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Department of the Treasury
Internal Revenue Service
Instructions for Form 4255

(Rev. December 2023)
Recapture of Investment Credit

Section references are to the Internal Revenue Code unless • In the case of a project under the Phase II or Phase III
otherwise noted. 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
Future Developments requirements in section 48A(e)(1)(G). For more information, see
For the latest information about developments related to Form Notice 2009-24, 2009-16 I.R.B. 817, available at IRS.gov/irb/
4255 and its instructions, such as legislation enacted after they 2009-16_IRB#NOT-2009-24, as modified by Notice 2011-24,
were published, go to IRS.gov/Form4255. and amplified by Notice 2012-51, 2012-33 I.R.B. 150, available
at IRS.gov/irb/2012-33_IRB#NOT-2012-51; and Notice 2015-14,
2015-10 I.R.B. 722, available at IRS.gov/irb/
What’s New 2015-10_IRB#NOT-2015-14; and Notice 2020-88, 2020-53
The Creating Helpful Incentives to Produce Semiconductors I.R.B. 1795, available at IRS.gov/irb/
(CHIPS) Act of 2022 enacted the advanced manufacturing 2020-53_IRB#NOT-2020-88.
investment credit and added an applicable transaction that • You engaged in an applicable transaction, as defined in
requires recapture of the advanced manufacturing investment section 50(a)(6)(D).
credit claimed. See Credit Recapture Requirements and Special • A net increase in the amount of nonqualified nonrecourse
Rules and Line 15. 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
General Instructions doesn’t apply to the following.
• A transfer because of the death of the taxpayer.
Purpose of Form • A transfer between spouses or incident to divorce under
Use Form 4255 to figure the increase in tax for the recapture of section 1041. However, a later disposition by the transferee is
investment credit claimed. subject to recapture to the same extent as if the transferor had
disposed of the property at the later date.
Credit Recapture Requirements and Special • A transaction to which section 381(a) applies (relating to
Rules certain acquisitions of the assets of one corporation by another
corporation).
Generally, you must refigure the investment credit and may have • A mere change in the form of conducting a trade or business
to recapture all or part of it if any of the following apply. if:
• You disposed of investment credit property before the end of 5
full years after the property was placed in service (the recapture 1. The property is retained as investment credit property in
period). that trade or business, and
• You changed the use of the property before the end of the 2. The taxpayer retains a substantial interest in that trade or
recapture period so that it no longer qualifies as investment business.
credit property. A mere change in the form of conducting a trade or business
• The business use of the property decreased before the end of includes a corporation that elects to be an S corporation and a
the recapture period so that it no longer qualifies (in whole or in corporation whose S election is revoked or terminated.
part) as investment credit property.
• Any building to which section 47(d) applies will no longer be a For more details on the recapture rules, see section 50(a).
qualified rehabilitated building when placed in service. See section 46(g)(4) (as in effect on November 4, 1990)
• Any property to which section 48(b), 48A(b)(3), 48B(b)(3), ! to figure the recapture tax if you made a withdrawal from
48C(b)(2), or 48D(b)(5) applies will no longer qualify as CAUTION a capital construction fund set up under the Merchant
investment credit property when placed in service. Marine Act of 1936 to pay the principal of any debt incurred in
• Before the end of the recapture period, your proportionate connection with a vessel on which you claimed investment
interest was reduced by more than one-third in a partnership, S credit.
corporation, estate, or trust that allocated the cost or other basis
of property to you for which you claimed a credit.
• You returned leased property (on which you claimed a credit) Carryover Adjustment on Recapture
to the lessor before the end of the recapture period. For property subject to investment credit recapture, reduce any
• In the case of a project under the Phase II or Phase III remaining carryforwards and carrybacks from the property by the
gasification program, failure at any time during the applicable recapture percentage used for the property on line 15.
recovery period (as defined in section 168(c)) to attain and
maintain the separation and sequestration requirements in Basis Adjustment on Recapture
section 48B(d)(1)(B). For more information, see Notice 2009-23, For property subject to investment credit, increase the property’s
2009-16 I.R.B. 802, available at IRS.gov/irb/ basis as follows.
2009-16_IRB#NOT-2009-23, as modified by Notice 2011-24, • For rehabilitation credit property, qualifying advanced coal
2011-14 I.R.B. 603, available at IRS.gov/irb/ project property, qualifying gasification project property,
2011-14_IRB#NOT-2011-24; and amplified by Notice 2014-81, qualifying advanced energy project property, or advanced
2014-53 I.R.B. 1001, available at IRS.gov/irb/ manufacturing investment property, increase the basis by 100%
2014-53_IRB#NOT-2014-81. of the amount, attributable to each such property, of the
recapture tax, adjustments to carrybacks and carryforwards

