Form 4255

(Rev. December 2012) 

Department of the Treasury 

Internal Revenue Service 

Recapture of Investment Credit 

▶ Attach to your income tax return.

▶ Information about Form 4255 and its instructions is at www.irs.gov/form4255. 

OMB No. 1545-0166 

Attachment 

Sequence No. 172 

Name(s) as shown on return Identifying number 

Properties Type of property—State whether rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, qualifying advanced energy project, 

or qualifying therapeutic discovery project property. (See the Instructions for Form 3468 for the year the investment credit property was placed in service 

for definitions.) If rehabilitation property, also show type of building. If energy property, show type. 

A 

B 

C 

D 

Original Investment Credit 

Computation Steps: Properties 

(see Specific Instructions) A B C D 

1 Original rate of credit . . . . . . . . 1 

2 Cost or other basis . . . . . . . . . 2 

3 Original credit (see instructions) . . . . . 3 

4 Date property was placed in service . . . 4 

5 Date property ceased to be qualified 

investment credit property . . . . . . . 5 

6 Number of full years between the date on line 

4 and the date on line 5 . . . . . . . . 6 

Recapture Tax 

7 Recapture percentage (see instructions) . . 7 

8 Tentative recapture tax. Multiply line 3 by 

the percentage on line 7 . . . . . . . 8 

9 Add all the amounts on line 8 . . . . . . . . . . . . . . . . . . . . . . . 9

10 Enter the tentative recapture tax from property for which there was an increase in nonqualified

nonrecourse financing. Attach a separate statement (see instructions) . . . . . . . . . . 10 

11 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

12 Unused credits (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 12 

13 Subtract line 12 from line 11. See section 45K(b)(4) if you claim the nonconventional source fuel 

credit. Electing large partnerships, see instructions . . . . . . . . . . . . . . . . . 13 

14 Recapture of qualifying therapeutic discovery project grant. Attach statement (see instructions) . . 14 

15 Total increase in tax. Add lines 13 and 14. Enter here and on the appropriate line of your tax return . 15 

For Paperwork Reduction Act Notice, see instructions. Cat. No. 41488C Form 4255 (Rev. 12-2012) 
Form 4255 (Rev. 12-2012) Page 2 

General Instructions 

Section references are to the Internal 

Revenue Code unless otherwise noted. 

Future developments. For the latest 

information about developments related 

to Form 4255 and its instructions, such 

as legislation enacted after this form and 

instructions were published, go to 

www.irs.gov/form4255.

Purpose of Form 

Use Form 4255 to figure the increase in 

tax for the recapture of investment credit 

claimed and for the recapture of a 

qualifying therapeutic discovery project 

grant.

Credit Recapture 

Requirements and Special 

Rules

Generally, you must refigure the 

investment credit and may have to 

recapture all or part of it if any of the 

following apply. 

• You disposed of investment credit 

property before the end of 5 full years 

after the property was placed in service 

(recapture period). 

• You changed the use of the property 

before the end of the recapture period so 

that it no longer qualifies as investment 

credit property. 

• The business use of the property 

decreased before the end of the 

recapture period so that it no longer 

qualifies (in whole or in part) as 

investment credit property. 

• Any building to which section 47(d) 

applies will no longer be a qualified 

rehabilitated building when placed in 

service. 

• Any property to which section 48(b) 

applies will no longer qualify as 

investment credit property when placed 

in service. 

• Before the end of the recapture period, 

your proportionate interest was reduced 

by more than one-third in a partnership 

(other than an electing large partnership), 

S corporation, estate, or trust that 

allocated the cost or other basis of 

property to you for which you claimed a 

credit. 

• You received a payment under section 

1603 of the American Recovery and 

Reinvestment Tax Act of 2009 for 

investment credit property for which you 

figured a credit for any prior year. 

• A net increase in the amount of 

nonqualified nonrecourse financing 

occurred for any property to which 

section 49(a)(1) applied. For more 

details, see the instructions for line 10. 

• You returned leased property (on 

which you claimed a credit) to the lessor 

before the end of the recapture period. 

• In the case of a project under the 

Phase II gasification program, failure at

any time during the applicable recovery 

period (as defined in section 168(c)) to 

attain and maintain the separation and 

sequestration requirements in section 

48B(d)(1)(B). For more information, see 

Notice 2009-23, 2009-16 I.R.B. 802; as 

modified by Notice 2011-24, 2011-14 I.

R.B. 603.

• In the case of a project under the 

Phase II 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 

requirements in section 48A(e)(1)(G). For 

more information, see Notice 2009-24, 

2009-16 I.R.B. 817; as modified by 

Notice 2011-24, 2011-14 I.R.B. 603.

