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General Instructions

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 (the 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), 48A(b)(3), 48B(b)(3), 48C(b)(2), or 48D(b)(4) 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 property for which you were previously allowed an investment credit for qualified progress expenditures under section 48(d), and the amounts constituting the qualified basis for the credit are also the basis for the grant.

  • 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 or Phase III 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, available at https://www.irs.gov/irb/2009-16_irb/ar06.html; as modified by Notice 2011-24, 2011-14 I.R.B. 603 available at https://www.irs.gov/irb/2011-14_IRB/ar08.html; and amplified by Notice 2014-81, 2014-53 I.R.B. 1001, available at https://www.irs.gov/irb/2014-53_IRB/ar09.html.

  • In the case of a project under the Phase II or Phase III 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, available at https://www.irs.gov/irb/2009-16_irb/ar07.html; as modified by Notice 2011-24, 2011-14 I.R.B. 603, and amplified by Notice 2012-51, 2012-33 I.R.B. 150, available at https://www.irs.gov/irb/2012-33_IRB/ar05.html, and Notice 2015-14, 2015-10 I.R.B. 722, available at https://www.irs.gov/irb/2015-10_IRB/ar10.html.

  • 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 Part II, later.

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).

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

If you received a grant under section 9023 of the Affordable Care Act (ACA), you may have to recapture it if the project for which the grant was awarded ceases to be a qualifying therapeutic discovery project. If the amount of the grant is more than the amount allowable as a grant, the excess must be recaptured as if the investment to which the excess portion of the grant related had ceased to be a qualified investment immediately after the grant was made.

The increase in tax for any recapture of the 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 determined at the entity level and allocated to the entity owners as a credit recapture.

To recapture a qualifying therapeutic discovery project grant, skip lines 1–18 and complete line 19. For more information, see Notice 2010-45, 2010-23 I.R.B. 734, available at https://www.irs.gov/irb/2010-23_IRB/ar08.html.

Carryover Adjustment on Recapture

For property subject to investment credit recapture, reduce any remaining carryforwards and carrybacks from the property by the recapture percentage used for the property on line 15.

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 grant under section 1603 of the American Recovery and Reinvestment Act of 2009, the basis of the energy property is reduced by 50% of the grant received.

If you are a partner or S corporation shareholder, adjust the basis of your interest in the partnership or stock in the S corporation 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).

Partnerships, S Corporations, Estates, and Trusts

A partnership, S corporation, estate, or trust that allocated any or all of a qualified investment to its partners, shareholders, or beneficiaries, must provide the information they need to refigure the credit. See Regulations sections 1.46-3(f), 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.

Partners, Shareholders, and Beneficiaries

If you are a partner, shareholder, or beneficiary and 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 this form.


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