Form 3468 (Rev. 12-2006)
Section references are to the Internal Revenue Code unless otherwise noted.
• The tax liability limit is no longer figured on this form; instead, it must be figured on Form 3800, General Business Credit.
• The IRS will revise this December 2006 version of the form only when necessary. Continue to use this version for tax years beginning after 2005 until a new revision is issued.
• Additional time is provided for buildings in the Gulf Opportunity (GO) Zone, Rita GO Zone, and Wilma GO Zone to meet certain tests in order to be a qualified rehabilitated building. For the affected areas, see Pub. 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. For details on the relief provided, see items 2 and 3 on page 3 and Notice 2006-38, 2006-16 I.R.B. 777.
Purpose of Form
Use Form 3468 to claim the investment credit. The investment credit consists of the rehabilitation, energy, qualifying advanced coal project, and qualifying gasification project credits.
Investment Credit Property
Investment credit property is any depreciable or amortizable property that qualifies for the rehabilitation credit, energy credit, qualifying advanced coal project credit, or qualifying gasification project credit.
You cannot claim a credit for property that is:
• Used mainly outside the United States (except for property described in section 168(g)(4));
• Used by a governmental unit or foreign person or entity (except for a qualified rehabilitated building leased to that unit, person, or entity; and property used under a lease with a term of less than 6 months);
• Used by a tax-exempt organization (other than a section 521 farmers' cooperative) unless the property is used mainly in an unrelated trade or business or is a qualified rehabilitated building leased by the organization;
• Used for lodging or in the furnishing of lodging (see section 50(b)(2) for exceptions); or
• That is energy property used in a facility that qualifies for a credit under section 45.
Election for Certain Leased Property
If you lease property to someone else, you may elect to treat all or part of your investment in new property as if it were made by the person who is leasing it from you. Lessors and lessees should see section 48(d) (as in effect on November 4, 1990) and related regulations for rules on making this election. For limitations, see sections 46(e)(3) and 48(d) (as in effect on November 4, 1990).
At-Risk Limit for Individuals and Closely Held Corporations
The cost or basis of property for investment credit purposes may be limited if you borrowed against the property and are protected against loss, or if you borrowed money from a person who is related or who has other than a creditor interest in the business activity. The cost or basis must be reduced by the amount of this "nonqualified nonrecourse" financing related to the property as of the close of the tax year in which the property is placed in service. If, at the close
of a tax year following the year property was placed in service, the nonqualified nonrecourse financing for any property has increased or decreased, then the credit base for the property changes accordingly. The changes may result in an increased credit or a recapture of the credit in the year of the change. See sections 49 and 465 for details.
Recapture of Credit
You may have to refigure the investment credit and recapture all or a portion of it if:
• You dispose of investment credit property before the end of 5 full years after the property was placed in service (recapture period);
• You change the use of the property 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 will no longer be a qualified rehabilitated building when placed in service;
• Any property to which section 48(b) applies will no longer qualify as investment credit property when placed in service;
• Before the end of the recapture period, your proportionate interest is reduced by more than one-third in an S corporation, partnership (other than an electing large partnership), estate, or trust that allocated the cost or basis of property to you for which you claimed a credit;
• You return leased property (on which you claimed a credit) to the lessor before the end of the recapture period; or
• A net increase in the amount of nonqualified nonrecourse financing occurs for any property to which section 49(a)(1) applied.
Exceptions to recapture. Recapture of the investment credit does not apply to any of the following.
• A transfer due to the death of the taxpayer.
• A transfer between spouses or incident to divorce under section 1041. However, a later disposition by the transferee is subject to recapture to the same extent as if the transferor had disposed of the property at the later date.
• A transaction to which section 381 (a) applies (relating to certain acquisitions of the assets of one corporation by another corporation).
• A mere change in the form of conducting a trade or business if:
1. The property is retained as investment credit property in that trade or business, and
2. The taxpayer retains a substantial interest in that trade or business.
A mere change in the form of conducting a trade or business includes a corporation that elects to be an S corporation and a corporation whose S election is revoked or terminated.
