This discussion does not apply to the empowerment zone employment credit.

There is a limit on how much general business credit you can take in any one tax year. If your credit is more than this limit, you can generally carry the difference to another tax year and subtract it from your income tax for that year. See Rule for carryback and carryforward, later.

Credit limit. Your general business credit is limited to your net income tax minus the greater of the following amounts.

• Your tentative minimum tax.
• 25% of your net regular tax liability that is more than $25,000.

Net income tax. Your net income tax is your net regular tax liability plus any alternative minimum tax.

Tentative minimum tax. You must figure your tentative minimum tax before you figure your general business credit. Use Form 6251 (Form 4626 for a corporation) to figure your tentative minimum tax.

Net regular tax liability. Your net regular tax liability is your regular tax liability minus certain credits. For more information, see the instructions for Form 3800 or any of the credit forms listed in the introduction.

Example. Your general business credit for the year is $30,000. Your net income tax is $27,500. Your tentative minimum tax, figured on Form 6251, is $18,487. The general business credit you can take for the tax year is limited to $9,013. This is your net income tax, $27,500, minus the greater of your tentative minimum tax, $18,487, or 25% of your net regular tax liability that is more than $25,000 (25% x 2,500 = $625).

Married person filing separate return. If you are married and file a separate return, you and your spouse must each figure your credit limit separately. In figuring your separate limit, use $12,500 instead of $25,000. However, if one spouse has no credit for the tax year and no carryforwards or carrybacks of any credit to that year, the other spouse can use the full $25,000 in figuring the limit based on the separate tax.

Rule for carryback and carryforward. In general, you can carry the unused portion of your credit back one tax year and then forward to your next 20 tax years to reduce your tax in those years. First, carry the unused portion to your last tax year. Any unused credit that you could not take in the prior tax year can be carried forward to the next 20 tax years until it is used up.

There are generally limits on the carryback of a new credit to periods before the enactment of the credit provision. See the instructions for Form 3800 for more information on these limits.

Credits must be used in the order in which they are earned.

1. First, for any tax year, use your credit carryforward (earliest year first).
2. Next, use the current year's credit.
3. Finally, use your credit carrybacks (earliest year first).

For a credit earned in a tax year before 1998, the carryforward period is 15 years. No part of your carryforward to 2000 should be from a tax year before 1985.

Unused carryforward. If you have any unused credit carryforward in the year following the end of the 20-year (15 years for pre-1998 credits) carryforward period, you can generally deduct the unused amount. If an individual dies or a corporation, trust, or estate ceases to exist, the deduction is generally allowed for the tax year in which the death or cessation occurs. The deduction may not be allowed to certain corporations whose assets are acquired by another corporation.

Claiming a carryforward. Use Form 3800 to claim a carryforward of an unused credit from a previous tax year. The carryforward becomes part of your general business credit for the tax year to which it is carried.

Claiming a carryback. You can make a claim for refund based on your general business credit carryback to a prior tax year by filing an amended return for the tax year to which you carry the unused credit. Use Form 1040X if your original return was a Form 1040, U.S. Individual Income Tax Return. Use Form 1120X if your original return was a Form 1120, U.S. Corporation Income Tax Return, or 1120-A, U.S. Corporation Short-Form Income Tax Return. Attach Form 3800 to your amended return.

Generally, you must file the amended return for the carryback year within 3 years after the due date, including extensions, for filing the return for the year that resulted in the credit carryback.

Quick refund. You can apply for a quick refund of taxes for a prior year by filing Form 1045 ( Form 1139 for a corporation) to claim a tentative adjustment of tax from a general business credit carryback. The application should be filed on or after the date of filing the tax return for the carryback year, but must be filed within 12 months after the end of the tax year in which you earn the credit.

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