General Instructions

Purpose of Form

Use Form 3468 to claim the investment credit. The investment credit consists of the rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, and qualifying advanced energy project credits. If you file electronically, you must send in a paper Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, if attachments are required to Form 3468.

Investment Credit Property

Investment credit property is any depreciable or amortizable property that qualifies for the rehabilitation credit, energy credit, qualifying advanced coal project credit, qualifying gasification project credit, or qualifying advanced energy project credit.

You cannot claim a credit for property that is:

  • Used mainly outside the United States (except for property described in section 168(g)(4));

  • Used by a governmental unit or foreign person or entity (except for a qualified rehabilitated building leased to that unit, person, or entity; and property used under a lease with a term of less than 6 months);

  • Used by a tax-exempt organization (other than a section 521 farmers' cooperative) unless the property is used mainly in an unrelated trade or business or is a qualified rehabilitated building leased by the organization;

  • Used for lodging or in the furnishing of lodging (see section 50(b)(2) for exceptions); or

  • Certain MACRS business property to the extent it has been expensed under section 179 of the Internal Revenue Code.

Qualified Progress Expenditures

Qualified progress expenditures are those expenditures made before the property is placed in service and for which the taxpayer has made an election to treat the expenditures as progress expenditures. Qualified progress expenditure property is any property that is being constructed by or for the taxpayer and which (a) has a normal construction period of two years or more, and (b) it is reasonable to believe that the property will be new investment credit property in the hands of the taxpayer when it is placed in service. The placed in service requirement does not apply to qualified progress expenditures.

Qualified progress expenditures for:

  • Self-constructed property means the amount that is properly chargeable (during the tax year) to capital account with respect to that property; or

  • Non-self-constructed property means the lesser of: (a) the amount paid (during the tax year) to another person for the construction of the property, or (b) the amount that represents the proportion of the overall cost to the taxpayer of the construction by the other person which is properly attributable to that portion of the construction which is completed during the tax year.

For more information on qualified progress expenditures, see section 46(d) (as in effect on November 4, 1990). For details on qualified progress expenditures for the rehabilitation credit, see section 47(d).

At-Risk Limit for Individuals and Closely Held Corporations

The cost or basis of property for investment credit purposes may be limited if you borrowed against the property and are protected against loss, or if you borrowed money from a person who is related or who has an interest (other than as a creditor) in the business activity. The cost or basis must be reduced by the amount of the nonqualified nonrecourse financing related to the property as of the close of the tax year in which the property is placed in service. If, at the close of a tax year following the year property was placed in service, the nonqualified nonrecourse financing for any property has increased or decreased, then the credit base for the property changes accordingly. The changes may result in an increased credit or a recapture of the credit in the year of the change. See sections 49 and 465 for details.

Recapture of Credit

You may have to refigure the investment credit and recapture all or a portion of it if:

  • You dispose of investment credit property before the end of 5 full years after the property was placed in service (recapture period);

  • You change 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 decreases 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 is reduced by more than one-third in an S corporation, partnership (other than an electing large partnership), estate, or trust that allocated the cost or basis of property to you for which you claimed a credit;

  • You return leased property (on which you claimed a credit) to the lessor before the end of the recapture period;

  • A net increase in the amount of nonqualified nonrecourse financing occurs for any property to which section 49(a)(1) applied; or

  • A grant under section 1603 of the American Recovery and Reinvestment Tax Act of 2009 was made for section 48 property for which a credit was allowed for progress expenditures before the grant was made. Recapture is applicable to those amounts previously included in the qualified basis for an energy credit, including progress expenditures, that are also the basis for the 1603 grant;

  • A grant under section 9023 of the Patient Protection and Affordable Care Act was made for investment for which a credit was determined under section 48D before the grant was made.

Exceptions to recapture. Recapture of the investment credit does not apply to any of the following.

  1. A transfer due to the death of the taxpayer.

  2. 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.

  3. A transaction to which section 381(a) applies (relating to certain acquisitions of the assets of one corporation by another corporation).

  4. 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 information, see the Instructions for Form 4255.

See section 46(g)(4) (as in effect on November 4, 1990), and related regulations, 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.

Any required recapture is reported on Form 4255. For details, see Form 4255, Recapture of Investment Credit.


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