For details, see Form 4255, Recapture of Investment Credit.
Form 3468 (Rev. 12-2006)
Note. Do not attach this form to your tax return if you are (a) an estate or trust whose entire qualified rehabilitation expenditures or bases in energy property are allocated to the beneficiaries, (b) an S corporation, or (c) a partnership (other than an electing large partnership). However, you must complete lines 1i and 1j of this form and attach it if you are the owner of a certified historic structure.
Shareholders of S Corporations, Partners of Partnerships, and Beneficiaries of Estates and Trusts
If you are a shareholder, partner (other than a partner in an electing large partnership), or beneficiary of the designated pass-through entity, the entity will provide to you the information necessary to complete the following:
• Lines 1b through 1h for the rehabilitation credit.
• The basis of energy property for lines 2a and 2b.
• The basis for energy property for lines 2c and 2f and the kilowatt capacity for lines 2d and 2g, respectively.
• The basis of the qualifying investment in advanced coal project property for lines 3a and 3b.
• The basis of the qualifying investment in a gasification project property for line 4.
Lines 1a Through 1k. Rehabilitation Credit
You are allowed a credit for qualified rehabilitation expenditures made for any qualified rehabilitated building. You must reduce your depreciable basis by the amount of the credit.
If the adjusted basis of the building is determined in whole or in part by reference to the adjusted basis of a person other than the taxpayer, see Regulations section 1.48-12(b)(2)(viii) for additional information that must be attached.
To be a qualified rehabilitated building, your building must meet all five of the following requirements.
1. The building must have been placed in service (see requirement 4) prior to 1936 unless it is a certified historic structure. A certified historic structure is any building (a) listed in the National Register of Historic Places, or (b) located in a registered historic district (as defined in section 47(c)(3)(B)) and certified by the Secretary of the Interior as being of historic significance to the district. Certification requests are made through your State Historic Preservation Officer on National Park Service (NPS) Form 10-168a, Historic Preservation Certification Application. The request for certification should be made prior to physical work beginning on the building.
2. The building must be substantially rehabilitated. A building is considered substantially rehabilitated if your qualified rehabilitation expenditures during a self-selected 24-month period that ends with or within your tax year are more than the greater of $5,000 or your adjusted basis in the building and its structural components. Figure adjusted basis on the first day of the 24-month period or the first day of your holding period, whichever is later. If you are rehabilitating the building in phases under a written architectural plan and specifications that were completed before the rehabilitation began, substitute "60-month period" for "24-month period."
If the building is in one of the designated counties or parishes in the GO Zone, Rita GO Zone, or Wilma GO Zone, the "24-month period" and "60-month period" is extended by 12 months. However, the rehabilitation must have begun, but not been completed, and the building placed in service prior to the following dates.
3. Depreciation must be allowable with respect to the building. Depreciation is not allowable if the building is permanently retired from service. If the building is damaged, it is not considered permanently retired from service where the taxpayer repairs and restores the building and returns it to actual service within a reasonable period of time.
For a building damaged in the GO Zone, Rita GO Zone, or Wilma GO Zone, that reasonable period is deemed to be up to 36 months, subject to the following qualifications.
• The building must have been placed in service prior to the date as given in the table above.
• The relevant 36-month period for that building starts on the same date as given in the table above.
• Beginning no later than August 15, 2006, the taxpayer must be engaged in the repair or restoration of building, defined as:
a. Ongoing physical repairs,
b. Written contracts in place for the repair or restoration to be completed within the designated 36-month period, or
c. Active negotiation of contracts for the repair or restoration to be completed within the designated 36-month period, but only if the contracts are finalized prior to January 1, 2007.
4. The building must have been placed in service before the beginning of rehabilitation. This requirement is met if the building was placed in service by any person at any time before the rehabilitation began.
