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.
- First, for any tax year, use your credit carryforward
(earliest year first).
- Next, use the current year's credit.
- 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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