280-20-20 R.I. Code R. § 14.8

Current through June 20, 2024

Section 280-RICR-20-20-14.8 - Recapture

A. In general, a recapture of a portion of the credit is required where the property on which a credit has been allowed is disposed of or ceases to be in qualified use. The following are examples of some types of incidents which require recapture of the credit (this list is not all-inclusive):

1. A legal dissolution;

2. A trade in;

3. Foreclosure of a security interest;

4. Retirement before expiration of its useful life;

5. Destruction or damage by fire, storm or other casualty or by reason of its theft or other involuntary conversion;

6. Where property is leased to others;

7. Removal of property from this state;

8. Cease to own property;

9. Cease to be in qualified use.

B. Generally, recapture is computed:

1. Recapture = Tax Credit taken on property ceasing to qualify

2. Multiplied by (Useful life months - qualified use in months)

3. Divided by Useful life of property in months

C. The following rules apply to transactions between taxpayers:

1. A recapture of this credit is required unless all of the following elements are present in the transaction:

a. The property is transferred from one taxpayer to another by a transaction in which the basis of the property in the hands of the transferee is determined in whole or in part by reference to the basis in the hands of the transferor, or a mere change in the form of the taxpayer's business; and

b. the acquiring taxpayer is taxable under R.I. Gen. Laws Chapters 44-11 or 44-30; and

c. the property continues to be in qualified use if all of the preceding elements are present in the transaction, the transfer will not require a recapture of the credit and any unused credit on the transferred property may be passed through to and carried forward by the acquiring taxpayer. If the property in the hands of the acquiring taxpayer is not in qualifying use for its entire life or for the period of time outlined in the recapture provisions below, a recapture by the acquiring taxpayer is required. In measuring the period of qualified use, the period during which the property was held by the transferor taxpayer and the acquiring taxpayer shall be taken into account.

2. The above rules do not strictly conform to federal treatment.

a. For example, a recapture is required where a transfer is made other than to an acquiring taxpayer taxable under R.I. Gen. Laws Chapters 44-11 or 44-30 (on the theory that the property is no longer in qualified use).

D. Recapture of 26 U.S.C. § 167 property:

1. In the year initially claimed: If property depreciable under 26 U.S. Code §167 of the Internal Revenue Code is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is to be taken, the amount of the credit shall be that portion of the credit provided for in this section which represents the ratio which the months of qualified use bear to the months of useful life.

2. In subsequent years: If property on which credit has been taken is disposed of or ceases to be in qualified use prior to the end of its useful life, the difference between the credit taken and the credit allowed for actual use must be added back in the year of disposition.

3. After 12 consecutive years: If qualifying property is disposed of or ceases to be in qualified use after it has been in qualified use for more than twelve (12) consecutive years, it shall not be necessary to recapture any remaining credit as provided in this subparagraph. The amount of credit allowed for actual use shall be determined by multiplying the original credit by the ratio which the months of qualified use bear to the months of useful life. For purposes of this subparagraph, useful life of property shall be the same as the taxpayer uses for depreciation purposes when computing the federal income tax liability.

E. Recapture of the 26 U.S.C. § 168, (3 year property): This type of recapture applies to three (3) year property, as defined in 26 U.S.C. § 168(c), other than that type of property included in the recapture of buildings and structural components of buildings (§ 14.8(F) of this Part).

1. In the year initially claimed: If the property is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is to be taken, the amount of the credit shall be that portion of the credit which represents the ratio which the months of qualified use bear to thirty-six.

2. In subsequent years: If property on which credit has been taken is disposed of or ceases to be in qualified use prior to the end of thirty-six (36) months, the difference between the credit taken and the credit allowed for actual use must be added back in the year of disposition. The amount of credit allowed for actual use shall be determined by multiplying the original credit by the ratio which the months of qualified use bear to thirty-six (36).

F. Recapture of the 26 U.S.C. § 168 property: This section deals with recapture and any recovery property which is a building or a structural component of a building to which 26 U.S.C. § 168 applies.

1. In the year initially claimed: If qualifying property which is a building or a structural component of a building is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is to be taken, the amount of the credit shall be that portion of the credit provided for in this section which represents the ratio which the months of qualified use bear to the total number of months over which the taxpayer chooses to deduct the property under 26 U.S.C. § 168.

2. In subsequent years: If property on which credit has been taken is disposed of or ceases to be in qualified use prior to the end of the period over which the taxpayer chooses to deduct the property under 26 U.S.C. § 168, the difference between the credit taken and the credit allowed for actual use must be added back in the year of disposition.

3. After 12 consecutive years: If such property is disposed of or ceases to be in qualified use after it has been in qualified use for more than twelve (12) consecutive years, it shall not be necessary to add back the credit as provided in this subparagraph. The amount of credit allowed for actual use shall be determined by multiplying the original credit by the ratio which the months of qualified use bear to the total number of months over which the taxpayer chooses to deduct the property under 26 U.S.C. § 168.

G. Where property is disposed of or ceases to be in qualified use during other than the initial taxable year, the taxpayer may not reduce the amount of tax liability created by a recapture of this credit by credits of this type allowed for the year in which the asset is disposed of, nor can that liability be reduced by any carryovers of this credit to that year. The amount of recapture must be added to the taxpayer's tax in that year.

280 R.I. Code R. § 280-RICR-20-20-14.8