I think there may be confusion here regarding Tax Liability VS a Refund when dealing with the solar tax credit
I am NOT a tax professional and I'm not sure if this is correct, so please respond.
Based on what I read in other posts: The Solar tax credit can result in a refund if, when you are all done, your tax Liability, is less that what you have already paid. Your tax liability is also called "Total Tax" and is shown on line 24 of the 2022 form 1040.
The solar tax credit will not result in a refund by reducing your tax liability to less than zero. That can happen if your income is low enough or your deductions are high enough. Tax liability is not the amount owed on April 15th. The Tax Liability I am talking about is Total Tax, line 24 of form 1040. The amount owed is a different number:
Amount owed = tax liability - amount already paid.
For the solar tax credit, it can only reduce your tax liability to zero not to less than zero. Any unused amount can still be used in future years.
Here are 2 scenarios:
#1 Say after all my income, and deductions I have a tax liability of $5,000. And I have paid $6,000 in payroll deductions. I would have gotten a refund of $1000. I also installed a solar system costing $10,000. That results in a credit of $3000 (30%).
Would my refund increase to $4000? I think it would. Another way to consider this is that I had a liability (Total Tax Line shown on line 24) of $5000. The Solar credit reduces my liability by $3000 down to $2000. Since I have paid in $6000 I get a refund of $4000.
Correct??
Scenario 2; After my income and deductions my tax liability is $2000 and I have paid in $1000 in payroll deductions. I would have owed $1000. I have the same $3000 credit as before.
I can use the $2000 of the $3000 credit to reduce my liability to zero. I can’t use the credit to reduce my liability to less than zero. I would still have another $1000 credit to use next year. This year, since my liability is zero and I have paid in $1000 I get a refund of $1000.
Correct? Please respond. Thank you
