Form 4255 Form 4255 Recapture of Investment Credit

Form

4255

(Rev. December 2012)
Department of the Treasury
Internal Revenue Service
Name(s) as shown on return

Properties

Recapture of Investment Credit
▶

OMB No. 1545-0166

▶ Attach to your income tax return.
Information about Form 4255 and its instructions is at www.irs.gov/form4255.

Attachment
Sequence No.

172

Identifying number

Type of property—State whether rehabilitation, energy, 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 . . . . . . . .

A

Properties
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 statement (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 .
For Paperwork Reduction Act Notice, see instructions.

Cat. No. 41488C

9
10
11
12
13
14
15
Form 4255 (Rev. 12-2012)

Form 4255 (Rev. 12-2012)

General Instructions

Section references are to the Internal
Revenue Code unless otherwise noted.
Future developments. For the latest
information about developments related
to Form 4255 and its instructions, such
as legislation enacted after this form and
instructions were published, go to
www.irs.gov/form4255.

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 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 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

Page

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; as
modified by Notice 2011-24, 2011-14 I.
R.B. 603.
• 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; as modified by
Notice 2011-24, 2011-14 I.R.B. 603.
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.

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

2

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 passthrough entities (including partnerships,
S corporations, estates, and trusts), the
tax is determined at the entity level and
allocated to the entity owners as a credit
recapture.

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, 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 the reason for
recapture is due to receipt of a payment
under section 1603 of the American
Recovery and Reinvestment Act of 2009,
the basis of the energy property is
reduced by 50% of the payment
received.
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 statements and enter the
recapture tax on line 10. Include any
unused credit for these properties on line
12.

Form 4255 (Rev. 12-2012)

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.
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
statements that include all the
information shown on Form 4255. Enter
the total from all the separate statements
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, 2010,
enter 02/01/2010 on line 4. See
Regulations section 1.47-1(c) for more
information.
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

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sequestration requirements applicable to
a Phase II gasification program or a
Phase II advanced coal program, enter
zero. If a payment was received under
section 1603 of the American Recovery
and Reinvestment Act of 2009, enter "0".
For more information, see Notice
2009-23, 2009-16 I.R.B. 802, and Notice
2009-24, 2009-16 I.R.B. 817; as
modified by Notice 2011-24, 2011-14 I.
R.B. 603.
Line 7. Enter the recapture percentage
from the following table. Enter 100 if a
payment under section 1603 was
received.
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 statements 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 statements. 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

3

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 statement and enter it on this
line. Do not enter more than the
recapture tax on line 11.
Example 1. In 2009, Maayan earned a
rehabilitation credit of $100,000 from
property A. Maayan used all of the credit
to offset $100,000 of tax in 2009. In
2010, Maayan earned a rehabilitation
credit of $75,000 from property B and
used none of the credit to offset tax. In
2011, 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,
2009, 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 2011 is $0.
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.
Example 2. In 2009, Ian earned a
rehabilitation credit of $100,000 from
property A. Ian used $1,000 of the credit
to offset tax in 2009 and used $99,000
as acarryforward to offset tax in 2010. In
2011, Ian earned a rehabilitation credit of
$75,000 from property B and used none
to offset tax. On February 1, 2011,
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 2011 and cannot be carried
back two years to 2009, 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 2011 is $80,000.

Form 4255 (Rev. 12-2012)

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.
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

Page

you figured the increase in tax. Do not
adjust the increase in tax for any unused
investment credit. Partnerships, S
corporations, estates, and trusts,
determine the increase in tax at the
entity level. This amount will be allocated
to the entity owners as a credit
recapture.
Line 15. Enter the line 15 amount on the
appropriate line of your tax return (for
example, 2012 Form 1120, Schedule J,
line 9a). Partnerships (other than electing
large partnerships), enter the amount
from line 15 on Form 1065, Schedule K,
line 20c using Code H. See the
Instructions for Form 1065 for more
information on how to allocate this
amount to the partners. S corporations,
enter the amount from line 15 on Form
1120S, Schedule K, line 17d using code
G. See the Instructions for Form 1120S
for more information. Estates and Trusts,
enter the amount from line 15 on Form
1041, Schedule G, line 5. See the
Instructions for Form 1041 for more
information.
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
ensure that you are complying with these
laws and to allow us to figure and collect
the right amount of tax.

4

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by section 6103.
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 shown in the instructions for
their individual 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 and sending
the form to the IRS . . 6 hr., 45 min.
If you have comments concerning the
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