Have a Tax Question? Ask a Tax Expert
The IRS Form 3800 instructions state in general that at the end of the 20 year period or death of the taxpayer, the taxpayer can deduct the unused General Business Credit on her tax return. Is this deducted on Schedule A or Form 1040 as an Adjustment to Gross Income? If Schedule A, is it subject to the 2% of AGI floor? Can you show me the authority or location in the instructions or publications?
The amount of the general business credit may not exceed the taxpayer's net income tax, less the greater of: (1) the taxpayer's tentative minimum tax, or (2) 25 percent of the taxpayer's net regular tax liability over $25,000. Code Section 38(c)(1).
The entire amount of the unused credit is carried back; the amount carried forward to each of the following 20 years depends on the amount that is not used in each of those years. Code Section 39(a)(2).
Any qualified general business credits that remain unused after the end of the 20-year carryforward period (or when a taxpayer dies or goes out of business) may be taken as a deduction in the first tax year after the end of the 20-year carryforward period (or in the year of the taxpayer's death or cessation of business). Code Section 196(a) , 196(b) and 196(c)).
In general, Form 3800, General Business Credit, must be used to claim any credit that is part of the general business credit. The allowable credit is directed for individuals to transfer to Form 1040, line 55 or Form 1040NR, line 50 per Form 3800 line 19
I hope this is the information that you need to deduct the remaining general business credit carryforward.
I guess my question was not clear. If the 20-year period is up or the taxpayer dies (which is the case here), where does the deduction go? The instructions state that the credit turns into a deduction at that point, but it does not specify where it is reported. Schedule A or A 2% AGI or Adjustment to Gross Income, I guess are the choices. Do you happen to know? See page one of Form 3800 instructions, under "Carryback and Carryforward of Unused Credit" under Note of that section for this discussion.
I think I may be reading the Form 3800 instructions incorrectly. When you say “special deduction”, I think they mean that it is still treated as a credit, but just that one is able to take it at that point without the other limitations, just for that one year. Am I correct?
Yes, it is still taken as a credit even though the term "deduction" is used.
I hope this helps to clarify.