Oct 12, 2023 Cat. No. 68759M

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under section 39, or adjustments to disallowed passive activity If line 3 is negative, then the entry on line 4 will be larger
credits. TIP than the entry on line 2.
• 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, Line 5. Multiply line 1 by line 4. If the credit for the property for
or adjustments to disallowed passive activity credits. which you must refigure the credit was limited to a dollar amount
(for example, by the kilowatt limit in section 48(c)(1)(B)), don’t
If you are a partner or S corporation shareholder, adjust the enter more than the amount of the applicable limit on line 5.
basis of your interest in the partnership or stock in the S Line 6. Enter the total of all credits taken for the property on
corporation to take into account the adjustment made to the Form 3800, General Business Credit in prior years. But don’t
basis of property held by the partnership or S corporation. include the amount of any credit previously recaptured due to an
For more information, see section 50(c) and Regulations increase in nonqualified nonrecourse financing.
section 1.469-3(f).
Part II. Recapture From Increase in
Partnerships, S Corporations, Estates, and Nonqualified Nonrecourse Financing
Trusts Use Part II to figure any increase in tax for the recapture of an
A partnership, S corporation, estate, or trust that allocated any or investment tax credit under section 49.
all of a qualified investment to its partners, shareholders, or
beneficiaries, must provide the information they need to refigure Generally, section 49(a)(1) applies to property:
the credit. See Regulations sections 1.46-3(f), 1.47-4(a) and (c), • Placed in service by individuals or certain closely held
1.47-5, and 1.47-6. corporations during a tax year in which they were engaged in
activities described in section 465, and
Partners, Shareholders, and Beneficiaries • Used in connection with an activity subject to the at-risk
If you are a partner, shareholder, or beneficiary and your limitations under section 465.
Schedule K-1 shows recapture of investment credit claimed in an
earlier year, you will need your copy of the original Form 3468, The credit base of this property for investment credit
Investment Credit to complete this form. 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
Specific Instructions creditor) in the business activity. The credit base must be
reduced by the amount of any nonqualified nonrecourse
Lines A through D. Describe the property for which you must financing related to the property at the end of the tax year.
refigure the credit. Use the corresponding column for each
property in Parts I, II, and III. If you need more property columns, If, at the close of a tax year following the year property
use additional Forms 4255 or other statements that include all described in section 49(a)(1) was placed in service, the
the information shown on Form 4255. Enter the total from all the nonqualified nonrecourse financing for the property has
separate statements on lines 17 and 18. increased or decreased, then the credit base for the property
changes accordingly. The changes may result in an increased
Part I. Original Investment Credit credit or a recapture of the credit in the year of the change. See
Use Part I to refigure the original credit. sections 49 and 465 for details.
Line 1. Enter the rate you used to figure the original credit from Line 8. If the original credit had been figured using the
the Form 3468 that you filed. For combined heat and power current-year tax base in the year the property was first placed in
system property, enter the effective rate used to figure the service, you may have been able to use other general business
original credit, taking into account the limit under section 48(c)(3) credits instead. Use Worksheet 1 to calculate the amount of
(B). unused general business credits that would have been allowed
under section 38.
Line 2. Enter the credit base (cost or other basis) that you used
to figure the original credit. When making this calculation, include any general
If section 49(a)(1) applied to the property and there was a net TIP business credits that could have been carried forward or
increase in nonqualified nonrecourse financing with respect to carried back to a year affected by the recapture of the
the property in previous tax years, enter the credit base you used original credit. Don’t include any credits that were previously
to figure the original credit, reduced by the amount of that net recaptured. If you previously used the credit to offset the
increase. If there was a net decrease in nonqualified recapture of a credit on another property, treat it as a credit
nonrecourse financing with respect to the property in previous allowed in a previous tax year.
tax years, enter the credit base you used to figure the original Multiple recapture properties. If you are recapturing
credit, increased by the amount of that net decrease. For more investment credits from multiple properties in Part II, complete
details, see the instructions for Part II. Form 4255, line 7, for each property before using Worksheet 1.
Line 3. If section 49(a)(1) didn’t apply to the property, enter -0-. Then fill out Worksheet 1, reapplying any allowable investment
If section 49(a)(1) applied to the property, enter the net change credits as if no credit had been allowed for any of the properties
in nonqualified nonrecourse financing related to the property in excess of the refigured credit for that property on line 5. As you
during the tax year. Enter a net increase in nonqualified complete the worksheet, separately identify the amount of
nonrecourse financing as a positive number. Enter a net unused general business credits that could have been used
decrease in nonqualified nonrecourse financing as a negative instead of the excess credit from each property. If an unused
number. For more information about section 49, see the general business credit could have been used instead of the
instructions for Part II. excess credit from more than one property (for example, the
amount figured in Step 1 or Step 3 for a single year is attributable
Line 4. Subtract line 3 from line 2. to more than one property), apply the unused credit to the
property with the highest original credit rate on line 1. When
completing Step 7, add the amounts from Steps 3 and 6

