Are there income limits for federal solar tax credit

[york_knowlton]

We're semi-retired and not earning much. We also now own our home without a mortgage, and were assuming when we did our taxes we would no longer itemize our deductions and take the standard deduction. I believe we earn enough to still have some tax liability. We intend to install an additional solar panel system this year to the new house we purchased that already had a system installed.

My question question is can we still take advantage of a $4k tax credit if we are not itemizing? It may take us 5 or more years to use it up.

[AnthonyC · Accepted solution]

The federal solar tax credit (residential energy credits - Form 5965) is a tax credit, not an itemized deduction.  So, it won't be affected if you stop itemizing your deductions.  You will still be able to take advantage of this credit even without itemizing.  But, it is limited to tax liability.  However, you can carry it forward to future years when you aren't able to use up the tax credit in one year.  

Note:  Technically, the IRS has not clarified how long the carry forward will be available to use.  As of now, the carry forward should be available until 2022, at least, because the tax credit was recently extended until that time.  So, it's possible that the IRS could stop allowing the carry forward at that time.  Also, you will need to file the Form every year even if you aren't able to use any of the tax credit in order to keep the credit carrying forward.

[htcush]

Does the taxpayers reported income effect the solar tax credit?

[Lisa995]

The income itself does not, but the tax credit only reduces tax liability...if you have no tax liability, there's nothing to apply the credit against...the credit can not be refunded, only applied against liability.

[htcush]

Thank You,

Terry

[EmDee]

Thanks for this clear explanation. I purchased a solar system last summer and will get a credit of around $6K. Can you tell me how this will be applied—I think it will relate to my final 2019 tax liability, i.e. what I owe for Fed. tax after all payments/deductions, etc. are calculated, but I likely will not owe much in additional taxes on my return. Will the solar tax credit "cover" whatever remaining tax I owe, and then the remainder would carry over to next year? If so, since I will have quite a lot of remaining credit, is it safe to assume I could adjust my Fed. withholding this year (take out less each pay period), and then would owe more Fed taxes for 2020, which the rolled-over credit would apply to? Trying to find a way to actually "use" the credit, as I mistakenly thought that I'd get a big wad of cash from the gov't when I filed my taxes! (Did not think through what a tax "credit" is as opposed a tax refund.)

[Lisa995]

It would depend on what type of taxes make up your total tax liability.  The solar credit will offset income taxes (line 12 of the 1040), it will not offset self employment taxes or other types of taxes and penalties shown on Schedule 2 of the 1040 (appearing on Line 15 of the 1040).

[rharada]

I still need to know how turbo tax  got the $7,823 instead of $8,364 on my form 5695 residential energy credits

 on line six.

[DaveF1006]

If you look at the 5695, there may be a limitation that you may not be aware of. Follow through on the 5695 to see how that calculation was made if you have a copy of it.

[mwcondry]

So the credit is available regardless of your income?