40.26 Business Credits

Filing Tip

Plug-in Vehicle

If you buy a plug-in electric vehicle, only the portion of the applicable credit related to business driving is part of the general business credit. For example, in 2012 you buy an electric vehicle for which there is a $7,000 credit. You use the car 60% for business and 40% for personal driving. Only $4,200 (60% of $7,000) is part of the general business credit.

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You may be eligible to reduce your tax liability by credits related to your business. Unlike personal credits, however, many business-related credits are subject to a special limitation, called the general business credit. The general business credit is not a separate credit; it is a compilation of one or more separate business-related credits that are specifically included by law within the general business credit. The reason for grouping the credits as one is to impose an overall limitation, explained below. The general business credit includes the following credits:

• The investment credit on Form 3468, consisting of the rehabilitation property credit (see 31.8), the energy credit, and the reforestation credit;
• The research credit on Form 6765*;
• The low-income housing credit on Form 8586 (31.8);
• The disabled access credit on Form 8826;
• The renewable electricity production credit on Form 8835;
• The credit for small employer pension plan startup costs on Form 8881;
• The credit for employer-provided child-care facilities and services on Form 8882;
• The Indian employment credit on Form 8845*;
• The orphan drug credit on Form 8820;
• The credit for employer-paid Social Security and Medicare taxes on certain tips received by employees of food and beverage establishments on Form 8846;
• The credit for contributions to certain community development corporations on Form 8847;
• The new markets credit on Form 8874*;
• The railroad track maintenance credit on Form 8900*;
• The biodiesel and renewable fuels credit on Form 8864;
• The low sulfur diesel fuel production on Form 8896;
• The nonconventional source fuel credit on Form 8907;
• The energy efficient home credit on Form 8908*;
• The energy efficient appliance credit on Form 8909*;
• The alternative motor vehicle fuel credit on Form 8910;
• The alternative fuel vehicle refueling property credit on Form 8911;
• The agricultural chemicals security credit for providing security (Form 8931);
• The credit for employer differential wage payments to activated military personnel (Form 8932);
• The distilled spirits credit on Form 8906;
• The carbon dioxide sequestration credit on Form 8923;
• The qualified plug-in electric drive motor vehicle credit on Form 8936 (for the portion of an electric vehicle used for business);
• Work opportunity credit (Form 5884)*;
• New hire retention credit (Form 5884-B)*; and
• Credit for small employer health insurance premiums (Form 8941) (see 41.14).

*These credits (with the exception of certain targeted categories under the work opportunity credit) expired at the end of 2011 but could be extended for 2012. See the e-Supplement at jklasser.com .

Planning Reminder

Small Business Health Care Credit

If you pay at least half the cost of coverage for your staff and meet certain eligibility tests, you can claim a tax credit for your payments. See 41.14.

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Computing the general business credit.

You compute each credit separately. If you claim only one credit, that credit is considered your general business credit for 2012. The credit is subject to a limitation based on tax liability that is figured on the form used to compute that particular credit. You then enter the allowable credit as your general business credit on Form 1040.

If you claim more than one credit, each of the credits is first computed separately. Most of the credits are then listed on Form 3800 but some of the credits, which have special tax liability limitations, are not entered on Form 3800. For the credits entered on Form 3800, you must figure an overall tax liability limitation. You must compute tentative alternative minimum tax (AMT) on Form 6251 even if the complete computation on Form 6251 shows that you do not have an actual AMT liability for the year. Your limit for the general business credit on Form 3800 is your regular tax liability (after tax credits other than the general business credit), plus actual AMT liability from Form 6251 (if any), minus whichever of the following is larger: either (1) tentative AMT from Form 6251 or (2) 25% of your regular income tax liability (after other credits) over $25,000.

Planning Reminder

Fuel-Related Credits

For a qualified business use, a refundable credit may be claimed for gasoline or special fuels. For example, a credit applies for fuel used in non-highway vehicles (other than motorboats), including generators, compressors, fork-lift trucks, and bulldozers. A credit may also be claimed for aviation fuel used for farming or commercial aviation. Different credit rates apply depending on the type of fuel. You must claim the credit on a timely filed income tax return, including extensions. You compute the credit on Form 4136, which you attach to Form 1040. For further details, see IRS Publication 378; farmers should see IRS Publication 225.

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Keep separate records of each of the component credits making up the general business credit. The credits are considered to be used up in a specific order; see the instructions to Form 3800.

General business credits in excess of the liability limitation could be carried back one year and then forward for up to 20 years.

If you have business credits from a passive activity under the rules discussed in Chapter 10, you must figure the credits on Form 8582-CR; generally, the credits are limited to the tax liability from passive activities.