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Worksheet 1
Use Worksheet 1 to calculate the amount of unused general business credits that would have been allowed instead of the credit from
the recapture property. If you need to account for more than 5 years, complete Steps 4 through 6 for those years on additional copies
of the worksheet. Include the total for all years on Step 7.
First
Year Year Year Year Year
Steps ______ ______ ______ ______ ______ Total
Step 1. Identify the first year that the aggregate amount of credit
allowed for the property was more than the amount on line 5.
Enter the excess as a positive number . . . . . . . . . . . . . . . . . . ______
Step 2. Figure the amount of other general business credits that
could have been used in that year had the amount in Step 1 not
been allowed. Enter the result as a positive number . . . . . . . . ______
Step 3. Subtract any general business credits that were actually
allowed in any previous tax year from the result of Step 2. . . . . ______ ______
Step 4. For the following year, figure the reduction in general business
credits that would have been allowed for that year if:
1. No amount on line 7 had been allowed as a credit, and
2. Any other credits were used as calculated in Step 2 above . . . . . . . . . . ______ ______ ______ ______
Step 5. Figure the amount of other general business credits that would have
been allowed to offset the reduction figured in Step 4 . . . . . . . . . . . . . . . ______ ______ ______ ______
Step 6. Subtract any general business credits that were actually allowed in
any previous tax year from the result of Step 5 . . . . . . . . . . . . . . . . . . . . ______ ______ ______ ______ ______
Step 7. Repeat Steps 4 through 6 above for each of the following tax years. Then add the amount from Step 3 to the
amount from each iteration of Step 6. Enter the result on line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ______

