We are installing solar panels in 2020 which will provide a non-refundable tax credit of 26% in 2020. I am trying to make sure I understand how the non-refundable tax credit works as I want to take it all in 2020 (I do understand it can be rolled over if necessary). I have seen confusing information online with regards to tax liability, non-refundable credits, and general refunds. Looking at the 1040-SR form from 2019, how I interpret it is that the the tax credit (line 13B and Schedule 3) is applied to the tax liability (line 14) before any withholding (line 17) and estimated taxes (line 18d and Schedule 3) are even considered or dealt with. So that if I have overpaid withholding and/or estimates that will generate a refund, they are compared to the new tax liability after the credit has been applied and any refund will include the impact of the tax credit. I have seen some confusing discussions online and want to make sure I am interpreting it correctly.
Hypothetical Example
Tax Liability before credits (1040 Line 12b): $20,000
Solar Tax Credit (1040 Line 13b & Sched3): $5,000
Tax Liability after solar credit (1040 line 14): $15,000
Other Taxes (1040 Line 15) : 0
Total Tax (1040 Line 16) : $15,000
Taxes Withheld (1040 Line 17) : $12,000
Estimated Taxes(1040 Line 18d&Sched3) : $5,000
Total Payments (1040 Line 19) : $17,000
Refund Due (1040 Line 21a) : $2,000
We want to modify our approach to withholding and estimated taxes and want to make sure we do it correctly.
Thanks.
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