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Department of the Treasury
Internal Revenue Service
Instructions for Form 4255

(Rev. December 2018)

(Use with the December 2016 revision of Form 4255.)
Recapture of Investment Credit

Section references are to the Internal Revenue • Any property to which section 48(b), Exceptions to recapture. Recapture of
Code unless otherwise noted. 48A(b)(3), 48B(b)(3), or 48C(b)(2) applies the investment credit does not apply to the
will no longer qualify as investment credit following.
Future Developments property when placed in service. • A transfer because of the death of the
• Before the end of the recapture period, taxpayer.
For the latest information about your proportionate interest was reduced • A transfer between spouses or incident
developments related to Form 4255 and by more than one-third in a partnership, S to divorce under section 1041. However, a
its instructions, such as legislation corporation, estate, or trust that allocated later disposition by the transferee is
enacted after they were published, go to the cost or other basis of property to you subject to recapture to the same extent as
IRS.gov/Form4255. for which you claimed a credit. if the transferor had disposed of the
• You received a grant under section property at the later date.
Reminder 1603 of the American Recovery and • A transaction to which section 381(a)
Reinvestment Tax Act of 2009 for property applies (relating to certain acquisitions of
Form 4255 has been revised to reflect the for which you were previously allowed an the assets of one corporation by another
computational steps required under investment credit for qualified progress corporation).
section 50(a)(1) and to provide additional expenditures under section 48(d), and the • A mere change in the form of
instructions on how to adjust the unused amounts constituting the qualified basis conducting a trade or business if:
portion (i.e., carryover) of a recaptured for the credit are also the basis for the
credit. grant. 1. The property is retained as
• You returned leased property (on which investment credit property in that trade or
An electing large partnership (under you claimed a credit) to the lessor before business, and
repealed section 775) with a fiscal taxable the end of the recapture period. 2. The taxpayer retains a substantial
year that began in 2017 must use Form • In the case of a project under the Phase interest in that trade or business.
4255 (revised December 2016) and its II or Phase III gasification program, failure A mere change in the form of
related instructions (revised December at any time during the applicable recovery conducting a trade or business includes a
2016). period (as defined in section 168(c)) to corporation that elects to be an S
attain and maintain the separation and corporation and a corporation whose S
sequestration requirements in section
General Instructions election is revoked or terminated.
48B(d)(1)(B). For more information, see For more details on the recapture rules,
Notice 2009-23, 2009-16 I.R.B. 802, see section 50(a).
Purpose of Form available at IRS.gov/irb/
Use Form 4255 to figure the increase in 2009-16_IRB#NOT-2009-23; as modified See section 46(g)(4) (as in effect
tax for the recapture of investment credit by Notice 2011-24, 2011-14 I.R.B. 603 ! on November 4, 1990) to figure
claimed and for the recapture of a available at IRS.gov/irb/ CAUTION the recapture tax if you made a
qualifying therapeutic discovery project 2011-14_IRB#NOT-2011-24; and withdrawal from a capital construction
grant. amplified by Notice 2014-81, 2014-53 fund set up under the Merchant Marine
Credit Recapture Requirements I.R.B. 1001, available at IRS.gov/irb/ Act of 1936 to pay the principal of any
2014-53_IRB#NOT-2014-81. debt incurred in connection with a vessel
and Special Rules • In the case of a project under the Phase on which you claimed investment credit.
Generally, you must refigure the II or Phase III qualifying advanced coal
investment credit and may have to project program, failure during the Recapture of Qualifying
recapture all or part of it if any of the applicable recovery period (as defined in Therapeutic Discovery Project
following apply. section 168(c)) to attain and maintain the
• You disposed of investment credit separation and sequestration Grant
property before the end of 5 full years after requirements in section 48A(e)(1)(G). For If you received a grant under section 9023
the property was placed in service (the more information, see Notice 2009-24, of the Affordable Care Act (ACA), you may
recapture period). 2009-16 I.R.B. 817, available at IRS.gov/ have to recapture it if the project for which
• You changed the use of the property irb/2009-16_IRB#NOT-2009-24; as the grant was awarded ceases to be a
before the end of the recapture period so modified by Notice 2011-24, and amplified qualifying therapeutic discovery project. If
that it no longer qualifies as investment by Notice 2012-51, 2012-33 I.R.B. 150, the amount of the grant is more than the
credit property. available at IRS.gov/irb/ amount allowable as a grant, the excess
• The business use of the property 2012-33_IRB#NOT-2012-51, and Notice must be recaptured as if the investment to
decreased before the end of the recapture 2015-14, 2015-10 I.R.B. 722, available at which the excess portion of the grant
period so that it no longer qualifies (in IRS.gov/irb/2015-10_IRB#NOT-2015-14. related had ceased to be a qualified
whole or in part) as investment credit • A net increase in the amount of investment immediately after the grant
property. nonqualified nonrecourse financing was made.
• Any building to which section 47(d) occurred for any property to which section
applies will no longer be a qualified 49(a)(1) applied. For more details, see the The increase in tax for any recapture of
rehabilitated building when placed in instructions for Part II, later. the grant is imposed on the person to
service. whom the grant was made. In the case of

