26 U.S.C. § 38 — General business credit

(a) Allowance of credit: You get a credit against your tax equal to the sum of three things: (1) business credit carryforwards carried to this taxable year, (2) the current year business credit (described in (b)), plus (3) business credit carrybacks carried to this taxable year. (b) Current year business credit: This equals the sum of dozens of specific credits, each figured under its own section of the tax code, determined for the taxable year, including: the investment credit; the work opportunity credit; the alcohol fuels credit; the research credit; the low-income housing credit; the enhanced oil recovery credit; the disabled access credit, for an eligible small business; the renewable electricity production credit; the empowerment zone employment credit; the Indian employment credit; the employer social security credit; the orphan drug credit; the new markets tax credit; the small employer pension plan startup cost credit, for an eligible employer; the employer-provided child care credit; the railroad track maintenance credit; the biodiesel fuels credit; the low sulfur diesel fuel production credit; the marginal oil and gas well production credit; the distilled spirits credit; the advanced nuclear power facility production credit; the nonconventional source production credit; the new energy efficient home credit; the portion of the alternative motor vehicle credit described in section 30B(g)(1); the portion of the alternative fuel vehicle refueling property credit described in section 30C(d)(1); the mine rescue team training credit; the agricultural chemicals security credit, for an eligible agricultural business; the differential wage payment credit; the carbon dioxide sequestration credit; the portion of the new clean vehicle credit described in section 30D(c)(1); the small employer health insurance credit; the paid family and medical leave credit, for an eligible employer; the retirement auto-enrollment credit, for an eligible employer; the zero-emission nuclear power production credit; the sustainable aviation fuel credit; the clean hydrogen production credit; the qualified commercial clean vehicle credit; the advanced manufacturing production credit; the clean electricity production credit; the clean fuel production credit; and the military spouse retirement plan eligibility credit, for an eligible small employer. Each credit is figured under its own numbered section of the tax code, and several apply only to a business or employer that qualifies as "eligible" under that credit's own definition. (c) Limitation based on amount of tax. (1) In general: The credit allowed under (a) for a taxable year cannot exceed the excess, if any, of your "net income tax" over the greater of (A) your tentative minimum tax for the year, or (B) 25 percent of the part of your "net regular tax liability" that is more than $25,000. "Net income tax" means your regular tax liability plus the tax imposed by section 55, minus the credits allowed under subparts A and B of this part. "Net regular tax liability" means your regular tax liability minus those same subpart A and B credits. (2) Empowerment zone employment credit may offset 25 percent of minimum tax: For the empowerment zone employment credit, this section and section 39 are applied separately. When applying paragraph (1) to that credit, 75 percent of the tentative minimum tax is used instead of the full tentative minimum tax, and the resulting limit is reduced by whatever other credits (besides this one and the "specified credits" below) were already allowed for the year. The "empowerment zone employment credit" here means the portion of the credit under (a) attributable to section 1396. [(3) Repealed in 2018.] (4) Special rules for specified credits: For the "specified credits" listed in (B) below, this section and section 39 are again applied separately. When applying paragraph (1) to them, the tentative minimum tax is treated as zero, and the resulting limit is reduced by other credits already allowed for the year (excluding the specified credits themselves). (B) The "specified credits" are: for years after 2004, the alcohol fuels credit under section 40; the research credit under section 41, for an eligible small business; the low-income housing credit under section 42, to the extent tied to buildings placed in service after December 31, 2007; the renewable electricity production credit under section 45, to the extent tied to electricity or refined coal from a facility originally placed in service after this paragraph's enactment date, during its first 4 years of service; the same production credit to the extent tied to Indian coal production facilities under section 45(e)(10); the employer social security credit under section 45B; the railroad track maintenance credit under section 45G; the small employer health insurance credit under section 45R; the paid family and medical leave credit under section 45S; the portion of the investment credit under section 46 tied to the energy credit under section 48; the portion of the investment credit under section 46 tied to the rehabilitation credit under section 47, but only for qualified rehabilitation expenditures counted for periods after December 31, 2007; and the work opportunity credit under section 51. (5) Rules related to eligible small businesses: (A) An "eligible small business" is, for a taxable year, a corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, as long as its average annual gross receipts for the preceding 3-taxable-year period do not exceed $50,000,000, applying rules similar to section 448(c)(2) and (3). (B) A partner's or S-corporation shareholder's share of the research credit under section 41 counts as a "specified credit" only if that partner or shareholder separately meets the same $50 million gross-receipts test. (6) Special rules: (A) Married individuals — a husband or wife filing a separate return uses $12,500 instead of $25,000 in (c)(1)(B), unless the spouse has no business credit carryforward, carryback, or current-year credit for a taxable year ending within or with the filer's taxable year. (B) Controlled groups — for a controlled group (as defined in section 1563(a)), the $25,000 amount is divided among the group's component members under Treasury regulations. (C) Limitations with respect to certain persons — for a person described in the pre-1990 version of section 46(e)(1)(A) or (B), the $25,000 amount instead equals that person's ratable share as figured under the pre-1990 section 46(e)(2). (D) Estates and trusts — the $25,000 amount is reduced in the same proportion that the estate's or trust's income not allocated to beneficiaries bears to its total income. (E) Corporations — for a corporation, (c)(1) is applied by replacing "the greater of" and everything after it with "25 percent of the taxpayer's net income tax as exceeds $25,000," and paragraphs (2)(A) and (4)(A) are applied without their income-tax-substitution steps. (d) Ordering rules: When it matters how much of each credit listed in subsection (b) has been used in a taxable year, or as a carryback or carryforward: (1) In general — the credits are used in the order they are listed in subsection (b), based on how that list reads at the close of the taxable year the credit is used. (2) Components of investment credit — the individual credits that make up the investment credit under section 46 are, in turn, used in the order they are listed in section 46 at the close of that taxable year.