Exceptions to recapture. Recapture of 

the investment credit does not apply to 

the following. 

• A transfer because of the death of the 

taxpayer. 

• A transfer between spouses or incident 

to divorce under section 1041. However, 

a later disposition by the transferee is 

subject to recapture to the same extent 

as if the transferor had disposed of the 

property at the later date. 

• A transfer of an interest in an electing 

large partnership. 

• A transaction to which section 381(a) 

applies (relating to certain acquisitions of 

the assets of one corporation by another 

corporation). 

• A mere change in the form of 

conducting a trade or business if: 

1. The property is retained as 

investment credit property in that trade 

or business, and 

2. The taxpayer retains a substantial 

interest in that trade or business. 

A mere change in the form of 

conducting a trade or business includes 

a corporation that elects to be an S 

corporation and a corporation whose S 

election is revoked or terminated. 

For more details on the recapture 

rules, see section 50(a). 

Caution. See section 46(g)(4) (as in 

effect on November 4, 1990) to figure 

the recapture tax if you made a 

withdrawal from a capital construction 

fund set up under the Merchant Marine 

Act of 1936 to pay the principal of any 

debt incurred in connection with a vessel 

on which you claimed investment credit. 

Recapture of Qualifying 

Therapeutic Discovery 

Project Grant

You may have to recapture all or part of 

a qualifying therapeutic discovery project 

grant paid under section 9023 of the 

ACA. If you received a qualifying 

therapeutic discovery project grant and 

the amount of the grant is more than the

amount of the allowable grant, you must 

include the difference as an increase in 

tax as if the investment to which the 

excess portion of the grant relates had 

ceased to be a qualified investment 

immediately after the grant was made. 

The increase in tax for any recapture of a 

qualifying therapeutic discovery project 

grant is imposed on the person to whom 

the grant was made. In the case of passthrough entities (including partnerships, 

S corporations, estates, and trusts), the 

tax is determined at the entity level and 

allocated to the entity owners as a credit 

recapture.

Basis Adjustment on 

Recapture 

For property subject to investment credit 

or qualifying therapeutic discovery 

project grant recapture, increase the 

property’s basis as follows. 

• For rehabilitation credit property, 

qualifying advanced coal project 

property, qualifying gasification project 

property, qualifying advanced energy 

project property, or depreciable 

qualifying therapeutic discovery project 

property, increase the basis by 100% of 

the amount, attributable to each such 

property, of the recapture tax, 

adjustments to carrybacks and 

carryforwards under section 39, or 

adjustments to disallowed passive 

activity credits. 

• 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, or 

adjustments to disallowed passive 

activity credits. If the reason for 

recapture is due to receipt of a payment 

under section 1603 of the American 

Recovery and Reinvestment Act of 2009, 

the basis of the energy property is 

reduced by 50% of the payment 

received.

If you are a partner or S corporation 

shareholder, the adjusted basis of your 

interest in the partnership or stock in the 

S corporation is adjusted to take into 

account the adjustment made to the 

basis of property held by the partnership 

or S corporation. 

For more information, see section 50(c) 

and Regulations section 1.469-3(f).

Specific Instructions 

Note. Do not figure the recapture tax on 

lines 1 through 9 if there is an increase in 

nonqualified nonrecourse financing related 

to certain at-risk property. Figure the 

tentative recapture tax for these properties 

on separate statements and enter the 

recapture tax on line 10. Include any 

unused credit for these properties on line 

12. 
Page 3 Form 4255 (Rev. 12-2012) 

Partnerships, S corporations, estates, 

and trusts. For a partnership, S 

corporation, estate, or trust that

allocated any or all of the investment 

credit to its partners, shareholders, or

beneficiaries, provide the information 

they need to refigure the credit. See 

Regulations sections 1.47-4(a) and (c), 

1.47-5, and 1.47-6. See the instructions 

for Form 1065-B for information on 

recapture of the investment credit by 

electing large partnerships.

Lines A through D. Describe the 

property for which you must refigure the 

credit. 

Complete lines 1 through 8 for each 

property on which you are refiguring the 

credit. Use a separate column for each 

item. If you need more columns, use 

additional Forms 4255 or other 

statements that include all the 

information shown on Form 4255. Enter 

the total from all the separate statements 

on line 9. 

Line 1. Enter the rate you used to figure 

the original credit from the Form 3468 

that you filed. 

Line 2. Enter the cost or other basis that

you used to figure the original credit. If 

there has been a net increase in 

nonqualified nonrecourse financing with 

respect to the property that you have 

disposed of or that has otherwise 

ceased to be investment credit property, 

enter the cost or other basis you used to 

figure the original credit reduced by the 

amount of that net increase. If there has 

been a net decrease in nonqualified 

nonrecourse financing with respect to 

the property, enter the cost or other 

basis you used to figure the original 

credit plus the amount of that net 

decrease. For more details, see section 

49(b). 

