How can I plan my tax withholding in 2024 so that I can get the most out of the Residential Clean Energy Credit when I file my taxes next year?

[hepburnll]

We are installing both Solar Energy and a Geothermal System in our new home with completion in 2024. The total cost of all of this will be roughly $125,000. According to the tax code, I can get back 30% of this but only if I owe that much in taxes, which would mean I would need to owe $37,500 in taxes. My husband and I do pay more than that in taxes on our W-2's but I would need to know how to not pay even the minimum amount on our W-2's to make sure we get the full value of the credit.

[MinhT1]

The Residential Clean Energy Credit is a non-refundable tax credit and can only reduce your tax liability to zero. Any left-overs can be carried forward.

So the amount of credit is compared to your tax liability (based on your taxable income). Your tax liability doesn't depend on any withholding tax you may have paid on your wages. So when your tax liability is reduced to zero, any tax withheld will be refunded to you.

[hepburnll]

Thank you so much for replying! So, let me make sure I understand. If my husband and I make $425,000 our federal tax liability is roughly $85,000. We end up owing around $5000 each year so we have paid $80,000 throughout the year. 

What would we get if we claim a Residential Clean Energy Credit and the cost of the install was $125,000, this would make the credit of 30% equal to $37,500? 

[MinhT1 · Accepted solution]

In your case, you can use up to $85,000 of Residential Clean Energy credit. That is the entire projected credit.