What this line means
The portion of your general business credit carryover that is reduced because you excluded canceled debt from income. Unlike NOLs, business credits are not reduced dollar-for-dollar. Credits are reduced at a rate of 33.33 cents for every dollar of excluded debt remaining after the NOL reduction. This is the second attribute in the reduction order under Section 108(b)(2).
Does this apply to you?
- You excluded canceled debt from income and still have remaining excluded debt after reducing your NOLs on line 4
- You have a general business credit carryover from prior years (Form 3800)
- You earned credits such as the research credit, work opportunity credit, or energy investment credit that carried forward
- You did not elect to reduce depreciable property basis first on line 10b
Easy to overlook
The 33.33 cents per dollar rate means your credit absorbs less excluded debt than you expect If you have $10,000 of general business credit carryover, it only absorbs $30,000 of excluded debt (because $30,000 times 33.33% equals $10,000). Filers sometimes assume the credit is reduced dollar-for-dollar like NOLs and underestimate how much excluded debt flows to the next attribute. Run the math to avoid errors on the remaining lines. 1 IRS Form 982 Instructions — Line 5
Each component of the general business credit is reduced separately The general business credit on Form 3800 is actually a collection of individual credits. The reduction applies to each credit component in the order they would be used. Credits closest to expiring are reduced first, which means your most time-sensitive carryovers disappear before longer-lived ones. 2 IRS Publication 4681 — Canceled Debts, Foreclosures, Repossessions, and Abandonments
Watch out for this
Reducing general business credits before fully reducing your NOL. Follow the ordering rules strictly: NOLs go first on line 4, then general business credits on line 5. If you skip ahead or reverse the order, the attribute reductions will be wrong and your carryovers to future years will be incorrect. The IRS computers check this sequence.
Footnotes
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IRS Form 982 Instructions, Line 5. https://www.irs.gov/instructions/i982 ↩
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IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, Chapter 1. https://www.irs.gov/pub/irs-pdf/p4681.pdf ↩