguring the credit for the original credit
year, be sure to include any carryforwards
from previous years, plus any carrybacks
arising within the first tax year (5 years for
eligible small business credits (ESBCs) as
defined in section 38(c)(5)(B)) after the
original credit year that are now allowed
because the recapture and recomputation
of the original credit made available some
additional tax liability in that year. See
Regulations section 1.47-1(d) and Rev.
Rul. 72-221, 1972-1 C.B. 15, for details.

Figure the unused portion on a separate
sheet and enter it on this line. Do not enter
more than the recapture tax on line 11.
Example 1. In 2007, Maayan earned a
rehabilitation credit of $100,000 from
property A. Maayan used all of the credit to
offset $100,000 of tax in 2007. In 2008,
Maayan earned a rehabilitation credit of
$75,000 from property B and used none of
the credit to offset tax. In 2009, property A
ceased to be investment credit property
and Maayan must refigure the credit from
property A. Her recapture percentage is
60%. She enters $60,000 on lines 9 and
11. Because unused investment credits
can be carried back one year (5 years for
ESBC's), Maayan could have carried the
rehabilitation credit from property B back
to the original credit year for property A,
2007, and she may include $60,000 of the
$75,000 carryforward from property B on
line 12. Maayan's total increase in tax (line
13) for 2009 is $0.
Example 2. In 2007, Ian earned a
rehabilitation credit of $100,000 from
property A. Ian used $1,000 of the credit to
offset tax in 2007 and used $99,000 as a
carryforward to offset tax in 2008. In 2009,
Ian earned a rehabilitation credit of $75,000
from property B and used none to offset
tax. On February 1, 2009, property A
ceased to be investment credit property
and Ian must refigure the credit from
property A. His recapture percentage is
80%. He enters $80,000 on lines 9 and 11.
The unused credit for property B ($75,000)
cannot be entered on line 12 because that
credit was earned in 2009 and cannot be
carried back two years to 2007, the original
credit year for property A. Unused
investment credits can be carried back
only one year (5 years for ESBC's) and any
remaining unused credit must be carried
forward. Ian's total increase in tax (line 13)
for 2009 is $80,000.
Caution. Disallowed passive activity credits
(as defined in section 469(d)(2)) can be
used on line 12 only to the extent that
credits from passive activities are included
on line 11. Unused credits other than
“specified credits” (as defined in section
38(c)(4)(B)) and ESBCs can be used on line
12 only to the extent that credits other than
specified credits and ESBCs are included
on line 11.
Note. Be sure to adjust your current
unused credit to reflect any unused portion
of the original credit that was entered on
line 12 of this form.
Special rule for electing large
partnerships. Electing large partnerships
must enter zero on line 12. These
partnerships are required to determine the
amount of investment credit recapture as if
the credit subject to recapture had been
fully used to reduce tax.
Line 13. Special rule for electing large
partnerships. Subtract the current year
credit, if any, shown on Form 3468, from
the amount on line 11. Enter the result (but
not less than zero) on line 13.

3

Line 14. Recapture of qualifying
therapeutic discovery project grant.
Enter the amount of any qualifying
therapeutic discovery project grant
required to be recaptured under section
9023(e) of the ACA. Do not complete lines
1 through 13 to figure this increase in tax.
Attach a statement showing how you
figured the increase in tax. Do not adjust
the increase in tax for any unused
investment credit. Partnerships, S
corporations, estates, and trusts, figure the
increase in tax at the entity level.
Line 15. Enter the line 15 amount on the
appropriate line of your tax return (for
example, 2010 Form 1120, Schedule J, line
10, or 2010 Form 1120S, line 22c).
Partnerships (other than electing large
partnerships), enter the amount from line
15 in the margin of the line for Ordinary
business income (loss) on Form 1065, U.S.
Return of Partnership Income, (for
example, 2010 Form 1065, line 22) and
identify the entry as “QTDP grant.”
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The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is
approved under the OMB control number
1545-0074 and is included in the estimates
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income tax return. The estimated burden
for all other taxpayers who file this form is
shown below.
Recordkeeping . . . . 4 hr., 4 min.
Learning about the
law or the form . . . .
4 hr., 6 min.
Preparing, copying,
assembling, and sending
the form to the IRS . . . 6 hr., 45 min.
If you have comments concerning the
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