IRS Form 4255 is used to calculate how much additional tax you might owe if you need to "recapture" (or pay back) some or all of an investment credit you previously claimed. You might need to do this if:
- You sold or got rid of the property within 5 years of placing it in service.
- You changed how you use the property so it no longer qualifies for the credit.
- The property’s business use decreased, making it no longer eligible for the credit.
- A building that qualified as a "qualified rehabilitated building" when placed in service no longer qualifies.
- Certain types of property, including those under sections 48(b), 48A(b)(3), 48B(b)(3), or 48C(b)(2), no longer qualify when placed in service.
- Your share in a partnership, S corporation, estate, or trust decreased by more than one-third within the recapture period.
- You returned leased property before the 5-year period was up.
- The amount of financing for certain property increased in a way that disqualifies it.
- You received a grant under the American Recovery and Reinvestment Tax Act of 2009 for property for which you had already claimed a credit.
Are there exceptions?
There are exceptions where you won’t have to recapture the credit, such as if:
- The transfer happened due to the taxpayer's death.
- The property was transferred between spouses or because of a divorce, though the new owner might still have to recapture the credit later.
- The transfer involved an electing large partnership.
- The transaction involved one corporation acquiring the assets of another.
- The way you run the business changed, but the property is still being used in the business and you still have a substantial interest in it. This includes changes like a corporation becoming an S corporation or having its S election revoked or terminated.
Program entry
To access Form 4255 within the program, please follow the steps below.
- Federal
- Other Taxes
- Recapture of Investment Credit