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The investment tax credit (not to be confused with the Solar Investment Tax Credit which was enacted in 2008, and was part of the Emergency Economic Stabilization Act of 2008) is a credit that allows you to reduce the amount of tax owed to the Internal Revenue Service (IRS). The investment tax credit is made up of three different component tax credits: the rehabilitation credit, the energy credit, and the reforestation credit. Also, the investment tax credit is itself a major component piece credit of the general business tax credit.
Rules Governing the Investment Tax Credit
Because the investment tax credit is part of the general business credit, it is subject to the limitations, ‘carry back’ and ‘carry forward’ rules, etc. that apply to all the other tax credit components of that “parent” credit. The investment credit can be claimed on Form 3468, Investment Credit, and submitted when filing your 1040 income tax return. In addition, the component “children” tax credits of the Investment Tax Credit have their own rules and guidelines that must be followed.
Claim Basis and Adjustment
Whenever you wish to you claim an investment tax credit for business assets or property, you must reduce the depreciable tax basis of the property, equipment or asset. By doing this, credit basis reduction would be the equivalent of 100 percent of the rehabilitation credit that you wish to claim, and 50 percent of the reforestation and energy credits that can be claimed and deducted from a business’s tax liability.
Investment Tax Credit Recapture or “Pay Back”
If a your business discontinues use of property or assets on which a investment tax credit was claimed, then your business may be required to repay or “pay back” some or all of the credit amount that was deducted from your business’s income tax liability to the IRS. This type of event is called the “Recapture” of the tax credit. When the IRS recaptures a tax credit, a percentage of the credit that was given is added to your business’s current tax year liability.
Usually, recapture of a tax credit will only occur, if the asset or property, for which the credit was claimed, is sold, converted to personal use, given away or lost through casualty or theft – within five years of having received the tax credit for the asset or property.
Investment tax credits can save your business significant sums of money by reducing the overall amount of tax that you owe to the IRS; however, you should seek out the counsel of a qualified tax accountant to better understand the benefits (and potential problems) associated with investment tax credits.
Rules Governing the Investment Tax Credit
Because the investment tax credit is part of the general business credit, it is subject to the limitations, ‘carry back’ and ‘carry forward’ rules, etc. that apply to all the other tax credit components of that “parent” credit. The investment credit can be claimed on Form 3468, Investment Credit, and submitted when filing your 1040 income tax return. In addition, the component “children” tax credits of the Investment Tax Credit have their own rules and guidelines that must be followed.
Claim Basis and Adjustment
Whenever you wish to you claim an investment tax credit for business assets or property, you must reduce the depreciable tax basis of the property, equipment or asset. By doing this, credit basis reduction would be the equivalent of 100 percent of the rehabilitation credit that you wish to claim, and 50 percent of the reforestation and energy credits that can be claimed and deducted from a business’s tax liability.
Investment Tax Credit Recapture or “Pay Back”
If a your business discontinues use of property or assets on which a investment tax credit was claimed, then your business may be required to repay or “pay back” some or all of the credit amount that was deducted from your business’s income tax liability to the IRS. This type of event is called the “Recapture” of the tax credit. When the IRS recaptures a tax credit, a percentage of the credit that was given is added to your business’s current tax year liability.
Usually, recapture of a tax credit will only occur, if the asset or property, for which the credit was claimed, is sold, converted to personal use, given away or lost through casualty or theft – within five years of having received the tax credit for the asset or property.
Investment tax credits can save your business significant sums of money by reducing the overall amount of tax that you owe to the IRS; however, you should seek out the counsel of a qualified tax accountant to better understand the benefits (and potential problems) associated with investment tax credits.
