§ 26. Limitation based on tax liability; definition of tax liability

§ 26. Limitation based on tax liability; definition of tax liability

(a) Limitation based on amount of tax The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the sum of—

(1) the taxpayer’s regular tax liability for the taxable year reduced by the foreign tax credit allowable under section 27, and

(2) the tax imposed by section 55(a) for the taxable year.

(b) Regular tax liability For purposes of this part—

(1) In general The term “regular tax liability” means the tax imposed by this chapter for the taxable year.

(2) Exception for certain taxes For purposes of paragraph (1), any tax imposed by any of the following provisions shall not be treated as tax imposed by this chapter:

(A) section 55 (relating to minimum tax),

(B) section 59A (relating to base erosion and anti-abuse tax),

(C) subsection (m)(5)(B), (q), (t), or (v) of section 72 (relating to additional taxes on certain distributions),

(D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),

(E) section 530(d)(4) (relating to additional tax on certain distributions from Coverdell education savings accounts),

(F) section 531 (relating to accumulated earnings tax),

(G) section 541 (relating to personal holding company tax),

(H) section 1351(d)(1) (relating to recoveries of foreign expropriation losses),

(I) section 1374 (relating to tax on certain built-in gains of S corporations),

(J) section 1375 (relating to tax imposed when passive investment income of corporation having subchapter C earnings and profits exceeds 25 percent of gross receipts),

(K) subparagraph (A) of section 7518(g)(6) (relating to nonqualified withdrawals from capital construction funds taxed at highest marginal rate),

(L) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),

(M) section 860E(e) (relating to taxes with respect to certain residual interests),

(N) section 884 (relating to branch profits tax),

(O) sections 453(l)(3) and 453A(c) (relating to interest on certain deferred tax liabilities),

[(P) Repealed. Pub. L. 115–141, div. U, title IV, § 401(b)(2), Mar. 23, 2018, 132 Stat. 1201.]

(Q) section 220(f)(4) (relating to additional tax on Archer MSA distributions not used for qualified medical expenses),

(R) section 138(c)(2) (relating to penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained),

(S) sections 106(e)(3)(A)(ii), 223(b)(8)(B)(i)(II), and 408(d)(9)(D)(i)(II) (relating to certain failures to maintain high deductible health plan coverage),

(T) section 170(o)(3)(B) (relating to recapture of certain deductions for fractional gifts),

(U) section 223(f)(4) (relating to additional tax on health savings account distributions not used for qualified medical expenses),

(V) subsections (a)(1)(B)(i) and (b)(4)(A) of section 409A (relating to interest and additional tax with respect to certain deferred compensation),

(W) section 36(f) (relating to recapture of homebuyer credit),

(X) section 457A(c)(1)(B) (relating to determinability of amounts of compensation),

(Y) section 529A(c)(3)(A) (relating to additional tax on ABLE account distributions not used for qualified disability expenses), and

(Z) section 24(j)(2) (relating to excess advance payments).

(c) Tentative minimum tax For purposes of this part, the term “tentative minimum tax” means the amount determined under section 55(b)(1).

