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IRC 38 General Business Credit: Components, Limits and Form 3800

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By GreenGrowth CPAs Tax Team · Updated October 2026 · Tax

1 YR
Carryback period for unused credits under IRC 39
20 YRS
Standard carryforward period for unused credits
$25,000
Threshold in the IRC 38 limitation formula

IRC 38 is the section of the Internal Revenue Code that creates the general business credit, a single federal credit that bundles roughly 40 separate business credits into one total. You calculate each credit on its own form, combine them on Form 3800, and subtract the result directly from your income tax, subject to an annual limit.

Research, energy, and hiring credits all compete for the same limited room against your tax bill. Knowing the limit, the carryover rules, and the 2025 law changes helps you time investments and elections.

QUICK ANSWER

IRC 38 combines dozens of federal business credits, including the R&D credit, energy investment credits, the work opportunity credit, and the low-income housing credit, into one general business credit. You claim it on Form 3800. The credit cannot exceed your net income tax minus the greater of your tentative minimum tax or 25% of net regular tax above $25,000. Unused amounts carry back 1 year and forward 20 years.

The General Business Credit: At a Glance

  • What it is: The IRC 38 total of all your component business credits for the year, plus carryovers.
  • The limit: Net income tax minus the greater of tentative minimum tax or 25% of net regular tax liability above $25,000.
  • Carryovers: One year back and 20 years forward under IRC 39, with longer periods for elective pay credits.
  • Our role: We plan credits across years so none expire unused. Book a tax consultation →

What Is IRC Section 38?

Section 38 allows a credit against income tax equal to three pieces: carryforwards into the year, the current year business credit, and carrybacks into the year. The current year piece sums every component credit in Section 38(b).

Credits beat deductions. A $10,000 deduction saves a corporation $2,100 at the 21% rate, while a $10,000 credit saves $10,000. Most are nonrefundable, though. They reduce tax only to a floor set by the limit, and Section 39 saves the rest for other years.

Components of General Business Credit

Congress adds and retires credits often. As of 2026, the most widely used components include these.

  • Research credit (Section 41): For qualified research expenses above a base amount.
  • Investment credit (Section 46): Includes the energy credit, the clean electricity investment credit, and the rehabilitation credit for historic buildings.
  • Work opportunity credit (Section 51): For wages paid to hires from certified target groups.
  • Low-income housing credit (Section 42): For investment in qualifying affordable rental housing.
  • Employer credits: Disabled access, tip-related social security, pension startup, child care, small employer health insurance, and paid family and medical leave.
  • Clean energy production credits: Including Sections 45Q, 45U, 45V, 45X, 45Y, and 45Z.

Industry shapes the mix. Technology companies lean on the research credit. Real estate owners and investors tend to use the housing, rehabilitation, and energy credits.

R&D Tax Credit (Section 41)

The regular research credit equals 20% of qualified research expenses above a calculated base amount. Many companies elect the alternative simplified credit instead: 14% of expenses above half the prior three year average. Qualified expenses include wages, supplies, and part of contract research costs.

Two rules help smaller companies. A qualified small business with gross receipts under $5 million, and none more than five years back, can apply up to $500,000 of the credit against payroll taxes each year. An eligible small business averaging $50 million or less in gross receipts can also use the credit against alternative minimum tax.

The 2025 Restoration of R&E Expensing

The 2025 OBBBA law added Section 174A. For tax years beginning after 2024, businesses can again deduct domestic research costs in the year paid or incurred. Foreign research costs still amortize over 15 years. A retroactive option for small businesses closed on July 6, 2026. For more detail, see our guide to R&D tax credits for tech innovation.

Business Energy Investment Tax Credit

The business energy investment tax credit rewards investment in clean energy property. You figure it on Form 3468. For most projects that began construction after 2024, the technology-neutral clean electricity investment credit under Section 48E replaced the older Section 48 energy credit. Geothermal heat pump property remains eligible under Section 48 if construction begins before January 1, 2035.

The base rate is 6% of qualified investment, or 30% for projects meeting prevailing wage and apprenticeship rules. Our earlier article on the business energy investment tax credit covers project basics.

What the 2025 OBBBA Law Changed

The One Big Beautiful Bill Act cut several credits short:

  • Wind and solar: Section 45Y and 48E credits end for wind and solar facilities placed in service after 2027 if construction began after July 4, 2026.
  • Commercial clean vehicles (45W): No credit for vehicles acquired after September 30, 2025.
  • Refueling property (30C): No credit for property placed in service after June 30, 2026.
  • Energy efficient homes (45L): No credit for homes acquired after June 30, 2026.
  • Clean fuel production (45Z): Extended to fuel sold before January 1, 2030.