Line 3. Enter the amount of the credit 

determined under section 46. If the 

credit determined for the property for 

which you must refigure the credit was 

limited (for example, by the kilowatt limit 

in section 48(c)(1)(B)), do not enter on 

line 3 more than the amount of the 

applicable limit.

Line 4. Enter the date (month/day/year) 

on which the property was placed in 

service, using the first day of the month 

in which the property is placed in 

service. For example, if the property was 

placed in service on February 20, 2010, 

enter 02/01/2010 on line 4. See 

Regulations section 1.47-1(c) for more 

information.

Line 5. Generally, this will be the date 

you disposed of the property. For more 

details, see Regulations section 1.47-1

(c). 

Line 6. Do not enter partial years. If the 

property was held less than 12 months,

enter zero. In case of failure to attain or 

maintain the separation and

sequestration requirements applicable to 

a Phase II gasification program or a 

Phase II advanced coal program, enter 

zero. If a payment was received under 

section 1603 of the American Recovery 

and Reinvestment Act of 2009, enter "0". 

For more information, see Notice 

2009-23, 2009-16 I.R.B. 802, and Notice 

2009-24, 2009-16 I.R.B. 817; as 

modified by Notice 2011-24, 2011-14 I.

R.B. 603. 

Line 7. Enter the recapture percentage 

from the following table. Enter 100 if a 

payment under section 1603 was 

received.

IF the number of full 

years on line 6 of

Form 4255 is . . . 

THEN the recapture 

percentage is . . . 

0 100

1 80 

2 60

3 40

4 20

5 or more 0

Line 9. If you have used more than one 

Form 4255, or separate statements to 

list additional items on which you 

figured an increase in tax, write to the 

left of the entry space “Tax from 

attached” and the total tax from the 

separate statements. Include the 

amount in the total for line 9. 

Line 10. For certain taxpayers, the basis 

or cost of property is limited to the 

amount the taxpayer is at risk for the 

property at the end of the tax year. The 

basis or cost must be reduced by the 

amount of any “nonqualified 

nonrecourse financing” related to the 

property at the end of the tax year. If 

there is an increase in nonqualified 

nonrecourse financing, recapture may be 

required. See section 49(b) for details. 

For each property for which there is a 

net increase in nonqualified nonrecourse 

financing, figure the tentative recapture 

tax by multiplying the net increase by the 

percentage originally used to figure the 

credit. Enter the total tentative recapture 

tax for all such properties on line 10. 

Line 12. Generally, enter the amount of 

unused credits from line 3 plus the 

amount of any other general business 

credit carrybacks and carryforwards that 

would have been allowed instead of the 

refigured credit. If you did not use all the 

credit you originally figured, either in the 

year you figured it or in a carryback or 

carryforward year, you do not have to 

recapture the amount of the credit you 

did not use. In refiguring the credit for 

the original credit year, be sure to 

include any carryforwards from previous 

years, plus any carrybacks arising within 

the first tax year (5 years for eligible 

small business credits (ESBCs) as 

defined in section 38(c)(5)(B)) after the 

original credit year that are now allowed 

because the recapture and

recomputation of the original credit 

made available some additional tax 

liability in that year. See Regulations 

section 1.47-1(d) and Rev. Rul. 72-221, 

1972-1 C.B. 15, for details.

Figure the unused portion on a 

separate statement and enter it on this 

line. Do not enter more than the 

recapture tax on line 11. 

Example 1. In 2009, Maayan earned a 

rehabilitation credit of $100,000 from 

property A. Maayan used all of the credit 

to offset $100,000 of tax in 2009. In 

2010, Maayan earned a rehabilitation 

credit of $75,000 from property B and 

used none of the credit to offset tax. In 

2011, property A ceased to be 

investment credit property and Maayan 

must refigure the credit from property A. 

Her recapture percentage is 60%. She 

enters $60,000 on lines 9 and 11. 

Because unused investment credits can 

be carried back one year (5 years for 

ESBC's), Maayan could have carried the 

rehabilitation credit from property B back 

to the original credit year for property A, 

2009, and she may include $60,000 of 

the $75,000 carryforward from property 

B on line 12. Maayan's total increase in 

tax (line 13) for 2011 is $0. 

For a partnership, S corporation, 

estate, or trust that must recapture any 

part of a qualifying therapeutic discovery 

project grant, figure the increase in tax at 

the entity level. Do not complete lines 1 

through 13 to figure this increase in tax. 

Figure the increase in tax on a separate 

statement and enter the result on line 14. 

