Page 376 - Small Business IRS Training Guides

A taxpayer may elect to claim the credit in the tax year when the expenses were paid under IRC 47(d). The building

rehabilitation period is expected to be at least 2 years and it must be reasonable to expect that the building will be a

qualified rehabilitated building when placed in service. This is the election for qualified progress expenditures.

The credit is claimed on Form 3468, Investment Credit.

Who May Claim the Credit

The owner of the property at the time the property is placed in service is entitled to the claim the credit.

If the owner elects to treat the lessee as the purchaser of investment credit property, then the lessee will be entitled to

claim the credit. The information needed to claim a credit from an S Corporation, a partnership or an estate or trust will be

provided by the entity to complete the necessary information.

Basis Impact

If the owner of the property claims the credit, the basis of the building will be reduced by the credit for depreciation
purposes. If the credit is passed through to a lessee, the lessee will include in gross income the amount of the credit

ratably over the depreciable life.

Recapture of Credit

The investment credit needs to be refigured and recaptured all or a portion of it if:

• It is disposed of before the end of 5 full years after the property was placed in service (recapture period);

• The use of the property changes before the end of the recapture period so that it no longer qualifies as investment
credit property;

• The business use of the property decreases before the end of the recapture period so that it no longer qualifies
(in whole or in part) as investment credit property;

• Any building to which section 47(d) applies that will no longer be a qualified rehabilitated building when placed in

service (by reason of sale or other disposition, cancellation or abandonment of contract, or otherwise);

73233-102 13402-5 Tax Cuts and Jobs Act