Investment Tax Credit (ITC)

Several federal investment tax credits (ITC) are currently available for specific types of fixed assets. As a reminder, a tax credit reduces the amount of tax to be paid, whereas a tax deduction reduces the amount of net income subject to tax.

Current credits include:

• Qualified rehabilitation credit
• Solar credit
• Energy credit - various
• Qualifying advanced coal project credit
• Qualifying gasification project credit

Each credit is determined separately and has different provisions. The amount of each credit varies and can range from 6%-30% (or higher in special cases) of the asset's cost. Generally, the credit claimed on an asset reduces the asset's depreciable basis by the amount of the credit.

The investment tax credit is claimed on Form 3468 and is a component of the General Business Credit.

ITC Recapture

When an asset, for which ITC was taken, is disposed of before the end of its estimated life, a portion of the ITC is added back to the tax liability, also known as the ITC recapture. The ITC recapture amount is calculated by multiplying the ITC taken by a recapture percentage which is based on how long the asset was held. The ITC recapture is reported on Form 4255. If the asset's basis was reduced for the original ITC, a percentage of the recaptured amount must be added back to the asset's basis.