Key Takeaways
- GBC is aggregation of dozens of credits reported on Form 3800.
- Credits reduce tax dollar-for-dollar (unlike deductions).
- GBC limited to net income tax minus greater of TMT or 25% of tax exceeding $25,000.
- Unused GBC: carryback 1 year, carryforward 20 years (FIFO).
- MFS: $25,000 threshold splits to $12,500 each.
- Common credits: WOTC, R&D, Investment, Disabled Access.
General Business Credit Overview
Why This Matters for the Exam
The General Business Credit is fundamental to Part 2. The exam tests the limitation formula, carryback/carryforward rules, and the difference between credits and deductions.
Exam Note: For the May 2025 - February 2026 testing window, you are tested on credit rules as of December 31, 2024 (Tax Year 2024).
Expect at least 3-4 questions on the GBC.
What Is the General Business Credit?
The GBC is not one credit—it's a collection of business credits aggregated on Form 3800.
| Form | Purpose |
|---|---|
| Form 3800 | Aggregates all GBC credits |
| Individual credit forms | Calculate each specific credit |
| Schedule 3 | Report total on Form 1040 |
Credits vs. Deductions
| Feature | Credit | Deduction |
|---|---|---|
| Reduces | Tax liability | Taxable income |
| Value | Dollar-for-dollar | Depends on tax bracket |
| Example | $1,000 credit = $1,000 saved | $1,000 deduction @ 37% = $370 saved |
Common Credits in the GBC
| Credit | Form | Purpose |
|---|---|---|
| WOTC | Form 5884 | Hiring targeted groups |
| R&D Credit | Form 6765 | Research activities |
| Disabled Access | Form 8826 | Accessibility improvements |
| Investment Credit | Form 3468 | Energy/rehabilitation property |
| Low-Income Housing | Form 8586 | Affordable housing |
The GBC Limitation Formula
The GBC is non-refundable and limited:
| Element | Formula |
|---|---|
| Net Income Tax | Regular tax + AMT - nonrefundable credits |
| Minus greater of: | |
| Test 1 | Tentative Minimum Tax (TMT) |
| Test 2 | 25% of (Net Regular Tax - $25,000) |
Limitation Example
| Item | Amount |
|---|---|
| Regular tax liability | $100,000 |
| Excess over $25,000 | $75,000 |
| 25% of excess | $18,750 |
| Maximum GBC allowed | $81,250 |
| Tax after GBC | $18,750 |
The 25/25 Rule
| Rule | Description |
|---|---|
| First $25,000 | 100% offset by credits |
| Excess over $25,000 | 75% offset (25% reserved) |
Married Filing Separately
| Filing Status | Threshold |
|---|---|
| MFJ/Single/HOH | $25,000 |
| MFS (both have credits) | $12,500 each |
| MFS (one has no credits) | Full $25,000 |
Carryback and Carryforward
| Rule | Period |
|---|---|
| Carryback | 1 year |
| Carryforward | 20 years |
| Order | FIFO (oldest credits first) |
Credit Ordering
| Priority | Credits |
|---|---|
| 1 | Carryforwards (oldest first) |
| 2 | Current year credits |
| 3 | Carrybacks applied to prior year |
Real-World Scenario
Scenario: Tech startup has $50,000 tax liability and $60,000 in R&D credits.
- Limitation: $50,000 - (25% × $25,000) = $43,750 max credit.
- Credits used: $43,750.
- Tax owed: $6,250.
- Unused credits: $16,250 → carryback 1 year, then forward 20 years.
On the Exam
Expect 3-4 questions on GBC, typically:
- Form Questions: "What form aggregates business credits?"
- Carryover Questions: "What is the carryback/carryforward period?"
- Limitation Questions: "What is the 25% rule for excess liability?"
The key is to remember: Form 3800. Carryback 1 year, forward 20 years. 25/25 rule: First $25k = 100%, excess = 75%.
What form aggregates the General Business Credit?
Unused GBC—what is the carryback/carryforward period?
GBC limitation for tax over $25,000?