@jmurphy-ectisp-n
The residential property tax credit for a solar system is calculated based on the current year‘s income and taxes only. Each year‘s tax return is entirely separate and self-contained from every year before and every year after. In my example, if you were entitled to a $12,000 credit but you only had a $5000 liability, the $7000 does not flow backwards to any previous tax debts. The maximum credit you can get in the current year is whatever your tax liability is for that current year.
Now let’s make sure we understand what a tax liability is. Your tax liability is the money you owe to the government for the whole year based on your income and deductions, and regardless of any payments or withholding. It’s shown on line 22 of your tax return but let’s think about it another way:
suppose you had withholding and payments of $5000 and you got a $1000 refund. That would mean that your tax liability was $4000. Or, suppose that you had withholding and payments of $5000 and you owed $2000 when you file your tax return. That means that your tax liability for that year was $7000.
If you withdraw money from a 401(k), your tax liability goes up, regardless of whether you had withholding to cover it. If you withdrew $10,000, you would owe about $2200 more in income tax. If you had $2000 of withholding, you would owe an additional $200 payment when you file your tax return, but your liability was still increased by $2200.
If you are planning to install a solar system in 2022, it is a very good time to do some tax planning. For example, suppose you plan to install a $30,000 system, which would give you a maximum credit of $7200. If you expected that your tax liability would be $5000, and that is the maximum credit you can get. The other $2200 is lost forever. Since your maximum eligible credit is $7200, you could withdraw $10,000 from your IRA and it would be tax-free, because the extra tax liability would use up the remaining solar credit.
But the leftover solar credit is only calculated on your current tax return and it never flows back to a previous tax debt.
I still don’t quite understand what you’re asking, but hopefully these explanations will clarify so you can ask the right questions, or so that you can give us some specific numbers of what you plan to do and what you owe from the past and what your current income is, and we could make some more suggestions. Or, you may want to see a tax professional before it is too late.
