Solar Energy Tax Credit and How it Works When You Paid More Tax than you Owe

[jwsv]

We had solar panels installed on our home this year. I know that the Solar Energy Tax credit is a non-refundable tax credit and that it can be carried over into following years if there is any remaining credit after doing your taxes, but I am not entirely sure exactly how this all will work out when it comes to tax time.

Say when we do our taxes we find out that we owe $5,000 in federal taxes, we paid $5,500 in federal taxes through out the year via our paychecks, and we have $5,000 in solar energy tax credit. Would that mean that because our federal taxes are $5,000 and we get a credit of $5,000 for the solar that we get a refund for the $5,500 that we paid in federal taxes, or does it mean we only get $500 in a refund for over paying our federal taxes and we get to carry over the $5,000 tax credit into the next year?

I understand that the solar tax credit is non-refundable, what I cannot find an answer to is the difference between what is owed, what credit we get, and what I have already paid and how a refund would work in that scenario.

[Anonymous_]

I will page @Opus 17 

[Opus 17]

If I understand your example, then yes, you will get the credit.

The credit can be refunded up to your tax liability.  Your tax liability is what the government gets to keep (not counting self-employment tax and certain penalties).  If you normally have $5500 of withholding and get a $500 refund, then your tax liability (what the government kept) was $5000.  Likewise, if you had $4000 of withholding and paid an additional $1000 when you filed, your liability was $5000.  This is shown on line 22 of form 1040.  

If you have a $5000 liability before the solar credit, and the credit was $5000, then it would cancel out your income tax liability and you would get a full refund of all your withheld taxes.  If the solar credit was $6000, then it would cancel out your $5000 liability, you would get a full refund of your withholding, and you would carry forward the last $1000 to next year.

[jwsv]

That is exactly what I was wondering thank you for the response!