separately by property and enter the results in the corresponding Line 13. If you had never taken the recaptured credit, you may
property column of line 8. have been able to use other general business credits instead.
Disallowed passive activity credits (as defined in section Use Worksheet 2 to calculate the amount of unused general
business credits that would have been allowed under section 38.
! 469(d)(2)) can be used in the calculation of line 8 only to
CAUTION the extent that credits from passive activities are
When making this calculation, include any general
included in the credits subject to recapture. TIP business credits that could have been carried forward or
carried back to a year affected by the recapture of the
Unused credits other than “specified credits” (as defined in original credit. Don’t include any credits that were previously
section 38(c)(4)(B)) and eligible small business credits (ESBCs) recaptured. If you previously used the credit to offset the
can be used in the calculation of line 8 taking into account the recapture of a credit on another property, treat it as a credit
limitation under section 38(c)(1)(A). allowed in a previous tax year.
Part III. Recapture From Disposition Multiple recapture properties. If you are recapturing
investment credits from multiple properties in Part III, complete
of Property or Cessation of Use as Form 4255, line 6, for each property before using Worksheet 2.
Then fill out Worksheet 2, reapplying any allowable investment
Investment Credit Property
credits as if no credit had been allowed for any of the properties.
Use Part III to figure any increase in tax for the recapture of an As you complete the worksheet, separately identify the amount
investment tax credit under section 50. of unused general business credits that could have been used
Line 10. Enter the date (month/day/year) on which the property instead of the recaptured credit from each property. If an unused
was placed in service, using the first day of the month in which general business credit could have been used instead of a
the property was placed in service. For example, if the property recaptured credit from more than one property (for example, the
was placed in service on February 20, 2021, enter 02/01/2021 amount figured in Step 1 or Step 3 for a single year is attributable
on line 10. See Regulations section 1.47-1(c) for more to more than one property), apply the unused credit first to the
information. property with the highest recapture percentage on line 15. When
completing Step 7, add the amounts from Steps 3 and 6
Line 11. Generally, this will be the date you disposed of the separately by property and enter the results in the corresponding
property. For more details, see Regulations section 1.47-1(c). property column of line 13.
Line 12. Do not enter partial years. If the property was held less Disallowed passive activity credits (as defined in section
than 12 months, enter -0-. In case of failure to attain or maintain ! 469(d)(2)) can be used in the calculation of line 13 only
the separation and sequestration requirements applicable to a CAUTION to the extent that credits from passive activities are
Phase II or III gasification program or a Phase II or III advanced included in the credits subject to recapture.
coal program, enter -0-. In case of an applicable transaction by
an applicable taxpayer before the close of the 10-year period
beginning on the date such taxpayer placed in service Unused credits other than “specified credits” (as defined in
investment credit property that is eligible for the advanced section 38(c)(4)(B)) and eligible small business credits (ESBCs)
manufacturing investment credit, enter -0-. can be used in the calculation of line 13 taking into account the
limitation under section 38(c)(1)(A).

Instructions for Form 4255 (Rev. 12-2023) -3-

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Worksheet 2
Use Worksheet 2 to calculate the amount of unused general business credits that would have been allowed under section 38 had
there been no credit from the recapture property. If you need to account for more than 5 years, complete Steps 4 through 6 for those
years on additional copies of the worksheet. Include the total for all years on Step 7.
First
Year Year Year Year Year
Steps ______ ______ ______ ______ ______ Total
Step 1. Identify the first year that an amount from line 6 was
allowed as a credit. Enter that amount as a positive number . . . ______
Step 2. Figure the amount of other general business credits that
could have been used in that year had the amount in Step 1 not
been allowed. Enter the result as a positive number . . . . . . . . ______
Step 3. Subtract any general business credits that were actually
allowed in any previous tax year from the result of Step 2. . . . . ______ ______
Step 4. For the following year, figure the reduction in general business
credits that would have been allowed for that year if:
1. No amount on line 6 had been allowed as a credit, and
2. Any other credits were used as calculated in Step 2 above . . . . . . . . . . ______ ______ ______ ______
Step 5. Figure the amount of other general business credits that would have
been allowed to offset the reduction figured in Step 4 . . . . . . . . . . . . . . . ______ ______ ______ ______
Step 6. Subtract any general business credits that were actually allowed in
any previous tax year from the result of Step 5 . . . . . . . . . . . . . . . . . . . . ______ ______ ______ ______ ______
Step 7. Repeat Steps 4 through 6 above for each of the following tax years. Then add the amount from Step 3 to the
amount from each iteration of Step 6. Enter the result on line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ______

