The recapture of investment credit is the tax liability a corporation will incur when it disposes of a property. The recapture tax is equal to the difference between the credit allowed for actual use and the amount of credit that was taken. A corporation can avoid this tax if it continues to use the property for a minimum of 12 years.
The recapture of investment credit is reported on IRS Form 4255. This form includes the information necessary for calculating the increase in tax on the recapture of investment credit. You can find additional information about this credit on the Form 4255 instructions. To determine the amount of tax that your partnership will pay, you should use the recapture form.
If the investment credit you claim was for real estate, it is subject to recapture if the asset is sold before it reaches its end of useful life. This type of recapture will eat into any tax credits you may have previously claimed. You may also have to pay back real estate taxes that were used to qualify for the credit.
In general, an investment credit is not recaptured if it is transferred to another corporation. Certain types of acquisitions are exempt from recapture, such as a statutory merger or exchange of substantially all property. A business owner can also avoid recapture by using a certain asset for more than five years.
If you sell an investment credit property during the first year of ownership, you must pay a high percentage of recapture. However, the recapture percentage will decrease each year after that. By the fifth year of ownership, you will not have to pay any recapture. A footnote disclosure may accompany the Schedule K-1. It is for informational purposes only.
A recapture of investment credit is a tax that a corporation must pay. This tax is assessed on an investment that a corporation has made in a previous tax year. In many cases, this credit is calculated on a monthly basis, so it is a good idea to consult a tax professional for help in completing the form.
The investment tax credit is a federal incentive for businesses to make investments. It allows an individual to deduct a certain amount of investment costs, and is in addition to normal depreciation allowances. In other words, a $1,000 investment tax credit reduces the tax liability by one thousand dollars.