Investment tax credits are a type of tax credit, which can be reclaimed when a corporation disposes of a property. These tax credits can include investment tax credits and low-income housing credits. The recapture process is complex, especially when assets are complex or carryover balances are involved. Fortunately, there are simple ways to calculate investment credit recapture.
The IRS Form 4255 is used for investment credit recapture. It provides information about qualified investments. It requires information from partnerships and S corporations, which includes the original Form 3468. In addition, the corporation must submit a Schedule K-1 that includes the original Form 3468. It’s important to remember that some tax credits may be limited.
If a business owner has used an asset for at least five years, the business is usually off the hook when it comes to paying back the tax credit. However, if the business is still within the five-year window, the business owner must submit Form 4255. It’s important to note that any remaining credit will be subject to at-risk limitations.
Investment tax credits were introduced in 1962 to protect U.S. business from foreign competitors. Today, they are largely deployed in green technology, energy conservation and pollution control. These investments are used to promote economic development. Some examples include the Federal Business Energy Investment Credit (aka corporate tax credit), Reforestation Credit, Solar Energy Investment Tax Credit, and Rehabilitation Tax Credit.