Line 14. Subtract line 13 from line 6 to calculate the aggregate increase your basis for property A by $60,000 ($21,600 +
decrease in general business credits that would have been $38,400).
allowed under section 38 had there been no credit from this Example 2. The facts are the same as in Example 1, except
property. that you also earned an energy credit on property B in 2021 of
Line 15. Enter the recapture percentage from the following $12,000, which you didn’t use to offset your tax. As before, you
table. Enter 100 for certain expansions in connection with disposed of property A in June of 2023. You enter $36,000 on
advanced manufacturing facilities. See section 50(a)(3)(A). line 6 (the credit from property A used in 2021 and 2022).
However, you could have used your $12,000 of unused credit
from property B for 2021 against your 2021 tax had no credit
IF the number of full years on THEN the recapture percentage been available from property A. Therefore, you enter $12,000 on
line 12 of Form 4255 is . . . is . . .
line 13 and $24,000 ($36,000 - $12,000) on line 14. Your total
0 100 increase in tax for 2023 is $14,400 (60% of $24,000). Your
1 80 remaining credit carryforward for property A is also reduced by
2 60 the recapture percentage of 60%. Your remaining carryforward is
3 40 $25,600 (40% of $64,000). You increase your basis for property
4 20 A by $52,800 ($14,400 + $38,400).
5 or more 0 Example 3. In January of 2021, Maayan earned an energy
credit of $100,000 from property A. She used all of the credit to
offset $100,000 of tax in 2021. In 2022, Maayan earned an
Line 16. Multiply the amount on line 14 by the percentage on energy credit of $75,000 from property B and used none of the
line 15 to calculate the recapture tax due to disposition or credit to offset tax. In June of 2023, property A ceased to be
cessation of use as an investment credit property. investment credit property and Maayan must refigure the credit
Example 1. In January of 2021, you earned an energy credit from property A. Her recapture percentage is 60%. She enters
of $100,000 on property A. You used $20,000 of the credit to $100,000 on line 6. However, Maayan could have carried the
offset tax in 2021 and used $16,000 as a carryforward to offset energy credit of $75,000 from property B back to 2021 had no
tax in 2022. You had $64,000 remaining carryforward for credit been available from property A. Therefore, she enters
property A at the end of 2022. You have no other tax credits for $75,000 on line 13 and $25,000 ($100,000 - $75,000) on line 14.
other properties for any other years. Maayan’s total increase in tax for 2023 is $15,000 (60% of
$25,000). She increases her basis in property A by $15,000.
You disposed of the property in June of 2023. Your recapture
percentage is 60%. Because you have no other credits for Example 4. In July of 2021, Ian earned an energy credit of
properties for other years, you enter -0- on line 13. You enter $100,000 from property A. Ian used $1,000 of the credit to offset
$36,000 on line 6 (the credit from property A used in 2021 and tax in 2021 and used $99,000 as a carryforward to offset tax in
2022). Your total increase in tax for 2023 is $21,600 (60% of 2022. In 2023, he earned an energy credit of $75,000 from
$36,000). Your remaining credit carryforward for property A is property B and used none of the credit to offset tax.
also reduced by the recapture percentage of 60%. Your On February 1, 2023, property A ceased to be investment
remaining carryforward is $25,600 (40% of $64,000). You credit property and Ian must refigure the credit from property A.
His recapture percentage is 80%. He enters $100,000 on line 6.

