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I am having a solar system installed this year. Cost will be about $31k so with the 26% tax credit that would amount to an $8k credit. My problem is that I'm retired and collecting Social Security as well as income from pensions and 4% from my investments and have taxes taken out of all the income streams.
I'm trying to determine whether I need to increase the taxes taken out or stop having taxes taken out completely this year so as to maximize the refund when I file next year. I have read posts where individuals received the entire tax credit as a refund, just have not seen a post that addresses my particular situation.
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The energy tax credit isn’t a refundable credit that would result in you receiving money. The energy credit is a nonrefundable credit that can only reduce the tax you owe to $0. You won’t receive a refund for any remaining credit amount. Some credits, such as a credit for having a heat pump for example, might carry forward to the next tax year.
It will decrease 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.
Use the links below for additional information.
What's The Solar Energy Credit
Energy Incentives for Individuals
Federal Tax Credit for Residential Solar Energy
I'm going to have to disagree with you on several points.
The tax credit has been extended so that the 26% applies to this year, 2021, dropping to 22% next year if not extended further.
I've read several posts in the Deductions area regarding people getting a tax refund from the solar tax credit. As an experiment I input the numbers for my solar system to this year's return and while I owe $700 this year, after inputting the tax credit data I wound up with ~$2000 to the good and the remaining $5100 of unused credit rolling over to next year, per TurboTax.
I know it's possible to get a refund, I just need some advice on how to maximize the refund by either withholding more or less this year.
It has nothing to do with your refund. It depends on how much tax you owe. A credit reduces your tax. If you have no taxable income, therefore no tax, it will not help you. As Cynthiad66 said, the credit is not refundable.
A nonrefundable tax credit means you get a refund only up to the amount you owe. A refundable tax credit means you get a refund, even if it's more than what you owe.
So then it sounds like, to receive the most out of the solar tax credit, you would want to take less out in taxes each month so that you would owe a higher amount in taxes at the end of the year, which would then be offset (possibly reduce to zero) the taxes you owe. Is that correct? I think the initial question is around how to functionally maximize the benefit of the solar tax credit. Does having your withholding set higher (which generally would result in a refund) maximize the benefit of a solar tax credit? OR does reducing your withholding (which generally would add to your owing money) maximize the the benefit of a solar tax credit? Thank you
What you have withheld has nothing to do with it ... it is all about your federal tax bill based on your taxable income. If you want to use up the credit faster you need to increase your taxable income. Decreasing your withholding is immaterial for this issue.
Increase your income by earning more, sell off stocks at a profit, take out more from the IRA or retirement accounts and/or convert a traditional IRA to a ROTH. Sitting down with a local tax pro and/or a financial planner may be what you will need to do to get the best benefits in one tax year. However, if you don't use it all up the excess credit is carried forward automatically.
The Residential Energy Credit is on Schedule 3 line 5 which goes to 1040 line 20. It can only reduce the tax on line 16 or 18 to zero. Your withholding is added in later after the Total Tax you owe on line 24.
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