Solar credits

[GiuNMR]

We recently installed solar panels in our home. We should qualify for up to $12000 in credit. Unfortunately we recently realized that our tax liability for the last couple of years is 0 (Only one of us is currently working while the other is a student plus 2 young kids). We decided to modify w4 to withhold taxes but were recommended by HR against it. How can we take advantage of the tax credit with our 0 liability?? 

[Critter-3]

First don't let the HR department determine how you will withhold on your paycheck ... that is YOUR decision NOT theirs... so if you want nothing withheld that is your choice to make.

Next ... find a way to increase your federal tax liability by  increasing  your income in some way  like converting IRA funds to a ROTH or selling some stock/land/rental/etc  or taking 401K distributions and/or converting them to a ROTH.  

You will need to see what options you can manage... seek a local professional financial planner if needed. 

[Texas Roger · Accepted solution]

You may misunderstand what tax liability is. Increasing your withholding has no affect on your tax liability. Your tax liability is the amount of taxes owed before any withholding or credits are applied. It is called Tax on your form 1040 and is entered on line 12b of the 2019 form. 

The amount of credit for solar panels may be reduced from the Tax amount by certain credits that have higher priority than the solar panel credit such as child tax credit or credit for other dependents. You can see the list of credits that are deducted first on form 5695 and the 5695 instructions: https://www.irs.gov/pub/irs-pdf/i5695.pdf

If you have no other credits, the full amount of Tax can be used for solar panel credit up to the limit on the credit. Any amount not used on your current return can be carried over to following years. 

See this TurboTax article for more info: https://turbotax.intuit.com/tax-tips/going-green/federal-tax-credit-for-solar-energy/L7s9ZiB4D

[GiuNMR]

You are absolutely correct! We are having a hard time understanding tax liability. Following your suggestion I check and line 12b comes to about $3500 for both 2018 and 2019. Like you said we do have child tax credit and college tax credit. So I guess my question is apart from the residential credits are there other adjustments we can make to take better advantage of the credits?

[Critter-3]

As long as you have non refundable credits that zero out your federal tax liability the solar credit will be carried forward until it can be used.   To use it now you have to find a way to increase your federal tax liability which means you need to increase your income or decrease adjustments.