I can't get my full energy credit because I already have other deductions. I will still have these same deductions next year, so how will I get the rest of my credit?

[ebdd2c0ac2ee]

I am supposed to get $13,000 back from purchasing my solar panels but I only get $3,000 back because of my child tax credits. It says the $11,477 will be carried over to 2023, but I have the same children this year, so when will I get the rest?

[SteamTrain]

Hard to know exactly what to do.

Some people in a similar situation will take the opportunity to convert some of their IRA or 401k $  to a ROTH IRA, thus generating some more taxable income for the year....  Then some of the credit carried over will get used up.   This type of move, still maintains your retirement account that can be used in future years, but where no taxes will be required when distributed the next time.

____________

Others may have some other ideas.

[Opus 17]

First, the amount of credit you can get is up to your tax liability.  For example, if you have $5000 in withholding and you get a $2000 refund, your liability was $3000.  Or, if you have $2000 of withholding and owe a further $1000, your liability is still $3000.

Let's assume your tax liability, after your child tax credits and so on, is $3000 and your credit is worth $13,000.  That means you would get $3000 this year and carry forward $10,000.  Assuming your income and credits are the same in the future, you would get $3000 of the credit next year and carry $7000 forward, and so on.  Essentially, you pay no income tax for 4 years.

If you want to use up the credit faster, you need to think of a way to increase your tax liability (owe more tax), knowing that you won't actually pay more tax because of the credit.  It's hard to know how you can increase your tax owed, because everyone's situation is different.  One good way is to convert a pre-tax IRA or 401k to a Roth IRA or 401k.  Suppose you converted $40,000 of your IRA balance.  You would owe $10,000 tax now, that you don't pay because of the credit.  Then in retirement, withdrawals from the Roth funds are tax-free instead of taxable.  Another thing you can do is, if you are contributing to a pre-tax 401k at work, switch your contributions to a Roth 401k.  You will pay more income tax now because you lose the tax deduction, except you don't actually pay tax because of the energy credit.  And future withdrawals will be tax-free.

Another thing you could do is, if you have investments (stocks, bonds, mutual funds) that are not tax-protected and that have large accumulated gains, you could sell the investments to generate a capital gains tax bill (that you won't have to pay).  Then you can buy new investments and they will have a new, higher cost basis so you will owe less tax whenever you sell them in the future.

There may be other options depending on your finances.

Of course, if you do something like a Roth conversion and use the credit to cover your lump sum of taxes, you give up the opportunity to have 3 more years paying zero income tax, so it's a matter of trading present savings for future savings.  Most financial advisors will tell you the future savings are worth the tradeoff, but that's up to you.