rom 4299

(Rev. Dec. 1970)

Department of the Treasury
Internal Revenue Service

(Computation of Recapture Tax)

> Attach to your income tax return.

Tax from Recomputing a Prior Year Investment Credit

(See General Instructions
on the back for excep-
tions to the recapture tax.)

For the calendar year 19 ..

.-., or other taxable year beginning -.

, and ending .....

a1 19...

Identifying number as shown on page 1 of your tax return

Name
If there is an unused investment credit attributable to the disposed asset, compute the
recapture tax on a separate schedule. (See example (c) on the back.) Do not use this form.
1. Original Investment Credit Recomputed Investment Credit Recapture Tax
w @ ] @ ;@ o @ w @ ; @ |] ao a) aa a
Description of Date Cost Esti- Appli- Qualified Original Date item | | Appli- | Qt 4 Recomputed
10 etn | eet a. lmmet) Ge | daira, wears | qaamdtone ar Sue | ineimet imecest | an
(tea or weed) | basis centage column 8) tcaturt'6 795) | ere oroperty kc Wie | centage (column 8 x column 10) (eniumn TI x 796)

Mt |

(C) |

(0) |

(E)

a) |

(6)

2. Total tax from recomputing a prior year investment credit—add lines 1(A) through 1(G) and, if applicable, combine this total tax (line 2) with any other recapture tax

that has been computed on a separate schedule as indicated by example (c) on the back. Enter on the line provided on your tax return

Note: The recapture tax is an addition to your income tax for the year in which you dispose of investment credit property. Do not use the recapture tax to offset the current year’s

investment credit on Form 3468.

Form 4255 (Rev. 12-70)


General Instructions
(References are to the Internal Revenue Code.)

Individuals, estates, trusts or corporations that dis-
pose of investment credit property subject to recapture
tax before the end of the useful life years category used
in computing the credit, may use this form to compute
the recapture tax if the maximum credit allowable has
been allowed at the time of disposition.

Small business corporations, partnerships, and es-
tates and trusts (which apportioned the investment be-
tween the estate or trust and the beneficiaries) must
inform their shareholders, partners or beneficiaries of
any early dispositions and furnish them with the informa-
tion needed to compute the recapture tax. (See sections
1.47-4, 1.47—5, and 1.47—6 of the regulations.)

Exception: The recapture tax does not apply to the
disposed property if, after April 18, 1969, such property
ceases to be section 38 property due to: (a) fire, theft or
other casualty, or (b) if the taxpayer replaces section 38
property within 6 months after the disposition with prop-
erty that would be section 38 property but for section 49.
In the case of (b) above, the recapture tax does not apply
to the extent of the investment credit produced by the
replacement property (determined as if such property
were section 38 property). This replacement property
must be similar or related in service or in use to the
property being replaced. (See section 47 (a) (4) and (5).)

Specific Instructions

Column 2.—The date that section 38 property is
placed in service is the first day of the month in which
such property is placed in service. (See sections 1.46—
3(d) and 1.47—1(c) of the regulations.)

Column 3.—Enter the cost or basis used to compute
the investment in qualified property.

Column 5.—Enter the applicable percentage based
on the estimated useful life shown in column 4

Estimated Applicable

Useful Life Percentage
(a) 4 years or more but less than 6 334
(b) 6 or more but less than 8 66%
(c) 8 or more 100

Column 7.—If the limitation did not apply (or if the
limitation did apply but the full credit was taken by
means of carrybacks and carryovers) in the year the in-

vestment credit was claimed, the amount of credit al-
lowed will be 7% of column 6. For public utility property,
use 3%.

Column 8.—Enter the date of the event which caused
section 38 property to cease being section 38 property—
e.g., the date of sale of such property. (See section
1.47-1(c) of the regulations.)

Column 10.—Enter the applicable percentage based
on the number of years the property was actually held
as shown in column 9.

Actual Applicable
Useful Life Percentage
(a) less than 4 years 0
(b) 4 or more but less than 6 334
(c) 6 or more but less than 8 66%

Column 12.—For public utility property, enter 3%
of column 11.

The following three examples show the investment credit recaptured (a) in full; (b)
in part; and (c) when there is an unused investment credit at time of disposition.

(a) In full—On January 1, 1966, D, an individual on a calendar year basis, placed into service
qualified property with an 8-year life and a basis of $9,000. D deducted $630 ($9,000 x 100% x 7%)
investment credit which he used in full to reduce his 1966 tax liability. On November 1, 1969, D sold
this property. Since it was held less than 4 years, no investment credit is allowable. Accordingly, D
must add $630 to his 1969 tax liability (the difference between the $630 credit allowed and the
recomputed credit of zero).

(b) In part.—Assume the same facts in (a) above except D sold the property on November 1, 1970.
D would add $420 to his 1970 tax liability as follows:

Original Investment Credit
Col. Col.

Recomputed Investment Credit

3 Cost or basis . . . . . $9,000 8 Cost or basis. . $9,000
4 Estimated life. . . . - 8 years 9 Actual life . Foe ee 4years
5 Applicable percentage 100 10 Applicable percentage . . . 334,
6 Qualified investment (col. 3 x ‘col. 5) $9,000 11 Qualified investment (col. 3 x col. 10) . $3,000
7 Original investment credit allowed (col. 6 x 7%) . $630 12 Recomputed investment credit * Ceol 11 x 7%) . $210

TAX from recomputing a prior year investment credit (col. 7 less col. 12) . . . 2... ee ee $420

(c) Unused investment credit at time of disposition.—E, an individual, on a calendar year basis,
placed in service on January 1, 1968, $50,000 of qualified property having a useful life of 10 years.
Although the tentative investment credit was $3,500 ($50,000 x 100% x 7%) the investment credit
was limited to E's tax liability of $1,000. The excess $2,500 ($3,500 less $1,000) was an unused
investment credit carryback. Of this $2,500, E used $600 in 1965, $500 in 1966, and $200 in 1967.
The total credit taken by E through 1968, therefore, was $2,300. In 1969, E sold the property. Since
the property was held less than 4 years, no investment credit is allowable. Accordingly, E must add
$2,300 to his 1969 tax liability (the difference between the $2,300 credit taken and the recomputed
credit of zero). E would attach a schedule to his tax return showing this computation and enter the
recapture tax of $2,300 on the line provided on his tax return.

‘x US. GOVERNMENT PRINTING OFFICE:1971-O-~409-122