In computing the Federal residential energy credit, do you deduct a State residential energy credit from total residential energy costs before applying the 26%?

[Opus 17 · Accepted solution]

If you are expecting to receive a state income tax credit, you don't subtract it from the cost of the improvement.  But if you received any other incentives, such as state utility payments, rebates, and so on, you do reduce the cost by those incentives. 

[JohnW152]

Yes, that’s correct.  You only want to base the credit on your out-of-pocket costs.

[elbatexas]

Do you have an irs citation for this.  I have a US Department of Energy pamphlet suggesting you reduce it for utility rebates but not for state rebates.  It then goes on to say you don't reduce it for State tax credits because the state credit reduces your federal income  But, this is only in the case of  itemized deductions.   If you take the standard deduction, seems like you are out of luck.  Thoughts? 

[elbatexas]

thanks, see my posting (don't know how turbo tax got me as new member) about Department of Energy .

[Opus 17]

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@elbatexas wrote:

Do you have an irs citation for this.  I have a US Department of Energy pamphlet suggesting you reduce it for utility rebates but not for state rebates.  It then goes on to say you don't reduce it for State tax credits because the state credit reduces your federal income  But, this is only in the case of  itemized deductions.   If you take the standard deduction, seems like you are out of luck.  Thoughts? 

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I can't find anything quickly.  The question is the source of the payment.  You can only claim your out of pocket costs, that applies to every deduction and credit.  If you get paid a direct rebate or payment by your utility, public utility commission, city or county government, etc. that must reduce your cost because that's money paid directly to you. A credit on your state income tax return doesn't directly reduce your cost, so it doesn't change your cost for your federal tax credit.