Home Energy Credit is carrying over forever

[TerryHays]

In 2020 I had a big solar project that calculated via the famous 5695 form with a $12K federal Energy Credit being carried forward.  I have not been able to use this credit to reduce my federal tax liability as it continues to say under the "Home Energy Credit Summary" screen as "we can't get you the energy credit for this year. However we can apply next year to reduce your tax bill dollar-for-dollar"

In 2022 my federal tax bill was $500 and this year 2023 $1400 (because I purposely reduced my payment to the Fed's with a lower extension payment.  There is not documentation anywhere, nor any video that I have found to explains WTF is going on.  Either the credits work or they don't.  Has anyone successfully applied the Solar Energy Credit using this software or had a tax professional actually help?

[Opus 17]

The credit can't be more than your tax liability.  That is not the same as owing or getting a refund.  Your tax liability is what the IRS gets to keep at the end of the year.  For example, if you have $3000 of withholding and you get a $500 refund, your tax liability was $2500.  If your withholding was $2000 and you owe $500, your liability is still $2500.  The credit also can't be used to offset self-employment tax or any of the penalties (like the 10% penalty for withdrawing an IRA early).

Look at form 1040.  Line 18 is your taxes.  Line 19 and 20 are various credits.  Line 22 is your tax liability.  If line 22 is zero, then you either have no tax liability, or your tax liability was covered by all your credits, and you can't get any more credit.  Also look at schedule 3, Line 5a and line 5b.  That is the amount of credit you are using this year.

If your income is low, or you have lots of other credits, you may not owe enough tax to use the credit this year. 

[manofmusic]

TurboTax is telling me that I must carry forward my Home Energy credit to 2025 even though my tax liability for 2024 is greater than my Home Energy credit.  What are the reasons that would cause this?

[ThomasM125]

You may be treating your total tax as your income tax liability, which it may not be. You may have self-employment taxes for instance included in with your total tax, but the energy credit does not apply to that. You can look at line 18 on your Form 1040 to see what your income tax was. Also, you would need to subtract from that certain credits you may have had (child tax credit, earned income credit, education credits, etc...) to determine your net income tax on which the energy credit would apply.

@manofmusic 

[manofmusic]

Yes, I have self-employment income which provides my only tax liability in this case.  I don't see why that should matter.  That seems discriminatory to me. 

[RobertB4444]

Self-employment tax is different than income tax.  Self-employment tax is payments into Social Security and Medicare based on your self-employment earnings.  You can't use energy credits to reduce Social Security and Medicare payments and - in your case - you have already reduced your income tax liability to zero.

@manofmusic 

[manofmusic]

Your answer still doesn't make any sense.  The social security tax rate for self-employed people is 12.4%. Whereas, it is 6.2% if I am gainfully employed by another company since they pay the other half.  I actually pay more in Social Security tax and Medicare tax as a self-employed individual.  It is still discriminatory.  

[blastoffcleaners]

I am having the same exact problem, my 12K solar home energy credit, which imported from last year, just wants to carryover, leaving me to pay nearly 3K income tax. Stopped paying my SS income tax for 2024 in order to make this happen, but still wants to carryover. HELP, and thank you.

[AmyC]

The carryforward is to offset income tax. Medicare and Social Security are not income tax, those are employment taxes that are paid to Social Security to assist with disability and retirement. 

[blastoffcleaners]

additional reply, so TTax says after repeatedly trying, "Based on what you have entered so far, we can't get you the home energy credit for 2024. However, $12,633 of your credit will be carried over to 2025. The money you just saved with this credit lowered your tax bill dollar for dollar." Still says "Fed Tax Due $2865, energy credit $0." What is going on?

[blastoffcleaners]

But on my Benefit Statement it says "Federal Income Tax Withheld".

[blastoffcleaners]

But on my SS benefit statement it says it is "Federal Income Tax withheld".

[Vanessa A]

If you are self-employed, the credit will NOT offset your self-employment taxes.  So if you stopped paying SS and Medicare taxes, this will still be due.  The credit has no affect on that. 

If you look at line 16 of your form 1040, this is the number that can be reduced by your solar credit. This number can b e brought down to $0 which you will see on line 22.  The number on line 23 is where you will see your SE taxes.  This number cannot be reduced by your nonrefundable credits, it can only be reduced by only refundable credits. 

[dmoe54]

I have a similar problem.  I am supposed to receive a Solar Cell Tax of over 5K.  My tax is only $171 (from line 16 of my 1040).  Is there a way I will ever be able to receive my solar tax credit?  I am retired with a small pension and social security.