Instructions For Form 4255 - Recapture Of Investment Credit (Page 4 of 5) in pdf

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

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

______

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

results in the corresponding property

Kumar increases his basis for property A

IF the number of full

THEN the recapture

column of line 13.

by $60,000 ($21,600 + $38,400).

years on line 12 of

percentage is . . .

Form 4255 is . . .

Electing large partnerships. Electing

Example 2. The facts are the same as

large partnerships must enter -0- on

in Example 1, except that Kumar also

100

line 13. These partnerships are required to

earned a rehabilitation credit on property

determine the amount of investment credit

B in 2014 of $12,000, which he did not use

recapture under Part III as if the credit

to offset his tax. As before, he disposed of

subject to recapture had been fully used to

property A in June of 2016. He enters

reduce tax.

$36,000 on line 6 (the credit from property

5 or more

A used in 2014 and 2015). However,

Disallowed passive activity credits

Kumar could have used his $12,000 of

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

unused credit from property B for 2014

Line 16. Multiply the amount on line 14 by

can be used in the calculation of

against his 2014 tax had no credit been

CAUTION

the percentage on line 15 to calculate the

line 13 only to the extent that credits from

available from property A. Therefore, he

recapture tax due to disposition or

passive activities are included in the

enters $12,000 on line 13 and $24,000

cessation of use as an investment credit

credits subject to recapture.

($36,000 - $12,000) on line 14. Kumar’s

property.

total increase in tax for 2016 is $14,400

Unused credits other than “specified

Example 1. In 2014, Kumar earned a

(60% of $24,000). His remaining credit

credits” (as defined in section 38(c)(4)(B))

rehabilitation credit of $100,000 on

carryforward for property A also is

and eligible small business credits

property A. Kumar used $20,000 of the

reduced by the recapture percentage of

(ESBCs) can be used in the calculation of

credit to offset tax in 2014 and used

60%. Kumar’s remaining carryforward is

line 13 taking into account the limitation

$16,000 as a carryforward to offset tax in

$25,600 (40% of $64,000). Kumar

under section 38(c)(1)(A).

2015. He had $64,000 remaining

increases his basis for property A by

carryforward for property A at the end of

$52,800 ($14,400 + $38,400).

Line 14. Subtract line 13 from line 6 to

2015. Kumar has no other tax credits for

calculate the aggregate decrease in

Example 3. In January of 2014,

general business credits that would have

other properties for any other years.

Maayan earned a rehabilitation credit of

been allowed under section 38 had there

Kumar disposed of the property in June

$100,000 from property A. She used all of

been no credit from this property.

of 2016. His recapture percentage is 60%.

the credit to offset $100,000 of tax in

Because Kumar has no other credits for

Line 15. Enter the recapture percentage

2014. In 2015, Maayan earned a

properties for other years, he enters -0- on

from the following table. Enter 100 if you

rehabilitation credit of $75,000 from

line 13. He enters $36,000 on line 6 (the

received a grant under section 1603 of the

property B and used none of the credit to

credit from property A used in 2014 and

American Recovery and Reinvestment Act

offset tax. In June of 2016, property A

2015). Kumar’s total increase in tax for

of 2009.

ceased to be investment credit property

2016 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

Instructions for Form 4255 (Rev. 12-2016)

-4-

Instructions For Form 4255 - Recapture Of Investment Credit Page 4

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