Form 5695 question?

[and91]

The residential energy credit allows you to claim up to 26% in tax credit if you purchase something like solar panels. (Last year was 30%, this year is 26%, next year is 22%)

For example, If i purchase a solar system at $10,000, theoretically I can claim up to $2,600 in tax credit.  In my research I've found that I could use this amount to pay off income taxes that I owe.  However, what if I am in a situation where I get the max deduction from my paychecks and do not owe taxes? Will I be able to get the $2,600 energy tax credit in the form of a tax return/tax refund?

[Opus 17]

The credit offsets your tax liability, this is the amount of tax you owed for the year, not the amount of your refund or bill.  For example, if you had $4000 in federal withholding and received a $1000 refund, your tax liability for the year was $3000.  As long as your tax liability is more than the amount of the credit, the credit will reduce your tax liability and therefore increase your refund. 

[and91]

Hi @Opus 17 ,

Thank you very much for your response and breakdown.  Can you tell me if I understood you correctly based on your example? 

If I withhold $4,000 for the year of 2020, and obtain a $1,000 refund.  By claiming the 26% energy credit on a $10k solar system, I can expect to receive an additional $2,600 return (because this amount is less than my tax liability of $3,000)? So a total of $3,600? 

On a separate instance, what would happen if my tax liability is lower than the amount of the energy tax credit? 

Using your same numbers, let's say I withhold $4,000 and obtain a $1,000 refund, but I purchase a $20k solar system which allows me to claim $5,200 (26%).  This credit amount is greater than my $3,000 liability.  Would I still get the $3,000 back in liability totaling a $4,000 return? Will the $1,200 credit roll over for the following year? 

@Opus 17 

[Critter]

What you had withheld is immaterial to this discussion ... the solar credit is limited to your federal tax liability. So it reduces your tax liability which in turn COULD increase your refund depending on other items on the return. 

If the credit is larger than your tax liability AFTER other non refundable credits  then the unused portion is carried forward to the next tax year.  

Look at these 1040 forms ... one where you can use the entire $2600 credit and one where you can only use $2000 and carry the $600 balance. 

[and91]

@Critter 

Do unused credits every expire?  How many carry forwards can there be?

[Critter]

As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don't have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect.

https://www.energysage.com/solar/cost-benefit/solar-investment-tax-credit/

[and91]

It looks like the tax credit is in effect until 2022. By 2023 I don't see any tax credit offers.  

Thanks for this info! @Critter 

[cookie14]

I have a new solar system and am not sure how to compete the For 5695

[SharonD007]

To add Form 5695 follow these instructions.

1. Open or continue in your tax return
2. Inside TurboTax, select the magnifying glass and type the phrase including the comma and spaces: 5695, residential energy credit
3. Select the Jump to link in your search results
4. At the bottom of the sceen answer Yes, then select Continue
5. Follow the instructions to enter your energy-saving improvement costs

For more information, please review the TurboTax article How Do I Add or Remover Form 5695?