5. For a building other than a certified historic structure (a) at least 75% of the external walls must be retained with 50% or more kept in place as external walls, and (b) at least 75% of the existing internal structural framework of the building must be retained in place.
To be qualified rehabilitation expenditures, your expenditures must meet all six of the following requirements.
1. The expenditures must be for (a) nonresidential rental property, (b) residential rental property (but only if a certified historic structure—see Regulations section 1.48-1 (h)), or (c) real property that has a class life of more than 12 years.
2. The expenditures must be incurred in connection with the rehabilitation of a qualified rehabilitated building.
3. The expenditures must be capitalized and depreciated using the straight line method.
4. The expenditures cannot include the costs of acquiring or enlarging any building.
5. If the expenditures are in connection with the rehabilitation of a certified historic structure or a building in a registered historic district, the rehabilitation must be certified by the Secretary of the Interior as being consistent with the historic character of the property or district in which the property is located. This requirement does not apply to a building in a registered historic district if (a) the building is not a certified historic structure, (b) the Secretary of the Interior certifies that the building is not of historic significance to the district, and (c) if the certification in (b) occurs after the rehabilitation began, the taxpayer certifies in good faith that he or she was not aware of that certification requirement at the time the rehabilitation began.
Form 3468 (Rev. 12-2006)
6. The expenditures cannot include any costs allocable to the part of the property that is (or may reasonably expect to be) tax-exempt use property (as defined in section 168(h)).
For credit purposes, the expenditures are generally taken into account for the tax year in which the qualified rehabilitated building is placed in service. However, with certain exceptions, you may elect to take the expenditures into account for the tax year in which they were paid (or, for a self-rehabilitated building, when capitalized) if (a) the normal rehabilitation period for the building is at least 2 years, and (b) it is reasonable to expect that the building will be a qualified rehabilitated building when placed in service. For details, see section 47(d). To make this election, check the box on line 1a.
The credit, as a percent of expenditures paid or incurred during the tax year for any qualified rehabilitated building, depends on the type of structure and its location.
is 1 reduced by a second fraction, the numerator of which is that portion of the basis allocable to such financing or proceeds, and the denominator of which is the basis of the property. For example, if the basis of the property is $100,000 and the portion allocable to such financing or proceeds is $20,000, the fraction of the basis that you may claim the credit on is 4/s (that is, 1 minus $20,000/$100,000). Subsidized energy financing means financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.
To qualify, energy property must be constructed, reconstructed, or erected by the taxpayer. If acquired by the taxpayer, the original use of such property must begin with the taxpayer. The property must meet the performance and quality standards, if any, that have been prescribed by regulations and are in effect at the time the property is acquired. Energy property does not include any property that is public utility property as defined by section 46(f)(5) (as in effect on November 4, 1990).
You must reduce the depreciable basis by 50% of the energy credit determined.
You also must reduce the basis of energy property by any amount attributable to qualified rehabilitation expenditures.
Enter the basis of any property using geothermal energy placed in service during the tax year. Geothermal energy property is equipment that uses geothermal energy to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2)). For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electrical transmission stage.
Enter the basis of any property using solar energy placed in service during the tax year. There are two types of property.
1. Equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.
2. Equipment that uses solar energy to:
• Generate electricity,
• Heat or cool (or provide hot water for use in) a structure, or
• Provide solar process heat (but not to heat a swimming pool).
Enter the basis of any qualified fuel cell property placed in service during the tax year. Qualified fuel cell property is a fuel cell power plant that generates at least 0.5 kilowatt of electricity using an electrochemical process and has electricity-only generation efficiency greater than 30 percent. See section 48(c)(1) for further details.
Enter the basis of any qualified microturbine property placed in service during the tax year. Qualified microturbine property is a stationary microturbine power plant which generates less than 2,000 kilowatts and has an electricity-only generation efficiency of not less than 26 percent at International Standard Organization conditions. See section 48(c)(2) for further details.
