Form 4255: Recapture of Investment Credit

Internal Revenue Service (IRS) Form 4255, officially titled "Recapture of Investment Credit," is used to calculate any tax increase due to the recapture of a previously claimed investment credit. In simpler terms, if you claimed a tax benefit for a business investment but then didn't meet the holding period or other qualifying requirements, you may need to repay a portion of that credit. Form 4255 helps determine the amount you owe.

What is an Investment Tax Credit?

The investment tax credit is a tax benefit offered by the IRS to incentivize businesses to invest in specific qualified property. These credits can be claimed for various projects, including:

  • Gasification projects
  • Coal projects (certain limitations apply)
  • Advanced energy projects
  • Rehabilitation of buildings (meeting specific requirements)
  • Energy efficiency improvements (specific types)

What is Recapture?

Recapture refers to the situation where a previously claimed tax credit needs to be partially or fully repaid to the IRS. This can occur if certain conditions related to the investment property are not met after claiming the credit.

Common Reasons for Recapture:

A. Early Disposal: Disposing of the investment property before the end of the five-year recapture period.

B. Change in Use: Shifting the use of the property such that it no longer qualifies for the credit.

C. Decrease in Business Use: Reducing the business use of the property below a certain threshold, leading to partial recapture.

D. Specific Property Changes: Events specific to certain credit types, like a qualified rehabilitated building no longer meeting requirements.

Who Should Use Form 4255?

Businesses that claimed an investment tax credit in a previous year and encounter a situation triggering recapture need to file Form 4255. This form helps determine the amount of tax increase due to the recaptured credit.

Common Questions about Form 4255

Who Needs to File Form 4255?

Any taxpayer who claimed an investment credit in a previous year and no longer qualifies due to the reasons mentioned above.

What Information Do I Need to File?

  1. Details about the investment credit claimed (year, amount)
  2. Information on the property disposal/change in use
  3. Calculations to determine the recaptured credit amount

Where Can I Find the Form and Instructions?

You can download Form 4255 and its instructions attached below.