Nov 13, 2018 Cat. No. 68759M

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pass-through entities (including Partners, Shareholders, and Line 5. Multiply line 1 by line 4. If the
partnerships, S corporations, estates, and credit for the property for which you must
Beneficiaries
trusts), the tax is determined at the entity refigure the credit was limited to a dollar
level and allocated to the entity owners as If you are a partner, shareholder, or
a credit recapture. beneficiary and your Schedule K-1 shows amount (for example, by the kilowatt limit
recapture of investment credit claimed in in section 48(c)(1)(B)), do not enter more
To recapture a qualifying therapeutic an earlier year, you will need your copy of than the amount of the applicable limit on
discovery project grant, skip lines 1–18 the original Form 3468 to complete this line 5.
and complete line 19. For more form. Line 6. Enter the total of all credits taken
information, see Notice 2010-45, 2010-23 for the property on Form 3800 in prior
I.R.B. 734, available at IRS.gov/irb/ years. But do not include the amount of
2010-23_IRB#NOT-2010-45. Specific Instructions any credit previously recaptured due to an
Carryover Adjustment on Lines A through D. Describe the increase in nonqualified nonrecourse
property for which you must refigure the financing.
Recapture credit. Use the corresponding column for Part II. Recapture From
For property subject to investment credit each property in Parts I, II, and III. If you
recapture, reduce any remaining need more property columns, use Increase in Nonqualified
carryforwards and carrybacks from the additional Forms 4255 or other statements Nonrecourse Financing
property by the recapture percentage that include all the information shown on Use Part II to figure any increase in tax for
used for the property on line 15. Form 4255. Enter the total from all the the recapture of an investment tax credit
separate statements on lines 17 and 18. under section 49.
Basis Adjustment on Recapture
For property subject to investment credit Part I. Original Investment Generally, section 49(a)(1) applies to
or qualifying therapeutic discovery project Credit property:
grant recapture, increase the property’s Use Part I to refigure the original credit. • Placed in service by individuals or
basis as follows. certain closely held corporations during a
• For rehabilitation credit property, Line 1. Enter the rate you used to figure tax year in which they were engaged in
qualifying advanced coal project property, the original credit from the Form 3468 that activities described in section 465, and
qualifying gasification project property, you filed. For combined heat and power • Used in connection with an activity
qualifying advanced energy project system property, enter the effective rate subject to the at-risk limitations under
property, or depreciable qualifying used to figure the original credit, taking section 465.
therapeutic discovery project property, into account the limit under section 48(c)
increase the basis by 100% of the amount, (3)(B). The credit base of this property for
investment credit purposes may be limited
attributable to each such property, of the Line 2. Enter the credit base (cost or if you borrowed against the property and
recapture tax, adjustments to carrybacks other basis) that you used to figure the are protected against loss, or if you
and carryforwards under section 39, or original credit. borrowed money from a person who is
adjustments to disallowed passive activity
credits. If section 49(a)(1) applied to the related or who has an interest (other than
• For energy property, increase the basis property and there was a net increase in as a creditor) in the business activity. The
by 50% of the amount, attributable to each nonqualified nonrecourse financing with credit base must be reduced by the
such property, of the recapture tax, respect to the property in previous tax amount of any nonqualified nonrecourse
adjustments to carrybacks and years, enter the credit base you used to financing related to the property at the end
carryforwards under section 39, or figure the original credit, reduced by the of the tax year.
adjustments to disallowed passive activity amount of that net increase. If there was a If, at the close of a tax year following
credits. If the reason for recapture is due net decrease in nonqualified nonrecourse the year property described in section
to receipt of a grant under section 1603 of financing with respect to the property in 49(a)(1) was placed in service, the
the American Recovery and Reinvestment previous tax years, enter the credit base nonqualified nonrecourse financing for the
Act of 2009, the basis of the energy you used to figure the original credit, property has increased or decreased, then
property is reduced by 50% of the grant increased by the amount of that net the credit base for the property changes
received. decrease. For more details, see the accordingly. The changes may result in an
instructions for Part II. increased credit or a recapture of the
If you are a partner or S corporation Line 3. If section 49(a)(1) did not apply to credit in the year of the change. See
shareholder, adjust the basis of your the property, enter -0-. If section 49(a)(1) sections 49 and 465 for details.
interest in the partnership or stock in the S applied to the property, enter the net Line 8. If the original credit had been
corporation to take into account the change in nonqualified nonrecourse figured using the current-year tax base in
adjustment made to the basis of property financing related to the property during the the year the property was first placed in
held by the partnership or S corporation. tax year. Enter a net increase in service, you may have been able to use
nonqualified nonrecourse financing as a other general business credits instead.
For more information, see section 50(c) positive number. Enter a net decrease in Use Worksheet 1 to calculate the amount
and Regulations section 1.469-3(f). nonqualified nonrecourse financing as a of unused general business credits that
Partnerships, S Corporations, negative number. For more information would have been allowed under section
about section 49, see the instructions for 38.
Estates, and Trusts Part II.
A partnership, S corporation, estate, or When making this calculation,
trust that allocated any or all of a qualified Line 4. Subtract line 3 from line 2. TIP include any general business
investment to its partners, shareholders, If line 3 is negative, then the entry credits that could have been
or beneficiaries, must provide the TIP on line 4 will be larger than the carried forward or carried back to a year
information they need to refigure the entry on line 2. affected by the recapture of the original
credit. See Regulations sections 1.46-3(f), credit. Do not include any credits that were
1.47-4(a) and (c), 1.47-5, and 1.47-6. previously recaptured. If you previously

