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tax73
New Member

How do I use a Solar Tax Credit

I have filed my 2020 taxes and the Home Energy Credit is 5,658 for the solar panels that were installed onto my roof in 2020. I am trying to figure out how to actually get the 5,658 dollars and not just have a credit rolling forward for years? I have 4 kids so right now my liability is 0. How do I even increase my liability to use my credit if I cannot actually receive the 5,658? 

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4 Replies
JotikaT2
Employee Tax Expert

How do I use a Solar Tax Credit

You can't just increase your tax liability.  You either have one based upon your income and deductions or you don't.

 

You will not lose your credit.  It will be carried forward to 2021 and can be used to offset any tax liability generated next year as well.  

 

Please see the link below for more details.

 

Residential energy credit for solar panels

 

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How do I use a Solar Tax Credit

Because of the child tax credit and the COVID recovery rebates, you don't owe any tax, so you can't use the credit.  The credit will carry forward for 5 years, so presumably you will owe tax sometime in the future. (Although maybe not in 2021 since the child tax credit is increased to $3000 or $3600 for 2021.)

 

It's too late to increase your tax liability for 2020.

 

About the only thing I can think of for 2021, would be to start making after-tax investments or do a Roth IRA conversion.

1. If you are investing in a pre-tax account at work (401(k) or similar), if you switched to investing in an after-tax account (designated Roth account) you would lose the tax deduction and therefore owe more tax for 2021.  But then when you go to withdraw the money in the Roth account, it will be completely tax free.

2. If you are investing in a regular IRA, switch to a Roth IRA for the same reason.

3. If you have an existing traditional IRA, you can convert some or all of the balance to a Roth IRA, which will be taxable when it happens, then your future withdrawals will be tax-free.  Converting a regular IRA to a Roth IRA is probably the best way to increase your tax liability now, because of the long-term benefits.

4. If you have a 401(k) or other retirement account from a job that you have left, you can roll that over into an IRA, and if you make it a Roth IRA, that's also a taxable conversion which will increase your tax short-term for a significant long-term benefit.

 

You can also sell investments that have appreciated over time and use the solar credit to offset the capital gains tax.  Then, if you buy new investments, you will have a higher cost basis and pay less tax in the future.  To beware the Wash Rule -- you must wait at least 30 days after selling an investment before re-buying the same or similar investment.

tax73
New Member

How do I use a Solar Tax Credit

If I stopped paying my federal taxes monthly would that allow me to use the solar credit once I file my taxes for that year?

How do I use a Solar Tax Credit


@tax73 wrote:

If I stopped paying my federal taxes monthly would that allow me to use the solar credit once I file my taxes for that year?


No. The credit can only be applied to your tax liability, which is only loosely related to your tax due or refund.

 

Suppose you have $5000 of payments and withholding and get a $1000 refund.  Your tax liability was $4000.  Or, if you only paid $1000 into the system and owed $3000 when you filed, your tax liability is still $4000.  

 

Your tax liability is on line 22 of form 1040.  It sounds like your liability is already zero for 2020, if Turbotax won't let you use the credit.  You might or might not have tax liability for 2021, depending on your income, kids credits, and so on, but your liability will be the same now matter how much you owe or pay in advance.  

 

(If you are self-employed, your self-employment tax is separate from your income tax liability.  The solar credit is applied against the income tax liability, not the SE tax liability, so even if you owe SE tax but no income tax, you can't use the credit.)

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