How are the electric vehicle and solar energy tax credits applied if both purchases occur in the same year?

[racingdragon]

I am purchasing an electric vehicle this year from a new manufacturer that should qualify for the federal tax credit. Based on my tax burden for 2020, I will be able to use all of this credit. I am also looking into purchasing and installing solar panels to power my home and charge the EV. If I do the solar purchase and installation this year as well, and if my tax burden is not high enough to fully utilize both the EV and the solar energy credits, will I lose those credits? I am aware that the EV credit does not carry forward, but I am not sure how the credits would be applied, since the solar credit does carry forward. Would I be better off waiting to go solar until next year?

[npierson7]

It's probably not a good idea to wait with installing solar panels, because the solar energy tax credit decreased to 26% for systems installed in 2020 and to 22% for systems installed in 2021. And the tax credit expires starting in 2022 unless Congress renews it. 

[racingdragon]

But I lose the EV credit if my tax burden is not high enough to fully utilize both within the same year? Since the EV credit should be $7500, it is not insubstantial, and I believe it would be greater than the 4% decrease in the solar credit (since the estimated system cost is around $37000 for my home).

[npierson7]

Yes, that could happen. You might not be able to use both credits if your tax liability isn't big enough, since both credits are non-refundable and you cannot carry unused part of the credits toward future years. However, the solar tax credit might not be available at all starting next year, therefore to use part of that might be better than nothing. I would also recommend you to check your electric vehicle manufacture here:

https://fueleconomy.gov/feg/taxevb.shtml

[00028EC]

Hi racingdragon - 

In making your decision, I believe the 2nd comment from npierson1 is incorrect when she says "you can't carry unused credits forward to future years." That's true of the EV credit - but not the solar energy credit. See the instructions for IRS Form 5695 and see Line 16 of the form itself - where you compute the amount of the solar energy credit carried forward.  

Good Luck

[Critter-3]

Because the solar credit can be carried forward and the EV credit cannot the EV credit is used up FIRST.  But if you have other non refundable credits it can get a bit messy. 

[00028EC]

Hi Critter-3

All things considered, too many tax credits isn't such a terrible problem to have. Do you have an IRS reference for being able to elect to take the EV credit before the solar energy credit - even when the solar energy credit is a carry forward from a prior year? 

Thanks much