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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 five 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 ______

used the credit to offset the recapture of a Unused credits other than “specified Line 13. If you had never taken the
credit on another property, treat it as a credits” (as defined in section 38(c)(4)(B)) recaptured credit, you may have been
credit allowed in a previous tax year. and eligible small business credits able to use other general business credits
(ESBCs) can be used in the calculation of instead. Use Worksheet 2 to calculate the
Multiple recapture properties. If you line 8 taking into account the limitation amount of unused general business
are recapturing investment credits from under section 38(c)(1)(A). credits that would have been allowed
multiple properties in Part II, complete under section 38.
Form 4255, line 7, for each property Part III. Recapture From
before using Worksheet 1. Then fill out Disposition of Property or When making this calculation,
Worksheet 1, reapplying any allowable Cessation of Use as Investment TIP include any general business
credits that could have been
investment credits as if no credit had been Credit Property carried forward or carried back to a year
allowed for any of the properties in excess
of the refigured credit for that property on Use Part III to figure any increase in tax for affected by the recapture of the original
line 5. As you complete the worksheet, the recapture of an investment tax credit credit. Do not include any credits that were
separately identify the amount of unused or qualified therapeutic discovery grant previously recaptured. If you previously
general business credits that could have under section 50. used the credit to offset the recapture of a
been used instead of the excess credit Line 10. Enter the date (month/day/year) credit on another property, treat it as a
from each property. If an unused general on which the property was placed in credit allowed in a previous tax year.
business credit could have been used service, using the first day of the month in
instead of the excess credit from more which the property was placed in service. Multiple recapture properties. If you
than one property (for example, the For example, if the property was placed in are recapturing investment credits from
amount figured in Step 1 or Step 3 for a service on February 20, 2016, enter multiple properties in Part III, complete
single year is attributable to more than one 02/01/2016 on line 10. See Regulations Form 4255, line 6, for each property
property), apply the unused credit to the section 1.47-1(c) for more information. before using Worksheet 2. Then fill out
property with the highest original credit Worksheet 2, reapplying any allowable
rate on line 1. When completing Step 7, Line 11. Generally, this will be the date investment credits as if no credit had been
add the amounts from Steps 3 and 6 you disposed of the property. For more allowed for any of the properties. As you
separately by property and enter the details, see Regulations section 1.47-1(c). complete the worksheet, separately
results in the corresponding property Line 12. Do not enter partial years. If the identify the amount of unused general
column of line 8. property was held less than 12 months, business credits that could have been
Disallowed passive activity credits enter -0-. In case of failure to attain or used instead of the recaptured credit from
maintain the separation and sequestration each property. If an unused general
! (as defined in section 469(d)(2)) requirements applicable to a Phase II or III business credit could have been used
CAUTION can be used in the calculation of
line 8 only to the extent that credits from gasification program or a Phase II or III instead of a recaptured credit from more
passive activities are included in the advanced coal program, enter -0-. If a than one property (for example, the
credits subject to recapture. grant was received under section 1603 of amount figured in Step 1 or Step 3 for a
the American Recovery and Reinvestment single year is attributable to more than one
Act of 2009, enter -0-. property), apply the unused credit first to

