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(j) Allowance of investment credit to shareholders of electing small business corporations.
(1) In the case of shareholders of a corporation which is an electing small business corporation for Federal income tax purposes (a Subchapter S corporation), where the election provided for in section 660 of the Tax Law has been made, the investment credit with respect to qualified property described in paragraph (c)(1) of this section which was acquired by the electing small business corporation will be allowed to such shareholders of such electing small business corporation.
(2) In computing the amount of the investment credit, the cost or other basis of such qualified property for Federal income tax purposes must be apportioned pro rata, based on each shareholder's proportionate stock interest in such small business corporation, among those shareholders who are shareholders of the small business corporation on the last day of such small business corporation's taxable year during which the qualified property was acquired. For purposes of this section, a shareholder to whom such cost or other basis has been apportioned will be treated as the taxpayer with respect to the qualified property. The investment credit allowed to such shareholder will be allowed in such shareholder's taxable year in which or with which the taxable year of the small business corporation ends.
(3) Any available carryover of unused investment credit based on investment credit allowed to the small business corporation may not be proportionately distributed among the shareholders. Likewise, any available carryover of unused investment credit based on investment credit allowed to the shareholders may not be distributed to the small business corporation.
(4) If qualified property on which investment credit has been claimed by the shareholders is disposed of by the small business corporation, or if the property ceases to be qualified property in the hands of the small business corporation, the shareholders who claimed the investment credit must add back the difference between the investment credit taken and the investment credit allowed for actual use. The add-back of investment credit must be made in the taxable year of the shareholder in which the disposition or disqualification occurs. The total amount of investment credit to be added back is determined in accordance with the provisions of section 5-2.8 of this Title. Each shareholder's share in the amount of investment credit to be added back is based on his proportionate share in the investment credit claimed.
(5) Where a shareholder's proportionate stock interest in the small business corporation is reduced, such shareholder is deemed to have disposed of some or all of the qualified property for purposes of recapture of all or a portion of the investment credit claimed pursuant to paragraph (i)(1) of this section. The amount of investment credit to be added back pursuant to paragraph (i)(1) of this section is the difference between the investment credit taken by the shareholder, less any previous add-backs of investment credit previously required to be added back pursuant to this paragraph, and the investment credit which would have been allowed to such shareholder based on such shareholder's recomputed stock interest in the small business corporation. In no event may the aggregate add-backs required by this paragraph exceed the investment credit claimed by the shareholder. There is no add-back of investment credit required under this paragraph if the reduction in the shareholder's stock interest occurs after the qualified property for which the investment credit was claimed is disposed of or ceases to be in qualified use:
(i) in the case of qualified property which is depreciable pursuant to section 167 of the Internal Revenue Code, after such property has been in qualified use for more than 12 consecutive years or after the end of such property's useful life;
(ii) in the case of three-year property (as defined in section 168[c][2] of the Internal Revenue Code) for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after 36 months;
(iii) in the case of 5-year property, 10-year property and 15-year real property (as defined in section 168[c][2] of the Internal Revenue Code), other than a building or a structural component of a building, for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after 60 months; and
(iv) in the case of recovery property which is a building or a structural component of a building, for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after such property has been in qualified use for more than 12 consecutive years, or after the end of the total number of months over which the taxpayer chose to deduct the property under section 168 of the Internal Revenue Code.
(i) in the case of qualified property which is depreciable pursuant to section 167 of the Internal Revenue Code, after such property has been in qualified use for more than 12 consecutive years or after the end of such property's useful life;
(ii) in the case of three-year property (as defined in section 168[c][2] of the Internal Revenue Code) for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after 36 months;
(iii) in the case of 5-year property, 10-year property and 15-year real property (as defined in section 168[c][2] of the Internal Revenue Code), other than a building or a structural component of a building, for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after 60 months; and
(iv) in the case of recovery property which is a building or a structural component of a building, for which a recovery deduction is allowable under section 168 of the Internal Revenue Code, after such property has been in qualified use for more than 12 consecutive years, or after the end of the total number of months over which the taxpayer chose to deduct the property under section 168 of the Internal Revenue Code.