Your general business credit consists of your carryover of business credits from prior years plus the total of your current year business credits. You subtract these credits directly from your tax. All of the following credits, with the exception of the electric vehicle credit, are part of the general business credit. The form you use to figure each credit is shown below. Be sure to read the General Business Credit section in Publication 334 because you may have to fill out Form 3800 in certain situations.
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Form 3468, Investment Credit (PDF). This consists of the sum of the rehabilitation, energy, and reforestation credits.
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When Carryovers, Credits, and Deductions Cease
Business tax credit carryovers, unused losses, and deduction items like depreciation or amortization may need different tax treatment when you file the last tax return for your business. Review the sections noted below to ensure that you meet all tax responsibilities and make full use of all valid deductions.
Recapture of certain business tax credits
Your tax liability is increased if you must recapture credits that you have taken in prior years. Recapture occurs when you cease a trade or business activity or dispose of a business asset before a specified time period for the related business tax credit claimed. The following list includes some credits that may need to be recaptured.
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Deduction of certain unused business tax credits
Generally, unused business credits not allowed as a credit before the end of the carryover period may be deducted in the year that you close your business. Special rules apply to the investment credit (other than the rehabilitation credit) and the research credit. For more information, refer to Internal Revenue Code section 196 and the instructions for the form for each credit.
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Other unused tax credit carryovers
Other tax credit carryovers not used are lost.
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- Prior year minimum tax credit carryovers,
- Credit for federal tax on fuels used for certain purposes,
- Nonconventional source fuel credit,
- Possessions tax credit, and
- Qualified electric vehicle credit.
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Recapture of depreciation or amortization
If you dispose of property before the end of its recovery period, it is called an early disposition. Your tax liability is increased if you must recapture depreciation or amortization deductions that you have taken in prior years. Refer to recapture of depreciation and section 179 deductions on Form 4797, Sales of Business Property (PDF).
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Depreciation deduction in year of disposition
If you dispose of property depreciated under the Modified Accelerated Cost Recovery System (MACRS), you are allowed a depreciation deduction for the year of disposition. Refer to Publication 544, Sales and Other Dispositions of Assets, and Publication 946, How to Depreciate Property.
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Deduction of intangibles in year of disposition
The capitalized costs of section 197 intangibles (personal property that has value but cannot be seen or touched such as patents, copyrights, and goodwill) you acquired after August 10, 1993 must be amortized over 15 years. Gain or loss on the sale or exchange of amortizable intangible property held more than one year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Refer to Ordinary or Capital Gain or Loss in Publication 544, Sales and Other Dispositions of Assets.
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Deduction of start-up costs in year of disposition
You can deduct any remaining deferred start-up costs for the business if you completely dispose of your business before the end of the amortization period. Refer to Amortization in Publication 535, Business Expenses.
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Suspended passive activity losses
Passive activity loss carryovers not used can be deducted in full when taxpayers dispose of their entire interest in the activity in a fully taxable transaction. Caution: like-kind exchanges and charitable gifts have special rules and are not dispositions of an entire interest in an activity in a fully taxable transaction. Refer to instructions to Form 8810, Corporate Passive Activity Loss and Credit Limitations (PDF), Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation (PDF), Form 8582, Passive Activity Loss Limitations (PDF), Form 8582-CR, Passive Activity Credit Limitations (PDF), and Publication 925, Passive Activity and At-Risk Rules.
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Unused net operating loss carryovers
You cannot deduct any part of the net operating losses remaining after the 20-year carry forward period. Refer to Form 3621, Form 3621-A, Form 1139, Corporation Application for Tentative Refund (PDF), Form 1045, Application for Tentative Refund (PDF), and Publication 536, Net Operating Losses.
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Unused charitable contribution carryovers
Charitable contribution carryovers not used are not deductible.
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