(Added § 25, renumbered § 26, Pub. L. 98–369, div. A, title IV, § 472, title VI, § 612(a), July 18, 1984, 98 Stat. 827, 905; amended Pub. L. 99–499, title V, § 516(b)(1)(A), Oct. 17, 1986, 100 Stat. 1770; Pub. L. 99–514, title II, § 261(c), title VI, § 632(c)(1), title VII, § 701(c)(1), Oct. 22, 1986, 100 Stat. 2214, 2277, 2340; Pub. L. 100–647, title I, §§ 1006(t)(16)(C), 1007(g)(1), 1011A(c)(10), 1012(q)(8), title IV, § 4005(g)(4), title V, § 5012(b)(2), Nov. 10, 1988, 102 Stat. 3425, 3434, 3476, 3524, 3650, 3662; Pub. L. 101–239, title VII, §§ 7811(c)(1), (2), 7821(a)(4)(A), Dec. 19, 1989, 103 Stat. 2406, 2407, 2424; Pub. L. 104–188, title I, § 1621(b)(1), Aug. 20, 1996, 110 Stat. 1866; Pub. L. 105–34, title II, § 213(e)(1), title XVI, § 1602(a)(1), Aug. 5, 1997, 111 Stat. 817, 1093; Pub. L. 105–277, div. J, title II, § 2001(a), Oct. 21, 1998, 112 Stat. 2681–901; Pub. L. 106–170, title V, § 501(a), Dec. 17, 1999, 113 Stat. 1918; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628; Pub. L. 107–16, title II, §§ 201(b)(2)(D), 202(f)(2)(C), title VI, § 618(b)(2)(C), June 7, 2001, 115 Stat. 46, 49, 108; Pub. L. 107–22, § 1(b)(2)(A), July 26, 2001, 115 Stat. 197; Pub. L. 107–147, title IV, §§ 415(a), 417(23)(B), title VI, § 601(a), Mar. 9, 2002, 116 Stat. 54, 57, 59; Pub. L. 108–311, title III, § 312(a), title IV, §§ 401(a)(1), 408(a)(5)(A), Oct. 4, 2004, 118 Stat. 1181, 1183, 1191; Pub. L. 109–135, title IV, §§ 403(hh)(1), 412(c), Dec. 21, 2005, 119 Stat. 2631, 2636; Pub. L. 109–222, title III, § 302(a), May 17, 2006, 120 Stat. 353; Pub. L. 110–166, § 3(a), Dec. 26, 2007, 121 Stat. 2461; Pub. L. 110–172, § 11(a)(3), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 110–289, div. C, title I, § 3011(b)(1), July 30, 2008, 122 Stat. 2891; Pub. L. 110–343, div. B, title I, § 106(e)(2)(D), title II, § 205(d)(1)(D), div. C, title I, § 101(a), title VIII, § 801(b), Oct. 3, 2008, 122 Stat. 3817, 3839, 3863, 3931; Pub. L. 111–5, div. B, title I, §§ 1004(b)(3), 1011(a), 1142(b)(1)(D), 1144(b)(1)(D), Feb. 17, 2009, 123 Stat. 314, 319, 330, 332; Pub. L. 111–148, title X, § 10909(b)(2)(E), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, § 101(b)(1), title II, § 202(a), Dec. 17, 2010, 124 Stat. 3298, 3299; Pub. L. 112–240, title I, § 104(c)(1), Jan. 2, 2013, 126 Stat. 2321; Pub. L. 113–295, div. A, title II, § 221(a)(12)(B), div. B, title I, § 102(e)(1), Dec. 19, 2014, 128 Stat. 4038, 4062; Pub. L. 115–97, title I, § 14401(c), Dec. 22, 2017, 131 Stat. 2233; Pub. L. 115–141, div. U, title IV, § 401(b)(2), (d)(1)(D)(ii), Mar. 23, 2018, 132 Stat. 1201, 1206; Pub. L. 117–2, title IX, § 9611(b)(4)(A), Mar. 11, 2021, 135 Stat. 150.)

Editorial Notes

Amendments

2021—Subsec. (b)(2)(Z). Pub. L. 117–2 added subpar. (Z).

2018—Subsec. (a)(1). Pub. L. 115–141, § 401(d)(1)(D)(ii), substituted “section 27” for “section 27(a)”.

Subsec. (b)(2)(P). Pub. L. 115–141, § 401(b)(2), struck out subpar. (P) which read as follows: “section 860K (relating to treatment of transfers of high-yield interests to disqualified holders),”.

2017—Subsec. (b)(2)(B). Pub. L. 115–97 added subpar. (B).

2014—Subsec. (b)(2)(B). Pub. L. 113–295, § 221(a)(12)(B), struck out subpar. (B) which read as follows: “section 59A (relating to environmental tax),”.

Subsec. (b)(2)(Y). Pub. L. 113–295, § 102(e)(1), added subpar. (Y).

2013—Subsec. (a). Pub. L. 112–240 amended subsec. (a) generally. Prior to amendment, subsec. (a) related to limitation based on amount of tax with a special rule for taxable years 2000 through 2011.

2010—Subsec. (a)(1). Pub. L. 111–148, § 10909(b)(2)(E), (c), as amended by Pub. L. 111–312, § 101(b)(1), temporarily struck out “23,” before “24,” in introductory provisions. See Effective and Termination Dates of 2010 Amendment note below.

Subsec. (a)(2). Pub. L. 111–312, § 202(a), substituted “2011” for “2009” in heading and “2009, 2010, or 2011” for “or 2009” in introductory provisions.

2009—Subsec. (a)(1). Pub. L. 111–5, § 1144(b)(1)(D), inserted “30B,” after “30,” in introductory provisions.

Pub. L. 111–5, § 1142(b)(1)(D), inserted “30,” after “25D,” in introductory provisions.

Pub. L. 111–5, § 1004(b)(3), inserted “25A(i),” after “24,” in introductory provisions.

Subsec. (a)(2). Pub. L. 111–5, § 1011(a), substituted “2009” for “2008” in heading and “2008, or 2009” for “or 2008” in introductory provisions.

2008—Subsec. (a)(1). Pub. L. 110–343, § 205(d)(1)(D), substituted “25D, and 30D” for “and 25D” in introductory provisions.

Pub. L. 110–343, § 106(e)(2)(D), substituted “25B, and 25D” for “and 25B” in introductory provisions.

Subsec. (a)(2). Pub. L. 110–343, § 101(a), substituted “2008” for “2007” in heading and “2007, or 2008” for “or 2007” in introductory provisions.

Subsec. (b)(2)(W). Pub. L. 110–289 added subpar. (W).

Subsec. (b)(2)(X). Pub. L. 110–343, § 801(b), added subpar. (X).

2007—Subsec. (a)(2). Pub. L. 110–166 substituted “2007” for “2006” in heading and “2006, or 2007” for “or 2006” in introductory provisions.

