Unused 2023 Solar Credits

[sornord1]

Our solar power system became operational in Feb, 2023.  I got a refund on my 2023 taxes (for the first time in years) so didn't use any of the solar tax credit.  Didn't file Form 5695 on the 2023 return as the credit wasn't needed and the online tax preparation software didn't ask for it. 

Question 1:  Am I required to file Form 5695 even when I DON'T use/need the credit?

We began rental preparations on that property in May, 2024, and moved overseas the following June.  It has been vacant and being prepared to rent ever since.

Question 2:  Since we "earned" the $14k-plus credit in 2023, and that property was our primary residence for all of 2023, only becoming a rental in May/June, 2024, am I still able to use the entire $14k-plus credit on future taxes until it's depleted?

[Opus 17]

1. Yes, you must file the form to claim the credit in the year the system is installed.  If you can't use the credit, you still must file to document the credit and carry it forward.   You need to go back and file an amended 2023 return to claim the system.

2. You claim the credit in 2023 when the property is installed.  Converting to a rental in 2024 has no bearing on your eligibility in 2023.

Also, I suspect you misunderstand the nature of the credit.  The credit is limited by your tax liability.  That is not your refund, your tax liability is what the IRS gets to keep over the whole year after your return is finished.  (Although income tax liability doesn't count self-employment tax or any penalties.)  For example, if you had $6000 of withholding, and get a $1000 refund, your tax liability is $5000.   In that situation, you would get up to $5000 as your solar credit, resulting in a refund of all your withholding.  If the credit is larger, the rest carries forward.  

[sornord1]

Is it my option to use, or not use, a solar credit in any given year?

Since in 2023, my withholdings were more than the tax owed, I got the overpayment as my refund and still have the full amount of the credit.  When I file the 2023 amended return would the 2023 tax liability be automatically applied against the solar credit and "refund" the tax liability for that year?

In 2024 I have had considerable expenses in rental property repairs.  A 2024 tax estimate is already indicating I'll receive all my withholdings back as a refund so at this point I won't need/use any solar credits this year either.  I was anticipating using the solar credit to offset capital gains and return of depreciation if I sold one or more of the rentals, and/or offset the taxes on RMDs that will start in five years.

[sornord1]

As I'm doing the amended 2023 return, I'm answering my own question.  The difference between the 2023 refund received and the 2023 tax withheld is showing as another refund on the amended return.

[Opus 17]

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@sornord1 wrote:

Is it my option to use, or not use, a solar credit in any given year?

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No.   If you want to claim the credit, you must claim it in the year the property was placed in service (meaning installed and turned on, regardless of when you actually pay for it).

Then, you must complete the carryover procedure each year and use any amount you can, with the rest to carry over another year.  If you can't use any because of your situation, it will all carry forward, but you can't leave the form off your return. 

[sornord1]

You have answered in a couple of hours a question I spent all year trying to answer.  Not free to use the credit when and where I would like but will be usable for a few more years.  Thank you!