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I want to claim a federal solar credit. I get a refund every year because I pay in more than I need to. What do I need to do EXACTLY to ensure I can use the credit?

I understand the credit doesn’t add money to my refund, but it seems like I have to owe the IRS money to take advantage of the credit.
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2 Replies

I want to claim a federal solar credit. I get a refund every year because I pay in more than I need to. What do I need to do EXACTLY to ensure I can use the credit?

You don't have to have a tax due.  But you do need to have a tax on your taxable income.  The credit can reduce your actual tax (1040 line 12b) but just down to zero.  Then you will get back all the withholding taken out and any refundable credits you qualify for.  So it may increase your refund.

I want to claim a federal solar credit. I get a refund every year because I pay in more than I need to. What do I need to do EXACTLY to ensure I can use the credit?

Your refund doesn’t matter. You have to know your income tax liability, which is the amount of money you owe to the federal government for the year. It is line 14 of the 2019 form 1040.

 

For example, if you had $4000 withheld from your paychecks and you received a $1000 tax refund, then your liability was $3000 for the year. If you had $2000 withheld and had to make a $1000 payment when you filed your return, your liability was also $3000 for the year.

 

The solar credit will pay you up to your tax liability for the year. Any unused amount will carry forward to future years.  The only way to increase your tax liability so that you claim more of the credit in the first year is to increase the amount of income tax that you owe, and most people don’t want to do that.  If you are thinking about selling some investments that have a taxable capital gain, or if you are thinking about doing a conversion from a traditional IRA to a Roth IRA, those are ways of increasing the amount of tax you owe that have long-term benefits for you as well. Other than that, I can’t really think of why you would want to owe more tax.

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