Our system cost $31,000, the 26% for year 2020 would equal ~$8000 and Turbo Tax added that full amount as a federal refund, not a tax credit. This looks like a mistake, yes?
Correct. If in 2020 you end up with a bigger credit than you have income tax due — a $3,000 credit on a $2,500 tax bill, for instance—you can't use the credit to get money back from the IRS. Instead, you can carry the credit over to tax year 2021.
Here's a TurboTax article about the solar energy credit.
Thank you Renee for your response. Yes, I understand I should receive a tax credit to decrease my tax liability, and any remaining credit would be carried over into future years. The problem is that’s not what happened when I filled out the information on TurboTax. I believe TurboTax may have made a MISTAKE.
Prior to entering the solar energy installation information, our overall federal tax liability was around $1500, after entering all of our income and other deductions. After I entered the solar energy installation cost (approx $31K) it told me I qualified for an $8200 credit, but then as you can see in the picture below, it added it all as a federal tax refund, rather than just decreasing my liability to zero and telling me I had a credit carryover for future years. And please note the picture was taken after all income and deductions were already entered. I saved the solar energy credit for last.
I understand the rules and what SHOULD have happened. I’m saying I think Turbo Tax made a MISTAKE. Why did TurboTax add the additional credit amount beyond my tax liability as a refund?
If you would be willing to share a diagnostic copy of your tax file, it could be helpful to examine the situation in more detail so that the situation can be further explained.
To do so, follow the instructions below and post the token number along with which version of TurboTax you are using in a follow-up thread.
Use these steps if you are using TurboTax Online:
If you are using a CD/downloaded version of TurboTax, use these steps:
Thank you for your help. I am using TurboTax Online Deluxe, and the token number is 815654. Thanks again for any help you can provide.
Thank you for sharing the diagnostic copy of your tax file. I checked your return with regard to the solar energy credit.
You are correct that the full amount of the credit seems to be included as part of your refund. This is happening because your solar energy credit is being fully utilized to reduce your tax liability. The liability is not reduced to zero though, there is still tax liability shown on your return after the credit has been applied. This means that more of your tax withholdings are being returned to you in the form of a refund because the credit is being used to pay part of your taxes.
Everything is completely in order and you can go ahead and file with confidence.
Thank you so much @AnnetteB6
We really appreciate your help!!