Elective Pay and Transferability

The Inflation Reduction Act of 2022 created two monetization options. Section 6417 elective pay lets tax-exempt organizations, governments, and other applicable entities treat eligible credits as a tax payment and get a refund. Other taxpayers can use it only for the 45Q, 45V, and 45X credits, for a limited period. Section 6418 lets eligible taxpayers sell certain credits to an unrelated buyer for cash. Form 3800 captures both elections.

Holding credits you cannot use yet? Let's map them before they expire.

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Work Opportunity Tax Credit

The work opportunity credit rewards hiring people from certified target groups, such as qualified veterans. The general maximum is $2,400 per hire, equal to 40% of up to $6,000 in first-year wages for employees who work at least 400 hours. You must file Form 8850 with your state workforce agency within 28 days after the employee starts work, then claim the credit on Form 5884.

Timing is the catch in 2026. Under current law the credit applies to individuals who began work on or before December 31, 2025. Congress has revived it after past lapses, so watch for legislation. Credits from earlier hires still carry forward.

Low-Income Housing Credit

The Section 42 low-income housing credit supports affordable rental housing. State housing agencies allocate the credits, and investors generally claim them over ten years on Form 8586.

The 2025 law expanded it. Starting in 2026, it permanently raised state 9% credit allocations by 12%. It also lowered the tax-exempt bond financing test for 4% credit deals from 50% to 25% for bonds issued after 2025. For buildings placed in service after 2007, the credit can also offset alternative minimum tax.

Section 38 Credit Limits

Section 38(c) caps the general business credit each year. The credit cannot exceed your net income tax minus the greater of two amounts:

  • your tentative minimum tax for the year, or
  • 25% of your net regular tax liability above $25,000.

Net income tax is, broadly, regular tax plus any alternative minimum tax, less certain other credits. Say a company owes $200,000 of net regular tax and has no tentative minimum tax. Twenty-five percent of the amount above $25,000 is $43,750. The company can use up to $156,250 of general business credits this year.

Certain specified credits, such as the small business research credit and the work opportunity credit, treat tentative minimum tax as zero, so they can absorb more of your tax.

Carryback and Carryforward

Section 39 sets the carryover schedule. An unused credit first carries back to the prior tax year. Anything left carries forward to each of the next 20 years. Credits listed in Section 6417(b), the elective pay credits, carry back three years and forward 22 years instead.

Form 3800 uses credits in a set order: carryforwards from the earliest year first, then current year credits, then carrybacks. A carryforward that quietly expires is lost value. Book and tax treatment can also differ, which we cover in our article on tax credit accounting and disclosures.

▶ General Business Credit Quick Reference

ItemRuleSource
LimitNet income tax minus greater of TMT or 25% of net regular tax above $25,000IRC 38(c)
Carryback1 year (3 years for elective pay credits)IRC 39
Carryforward20 years (22 years for elective pay credits)IRC 39
MonetizingElective pay or transfer for eligible energy creditsIRC 6417, 6418

How to Claim on Form 3800

Claiming takes two steps. Complete each credit's source form, then carry the totals to Form 3800 and attach it to your return.

  • Source forms: Form 6765 (research), Form 3468 (investment), Form 5884 (work opportunity), Form 8586 (housing), and others.
  • Part III: Lists each current year credit, plus elective pay and transfer details.
  • Parts I and II: Apply the Section 38(c) limits.
  • Pass-through owners: Get credits on Schedule K-1 and claim them on their own Form 3800.

Keep payroll detail, project files, certification letters, and placed in service dates. Our tax planning and compliance services team builds those records during the year.

KEY TAKEAWAYS

  • ›IRC 38 bundles roughly 40 component credits into one general business credit.
  • ›The cap is net income tax minus the greater of tentative minimum tax or 25% of net regular tax above $25,000.
  • ›Unused credits carry back one year and forward 20 years.
  • ›The 2025 OBBBA law restored R&E expensing and cut short several clean energy credits.

Frequently Asked Questions

Where to Go From Here

Use Every Credit Before It Expires

We model your credits, limits, and carryforwards across years, then time elections to fit.

KEY NUMBERS

IRC 38
Section that creates the general business credit
25%
Of net regular tax above $25,000 in the limit formula
20 YRS
Standard carryforward for unused credits
FORM 3800
Where every component credit comes together

Credits Are Worth More When You Plan for Them.

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GreenGrowth CPAs · Tax Team

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