Instructions for Form 4255 (Rev. 12-2018) -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 five 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 ______

the property with the highest recapture IF the number of full THEN the recapture Kumar increases his basis for property A
percentage on line 15. When completing years on line 12 of percentage is . . . by $60,000 ($21,600 + $38,400).
Step 7, add the amounts from Steps 3 and Form 4255 is . . .
Example 2. The facts are the same as
6 separately by property and enter the 0 100 in Example 1, except that Kumar also
results in the corresponding property 1 80 earned a rehabilitation credit on property
column of line 13.
2 60 B in 2016 of $12,000, which he did not use
Disallowed passive activity credits 3 40 to offset his tax. As before, he disposed of
! (as defined in section 469(d)(2)) 4 20 property A in June of 2018. He enters
CAUTION can be used in the calculation of 5 or more 0 $36,000 on line 6 (the credit from property
line 13 only to the extent that credits from A used in 2016 and 2017). However,
passive activities are included in the Kumar could have used his $12,000 of
credits subject to recapture. Line 16. Multiply the amount on line 14 by unused credit from property B for 2016
the percentage on line 15 to calculate the against his 2016 tax had no credit been
Unused credits other than “specified recapture tax due to disposition or available from property A. Therefore, he
credits” (as defined in section 38(c)(4)(B)) cessation of use as an investment credit enters $12,000 on line 13 and $24,000
and eligible small business credits property. ($36,000 - $12,000) on line 14. Kumar’s
(ESBCs) can be used in the calculation of total increase in tax for 2018 is $14,400
line 13 taking into account the limitation Example 1. In 2016, Kumar earned a (60% of $24,000). His remaining credit
under section 38(c)(1)(A). rehabilitation credit of $100,000 on carryforward for property A also is
Line 14. Subtract line 13 from line 6 to property A. Kumar used $20,000 of the reduced by the recapture percentage of
calculate the aggregate decrease in credit to offset tax in 2016 and used 60%. Kumar’s remaining carryforward is
general business credits that would have $16,000 as a carryforward to offset tax in $25,600 (40% of $64,000). Kumar
been allowed under section 38 had there 2017. He had $64,000 remaining increases his basis for property A by
been no credit from this property. carryforward for property A at the end of $52,800 ($14,400 + $38,400).
2017. Kumar has no other tax credits for
Line 15. Enter the recapture percentage other properties for any other years. Example 3. In January of 2016,
Maayan earned a rehabilitation credit of
from the following table. Enter 100 if you Kumar disposed of the property in June $100,000 from property A. She used all of
received a grant under section 1603 of the of 2018. His recapture percentage is 60%. the credit to offset $100,000 of tax in
American Recovery and Reinvestment Act Because Kumar has no other credits for 2016. In 2017, Maayan earned a
of 2009. properties for other years, he enters -0- on rehabilitation credit of $75,000 from
line 13. He enters $36,000 on line 6 (the property B and used none of the credit to
credit from property A used in 2016 and offset tax. In June of 2018, property A
2017). Kumar’s total increase in tax for ceased to be investment credit property
2018 is $21,600 (60% of $36,000). His and Maayan must refigure the credit from
remaining credit carryforward for property property A. Her recapture percentage is
A also is reduced by the recapture 60%. She enters $100,000 on line 6.
percentage of 60%. Kumar’s remaining However, Maayan could have carried the
carryforward is $25,600 (40% of $64,000). rehabilitation credit of $75,000 from