Lines 3a Through 3c and Line 4
The basis of property may have to be reduced for certain financing received under rules similar to section 48(a)(4) and described in the first paragraph under Lines 2a through 2i. Energy Credit.
If you are claiming a credit for a certified historic structure on line 1g or 1h, enter the assigned NPS project number on line 1i. If the qualified rehabilitation expenditures are from an S corporation, partnership, estate, or trust, enter on line 1i the employer identification number of the pass-through entity instead of the assigned NPS project number, and skip line 1j and the instructions below.
Enter the date of the final certification of completed work received from the Secretary of the Interior on line 1j. If the final certification has not been received by the time the tax return is filed for a year in which the credit is claimed, attach a copy of the first page of NPS Form 10-168a, Historic Preservation Certification Application (Part 2—Description of Rehabilitation), with an indication that it was received by the Department of the Interior or the State Historic Preservation Officer, together with proof that the building is a certified historic structure (or that such status has been requested). After the final certification of completed work has been received, file Form 3468 with the first income tax return filed after receipt of the certification and enter the assigned NPS project number and the date of the final certification of completed work on the appropriate lines on the form. Also attach an explanation, and indicate the amount of credit claimed in prior years.
You must retain a copy of the final certification of completed work as long as its contents may be needed for the administration of any provision of the Internal Revenue Code.
If the final certification is denied by the Department of Interior, the credit is disallowed for any tax year in which it was claimed, and you must file an amended return if necessary. See Regulations section 1.48-12(d)(7)(ii) for details.
Lines 2a Through 2i. Energy Credit
If energy property is financed in whole or in part by subsidized energy financing or by tax-exempt private activity bonds, the amount that you can claim as basis is the basis that would otherwise be allowed multiplied by a fraction that
Form 3468 (Rev. 12-2006)
Qualified investment for any tax year is the basis of eligible property placed in service by the taxpayer during the tax year which is part of the qualifying project. Eligible property is limited to property for which depreciation or amortization is available and the construction, reconstruction, or erection of which is completed by the taxpayer, or which is acquired by the taxpayer if the original use of such property commences with the taxpayer.
Enter the basis of any qualifying investment in integrated gasification combined cycle property placed in service during the tax year. Eligible property is any property which is part of a qualifying advanced coal project using an integrated gasification combined cycle and is necessary for the gasification of coal, including any coal handling and gas separation equipment. A qualifying advanced coal project is a project:
• Using advanced coal-based generation technology (as defined in section 48A(f)), and
• Part of a certified advanced coal project program (as defined in sections 48A(d)(2) and 48A(e)).
Integrated gasification combined cycle is an electric generation unit which produces electricity by converting coal to synthesis gas, which in turn is used to fuel a combined-cycle plant to produce electricity from both a combustion turbine (including a combustion turbine/fuel cell hybrid) and a steam turbine.
Enter the basis of any qualifying investment, other than in line 3a, in an advanced coal project property service during the tax year. Eligible property is any property which is part of a qualifying advanced coal project (defined above) not using an integrated gasification combined cycle.
Enter the basis of the qualified investment in qualifying gasification project property placed in service during the tax year. For the purposes of this credit, eligible property includes any property that is part of a qualifying gasification project and necessary for the gasification technology of such project. A qualifying gasification project is any project that:
• Employs gasification technology (as defined in section 48B(c)(2)),
• Is carried out by an eligible entity (as defined in section 48B(c)(7), and
• The portion of the qualified investment does not exceed $650,000,000 and is certified under section 48B(d).
A qualifying gasification project credit is not allowed for any qualified investment for which a qualifying advanced coal project credit is allowed.
Line 5. Credit From Section 1381 (a) Cooperatives
Patrons, including cooperatives that are patrons in other cooperatives, enter the unused investment credit allocated from cooperatives. If you are a cooperative, see the instructions for Form 3800, line 1a, for allocating the investment credit to your patrons.
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