Utilizing Solar Federal Tax Credit

[bella444]

Took a distribution from IRA this year (2022) in order to finance a residential solar installation and paid 12% withholding in federal income tax at the time of the distribution. We will have federal tax credits to apply from the solar project but have very low taxable income. Solar installation isn't scheduled to be completed until 2023.  Is there any way for us to apply the solar federal tax credit earned in 2023 to the withholding we have already paid on the IRA distribution in 2022? 

[VincentL]

Most tax payers are cash basis. This means you incur a deductible expense when it is paid and not based on a promise (credit). If you pay for installation in 2022 you will be able to take the credit in 2022.

If you have a carryover from the residential energy credit, use Form 5695 to take any residential energy efficient property credit carryforward from 2022 or to carry the unused portion of the credit to 2023. 

The energy efficiency tax credit is technically "non-refundable" which means at the end of the year, you can't get back more in credits than you paid to the government in taxes throughout the year. If you are unable to claim the entire percentage of your purchase for the above products in one year, you can carry forward the unclaimed portion to future years.