See the instructions for line 14.

Partners, shareholders, and 

beneficiaries. If your Schedule K-1 

shows recapture of investment credit 

claimed in an earlier year, you will need 

your copy of the original Form 3468 to 

complete lines 1 through 6 of this Form 

4255. 

Example 2. In 2009, Ian earned a 

rehabilitation credit of $100,000 from 

property A. Ian used $1,000 of the credit 

to offset tax in 2009 and used $99,000 

as acarryforward to offset tax in 2010. In 

2011, Ian earned a rehabilitation credit of 

$75,000 from property B and used none 

to offset tax. On February 1, 2011, 

property A ceased to be investment 

credit property and Ian must refigure the 

credit from property A. His recapture 

percentage is 80%. He enters $80,000 

on lines 9 and 11. The unused credit for 

property B ($75,000) cannot be entered 

on line 12 because that credit was 

earned in 2011 and cannot be carried 

back two years to 2009, the original 

credit year for property A. Unused 

investment credits can be carried back 

only one year (5 years for ESBC's) and 

any remaining unused credit must be 

carried forward. Ian's total increase in 

tax (line 13) for 2011 is $80,000.
Form 4255 (Rev. 12-2012) Page 4 

Caution. Disallowed passive activity 

credits (as defined in section 469(d)(2)) 

can be used on line 12 only to the extent 

that credits from passive activities are 

included on line 11. Unused credits other 

than “specified credits” (as defined in 

section 38(c)(4)(B)) and ESBCs can be 

used on line 12 only to the extent that 

credits other than specified credits and 

ESBCs are included on line 11.

Note. Be sure to adjust your current 

unused credit to reflect any unused 

portion of the original credit that was 

entered on line 12 of this form. 

Special rule for electing large 

partnerships. Electing large 

partnerships must enter zero on line 12. 

These partnerships are required to 

determine the amount of investment 

credit recapture as if the credit subject 

to recapture had been fully used to 

reduce tax.

Line 13. Special rule for electing large 

partnerships. Subtract the current year 

credit, if any, shown on Form 3468, from 

the amount on line 11. Enter the result 

(but not less than zero) on line 13. 

Line 14. Recapture of qualifying 

therapeutic discovery project grant. 

Enter the amount of any qualifying 

therapeutic discovery project grant 

required to be recaptured under section 

9023(e) of the ACA. Do not complete 

lines 1 through 13 to figure this increase 

in tax. Attach a statement showing how 

you figured the increase in tax. Do not 

adjust the increase in tax for any unused 

investment credit. Partnerships, S 

corporations, estates, and trusts, 

determine the increase in tax at the 

entity level. This amount will be allocated 

to the entity owners as a credit 

recapture.

Line 15. Enter the line 15 amount on the 

appropriate line of your tax return (for 

example, 2012 Form 1120, Schedule J, 

line 9a). Partnerships (other than electing 

large partnerships), enter the amount 

from line 15 on Form 1065, Schedule K, 

line 20c using Code H. See the 

Instructions for Form 1065 for more 

information on how to allocate this 

amount to the partners. S corporations, 

enter the amount from line 15 on Form 

1120S, Schedule K, line 17d using code 

G. See the Instructions for Form 1120S 

for more information. Estates and Trusts, 

enter the amount from line 15 on Form 

1041, Schedule G, line 5. See the 

Instructions for Form 1041 for more 

information.

Paperwork Reduction Act Notice. We 

ask for the information on this form to 

carry out the Internal Revenue laws of 

the United States. You are required to 

give us the information. We need it to 

ensure that you are complying with these 

laws and to allow us to figure and collect 

the right amount of tax. 

You are not required to provide the 

information requested on a form that is 

subject to the Paperwork Reduction Act 

unless the form displays a valid OMB 

control number. Books or records 

relating to a form or its instructions must 

be retained as long as their contents 

may become material in the 

administration of any Internal Revenue 

law. Generally, tax returns and return 

information are confidential, as required 

by section 6103.

The time needed to complete and file 

this form will vary depending on 

individual circumstances. The estimated 

burden for individual taxpayers filing this 

form is approved under the OMB control 

number 1545-0074 and is included in the 

estimates shown in the instructions for 

their individual income tax return. The 

estimated burden for all other taxpayers 

who file this form is shown below. 

Recordkeeping . . . . 4 hr., 4 min. 

Learning about the 

law or the form . . . . 4 hr., 6 min. 

Preparing and sending 

the form to the IRS . . 6 hr., 45 min. 

If you have comments concerning the 

accuracy of these time estimates or 

suggestions for making this form 

simpler, we would be happy to hear from 

you. See the instructions for the tax 

return with which this form is filed.