Subsec. (b)(2)(S) to (V). Pub. L. 110–172 added subpars. (S) and (T) and redesignated former subpars. (S) and (T) as (U) and (V), respectively.

2006—Subsec. (a)(2). Pub. L. 109–222 substituted “2006” for “2005” in heading and “2005, or 2006” for “or 2005” in introductory provisions.

2005—Subsec. (b)(2)(E). Pub. L. 109–135, § 412(c), substituted “section 530(d)(4)” for “section 530(d)(3)”.

Subsec. (b)(2)(T). Pub. L. 109–135, § 403(hh)(1), added subpar. (T).

2004—Subsec. (a)(2). Pub. L. 108–311, § 312(a), substituted “rule for taxable years 2000 through 2005” for “rule for 2000, 2001, 2002, and 2003” in heading and “2003, 2004, or 2005” for “or 2003” in text.

Subsec. (b)(2)(R). Pub. L. 108–311, § 408(a)(5)(A), substituted “Medicare Advantage MSA” for “Medicare+Choice MSA”.

Subsec. (b)(2)(S). Pub. L. 108–311, § 401(a)(1), added subpar. (S).

2002—Subsec. (a)(1). Pub. L. 107–147, § 417(23)(B), amended directory language of Pub. L. 107–16, § 618(b)(2)(C). See 2001 Amendment note below.

Subsec. (a)(2). Pub. L. 107–147, § 601(a), substituted “rule for 2000, 2001, 2002, and 2003” for “rule for 2000 and 2001” in heading and “during 2000, 2001, 2002, or 2003,” for “during 2000 or 2001,” in introductory provisions.

Subsec. (b)(2)(P), (Q). Pub. L. 107–147, § 415(a), which directed striking “and” at end of subpar. (P) and substituting “, and” for the period at the end of subpar. (Q), was executed to subpars. (P) and (Q) as redesignated by Pub. L. 105–34, § 213(e)(1), to reflect the probable intent of Congress. See 1997 Amendment notes below.

Subsec. (b)(2)(R). Pub. L. 107–147, § 415(a), added subpar. (R).

2001—Subsec. (a)(1). Pub. L. 107–16, § 618(b)(2)(C), as amended by Pub. L. 107–147, § 417(23)(B), substituted “, 24, and 25B” for “and 24” in introductory provisions.

Pub. L. 107–16, § 202(f)(2)(C), substituted “sections 23 and 24” for “section 24” in introductory provisions.

Pub. L. 107–16, § 201(b)(2)(D), inserted “(other than section 24)” after “this subpart” in introductory provisions.

Subsec. (b)(2)(E). Pub. L. 107–22 substituted “Coverdell education savings” for “education individual retirement”.

2000—Subsec. (b)(2)(Q). Pub. L. 106–554 substituted “Archer MSA” for “medical savings account”.

1999—Subsec. (a). Pub. L. 106–170 reenacted subsec. heading without change and amended text generally. Prior to amendment, text read as follows: “The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the excess (if any) of—

“(1) the taxpayer’s regular tax liability for the taxable year, over

“(2) the tentative minimum tax for the taxable year (determined without regard to the alternative minimum tax foreign tax credit).

For purposes of paragraph (2), the taxpayer’s tentative minimum tax for any taxable year beginning during 1998 shall be treated as being zero.”

1998—Subsec. (a). Pub. L. 105–277 inserted concluding provisions.

1997—Subsec. (b)(2)(E) to (O). Pub. L. 105–34, § 213(e)(1), added subpar. (E) and redesignated former subpars. (E) to (N) as (F) to (O), respectively. Former subpar. (O) redesignated (P).

Subsec. (b)(2)(P). Pub. L. 105–34, § 213(e)(1), redesignated subpar. (P) as (Q).

Pub. L. 105–34, § 1602(a)(1), added subpar. (P).

Subsec. (b)(2)(Q). Pub. L. 105–34, § 213(e)(1), redesignated subpar. (P) as (Q).

1996—Subsec. (b)(2)(O). Pub. L. 104–188 added subpar. (O).

1989—Subsec. (b)(2)(C), (D). Pub. L. 101–239, § 7811(c)(1), amended subpars. (C) and (D) generally. Prior to amendment, subpars. (C) and (D) read as follows:

“(C) subsection (m)(5)(B) (q), or (v) of section 72 (relating to additional tax on certain distributions),

“(D) section 72(t) (relating to 10-percent additional tax on early distributions from qualified retirement plans),”.

Subsec. (b)(2)(K). Pub. L. 101–239, § 7811(c)(2), added subpar. (K) and struck out former subpar. (K) which was identical.

Subsec. (b)(2)(L), (M). Pub. L. 101–239, § 7811(c)(2), added subpars. (L) and (M) and struck out former subpars. (L) and (M) which read as follows:

“(L) section 860E(e) (relating to taxes with respect to certain residual interests), and

“(L) section 884 (relating to branch profits tax), and