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No carryback or carryforward credits are available for 2021 to Instructions for Form 1065 for more information on how to
offset the $1,000 credit used for property A. However, Ian could allocate this amount to the partners. S corporations, enter the
have carried the energy credit of $75,000 from property B back amount from line 20 on Form 1120-S, U.S. Income Tax Return for
to 2022 had no credit been available from property A that year. an S Corporation, Schedule K, line 17d, using code G. See the
Therefore, he enters $75,000 on line 13 and $25,000 Instructions for Form 1120-S for more information. Estates and
($100,000 - $75,000) on line 14. Ian’s total increase in tax for trusts, enter the amount from line 20 on Form 1041, U.S. Income
2023 is $20,000 (80% of $25,000). He increases his basis in Tax Return for Estates and Trusts, Schedule G, line 6a. See the
property A by $20,000. Instructions for Form 1041 for more information.
Example 5. A and B each contributed $150,000 of cash to
AB partnership for the purpose of investing in energy property. Paperwork Reduction Act Notice. We ask for the information
The partnership agreement provides that A and B share equally on this form to carry out the Internal Revenue laws of the United
in all items of income, gain, loss, deduction, and credit of AB States. You are required to give us the information. We need it to
partnership. AB partnership invests $300,000 in an energy ensure that you are complying with these laws and to allow us to
property in accordance with section 48 and places the energy figure and collect the right amount of tax.
property in service on January 1, 2023. As of the end of 2023, You are not required to provide the information requested on
AB partnership has $90,000 of eligible credits under section 48 a form that is subject to the Paperwork Reduction Act unless the
for the energy property. Before the due date for AB partnership's form displays a valid OMB control number. Books or records
2023 tax return (with extension), AB partnership transfers the relating to a form or its instructions must be retained as long as
$90,000 of eligible credits to an unrelated transferee taxpayer X their contents may become material in the administration of any
for $80,000. Internal Revenue law. Generally, tax returns and return
In 2024, A reduces her proportionate interest in the general information are confidential, as required by section 6103.
profits of the partnership by 50%, causing a recapture event to A
under Regulations section 1.47-6(a)(2). The energy property is The time needed to complete and file this form will vary
not disposed of by the transferor partnership and continues to be depending on individual circumstances. The estimated burden
energy property with respect to such transferor partnership. AB for individual and business taxpayers filing this form is approved
partnership should not provide notice of recapture to transferee under OMB control number 1545-0074 and 1545-0123 and is
taxpayer X as a result of the recapture event under Regulations included in the estimates shown in the instructions for their
section 1.47-6(a)(2) for A's sale and transferee taxpayer X is not individual and business income tax returns. The estimated
liable for any recapture amount. A, however, is subject to burden for all other taxpayers who file this form is shown below.
recapture as provided in Regulations section 1.47-6(a)(2) and
based on her share of the basis (or cost) of the energy property
to which the eligible credits were determined under Regulations Recordkeeping. . . . . . . . . . . . . . . . 6 hr., 27 min.
section 1.46-3(f)(2). Learning about the law or the
Lines 17 and 18. If you used separate statements to list form. . . . . . . . . . . . . . . . . . . . . . . . 1 hr., 35 min.
additional properties, write to the left of the entry space “Tax from Preparing and sending the form to
attached” and the total tax from the separate statements. Include the IRS. . . . . . . . . . . . . . . . . . . . . . 1 hr., 46 min.
the amounts from these statements in the totals for lines 17 and
18, respectively.
Line 19. Reserved for future use.
If you have comments concerning the accuracy of these time
Line 20. Enter the line 20 amount on the appropriate line of your estimates or suggestions for making this form simpler, we would
tax return (for example, 2023 Form 1120, U.S. Corporation be happy to hear from you. See the instructions for the tax return
Income Tax Return, Schedule J, line 9a). Partnerships, enter the with which this form is filed.
amount from line 20 on Form 1065, U.S. Return of Partnership
Income, Schedule K, line 20c, using code H. See the

Instructions for Form 4255 (Rev. 12-2023) -5-

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