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property B back to 2016 had no credit grant required to be recaptured under control number. Books or records relating
been available from property A. Therefore, section 9023(e) of the ACA. to a form or its instructions must be
she enters $75,000 on line 13 and Do not complete lines 1 through 18 to retained as long as their contents may
$25,000 ($100,000 - $75,000) on line 14. figure this increase in tax. Attach a become material in the administration of
Maayan’s total increase in tax for 2018 is statement showing how you figured the any Internal Revenue law. Generally, tax
$15,000 (60% of $25,000). She increases increase in tax. Do not adjust the increase returns and return information are
her basis in property A by $15,000. in tax for any unused investment credit. confidential, as required by section 6103.
Example 4. In 2016, Ian earned a Partnerships, S corporations, estates, The time needed to complete and file
rehabilitation credit of $100,000 from and trusts, determine the increase in tax at this form will vary depending on individual
property A. Ian used $1,000 of the credit the entity level. This amount will be circumstances. The estimated burden for
to offset tax in 2016 and used $99,000 as allocated to the entity owners as a credit individual and business taxpayers filing
a carryforward to offset tax in 2017. In recapture. this form is approved under OMB control
2018, he earned a rehabilitation credit of number 1545-0074 and 1545-0123 and is
Line 20. Enter the line 20 amount on the
$75,000 from property B and used none of included in the estimates shown in the
appropriate line of your tax return (for
the credit to offset tax. instructions for their individual and
example, 2018 Form 1120, Schedule J,
business income tax returns. The
On February 1, 2018, property A line 9a). Partnerships, enter the amount
estimated burden for all other taxpayers
ceased to be investment credit property from line 20 on Form 1065, Schedule K,
who file this form is shown below.
and Ian must refigure the credit from line 20c, using code H. See the
property A. His recapture percentage is Instructions for Form 1065 for more
80%. He enters $100,000 on line 6. No information on how to allocate this amount Recordkeeping 6 hr., 27 min.
carryback or carryforward credits are to the partners. S corporations, enter the
available for 2016 to offset the $1,000 amount from line 20 on Form 1120S, Learning about the
credit used for property A. However, Ian Schedule K, line 17d, using code G. See law or the form 1 hr., 35 min.
could have carried the rehabilitation credit the Instructions for Form 1120S for more Preparing and
of $75,000 from property B back to 2017 information. Estates and trusts, enter the sending the form to
had no credit been available from property amount from line 20 on Form 1041, the IRS 1 hr., 46 min.
A that year. Therefore, he enters $75,000 Schedule G, line 5. See the Instructions
on line 13 and $25,000 ($100,000 - for Form 1041 for more information.
$75,000) on line 14. Ian’s total increase in
tax for 2018 is $20,000 (80% of $25,000). Paperwork Reduction Act Notice. We If you have comments concerning the
He increases his basis in property A by ask for the information on this form to carry accuracy of these time estimates or
$20,000. out the Internal Revenue laws of the suggestions for making this form simpler,
Lines 17 and 18. If you used separate United States. You are required to give us we would be happy to hear from you. See
statements to list additional properties, the information. We need it to ensure that the instructions for the tax return with
write to the left of the entry space “Tax you are complying with these laws and to which this form is filed.
from attached” and the total tax from the allow us to figure and collect the right
separate statements. Include the amounts amount of tax.
from these statements in the totals for
You are not required to provide the
lines 17 and 18, respectively.
information requested on a form that is
Line 19. Enter the amount of any subject to the Paperwork Reduction Act
qualifying therapeutic discovery project unless the form displays a valid OMB

Instructions for Form 4255 (Rev. 12-2018) -5-

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