What is the general business credit?

The general business credit is the combined total of more than 40 federal business tax credits, from the research credit to clean energy credits like the Investment Tax Credit (ITC) and Production Tax Credit (PTC). Section 38 adds them together, applies one annual limit, and carries unused amounts back one year and forward 20.

You don’t claim the general business credit directly. You figure each component credit on its own form, then total them on Form 3800, where the limit and carryovers are applied.

That shared limit is why the general business credit matters so much to companies that buy clean energy credits: it caps how much of any credit, bought or earned, can reduce tax in a single year.

Which credits are part of the general business credit?

Section 38(b) lists 41 component credits. They include the investment credit (which carries the Section 48 and 48E ITCs), the research credit, the work opportunity credit, the paid family leave credit, and clean energy credits such as 45Q carbon capture, 45X manufacturing, 45Y clean electricity and 45Z clean fuel.

The full list in 26 U.S.C. 38(b) runs from the investment credit in paragraph (1) to the military spouse retirement plan credit in paragraph (41). Most businesses touch only a few of them in any year.

Personal credits such as the child tax credit or the earned income credit are not part of it. They follow their own rules.

How is the general business credit limit calculated?

For a C corporation, general business credits can’t exceed net income tax minus 25% of net income tax above $25,000. A company with $1 million of net income tax can use up to $756,250. Individuals subtract the greater of their tentative minimum tax or 25% of net regular tax above $25,000.

Section 38(c)(1) sets the general formula, and Section 38(c)(6)(E) swaps in the simpler 25% test for corporations. Net income tax is regular tax plus any alternative minimum tax under Section 55, minus certain nonbusiness credits.

An individual works the same math with one extra test. Say an owner has $200,000 of net income tax, of which $180,000 is net regular tax, and a $60,000 tentative minimum tax. Twenty-five percent of regular tax above $25,000 is $38,750, which is smaller than the tentative minimum tax, so the limit is $200,000 minus $60,000, or $140,000.

The limit is a cap, not a cliff. Whatever doesn’t fit this year becomes a carryback or carryforward instead of disappearing.

What are specified credits?

Specified credits are a short list in Section 38(c)(4)(B) that individuals can use against the alternative minimum tax, because the tentative minimum tax is treated as zero for them. They include the Section 48 energy credit, the work opportunity credit, the paid family leave credit and the research credit of an eligible small business.

Specified credits matter mainly to individuals and pass-through owners who would otherwise be stuck at their tentative minimum tax. Newer clean energy credits such as 45Y, 48E, 45X and 45Z are not on the list.

For corporations, the distinction rarely matters, since the corporate limit already ignores tentative minimum tax.

In what order are general business credits used?

Section 38(a) uses carryforwards from earlier years first, then the current year’s credits, then any carrybacks. Within each group, Section 38(d) applies credits in the order they appear in Section 38(b). Using old carryforwards first helps keep credits from expiring at the end of their 20-year window.

The ordering decides which credits survive when you hit the limit. A company with big carryforwards may find that a current-year credit purchase just pushes its own older credits forward again.

Run your own numbers in the calculator below before you plan a credit purchase.

What happens to unused general business credits?

Unused general business credits carry back one year and then forward 20 years under Section 39. Clean energy credits that qualify for elective pay under Section 6417 get a three-year carryback instead. Some older credits that expire unused become a deduction under Section 196 in the year after the carryforward ends.

Section 39(a)(4) gives those “applicable credits” a three-year carryback and a 22-year carryforward. Section 196 covers credits such as the investment and research credits, but not newer clean energy credits like 45Y or 45Z.

The chart below shows how quickly a large credit year gets absorbed when credits outrun the limit.

How do passive activity rules limit individuals?

Individuals, trusts and closely held corporations can generally use credits from passive activities only against tax on passive income under Section 469. The final transferability rules apply the same limit to purchased clean energy credits, so most individual buyers need passive income to use them.

That’s why individual buyers of transferable credits are less common than corporations. Our guide on whether buying tax credits reduces your taxes explains who can benefit.

How does the general business credit limit affect buying tax credits?

A buyer should purchase only as many transferable credits as its remaining general business credit capacity can absorb this year. Credits beyond the limit carry forward, which delays the savings and lowers the deal’s return. Buyers typically model their limit, existing credits and estimated tax before signing.

Buyers paid about $0.913 per dollar for ITCs and $0.930 for PTCs in 2026, according to Crux. That discount only pays off when the credit is used on time.

Our guides to buying clean energy tax credits and the purchase checklist cover sizing and diligence.

How do you claim the general business credit?

Figure each credit on its own form, such as Form 3468 for the ITC or Form 6765 for research, then report them on Form 3800. Form 3800 applies the Section 38(c) limit, tracks carryforwards and carrybacks, and lists transferred and elective pay credits. Attach it to your income tax return.

Partnerships and S corporations don’t apply the limit themselves. They pass each partner’s or shareholder’s share of the credits through on Schedule K-1, and the owner applies the Section 38(c) limit on their own Form 3800. Keep a schedule of each credit’s year and source, since carryforwards are tracked by year.

The IRS publishes current Form 3800 instructions. For a line-by-line walkthrough, see our Form 3800 guide, and for the bigger picture on credits versus deductions, our tax credit vs. deduction guide.

Sources

• 26 U.S.C. 38 (general business credit), 39 (carrybacks and carryforwards), 196 (deduction for unused credits) and 469 (passive activity limits)

• IRS, About Form 3800, General Business Credit

• pv magazine USA, Clean energy capital expenditures on track for $180 billion in 2026, reports Crux