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arearick
New Member

How do tax credits work under the IRA?

I'm installing solar panels on my house, and the IRA states that I may be eligible for a 30% tax credit on the cost of the system. How do I know if I will get the full 30% back? Is there a way to calculate my tax liability and deduct from that amount?

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Critter-3
Level 15

How do tax credits work under the IRA?

It is NOT a refundable credit so you will NOT get it back directly on an income tax refund.  Instead it can only reduce your federal taxes on the return and any unused credit this year can be carried forward to be used up later. 

 

For instance if you have a $10K tax liability then you can use up to $10K of the solar credit this year then carry any excess to next tax year.  If you had taxes withheld or made estimated payments (aka payments)  to pay the tax bill then the excess paid is the refund on your return. 

 

So if the solar credit reduces your federal tax bill to zero and you had $5000 in payments then you would have a $5000 refund.  If you paid in $100 then the max refund is only $100.  So be very careful when talking with the solar company because they do not know your tax situation and cannot "guarantee" what your refund on your return will be.  

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1 Reply
Critter-3
Level 15

How do tax credits work under the IRA?

It is NOT a refundable credit so you will NOT get it back directly on an income tax refund.  Instead it can only reduce your federal taxes on the return and any unused credit this year can be carried forward to be used up later. 

 

For instance if you have a $10K tax liability then you can use up to $10K of the solar credit this year then carry any excess to next tax year.  If you had taxes withheld or made estimated payments (aka payments)  to pay the tax bill then the excess paid is the refund on your return. 

 

So if the solar credit reduces your federal tax bill to zero and you had $5000 in payments then you would have a $5000 refund.  If you paid in $100 then the max refund is only $100.  So be very careful when talking with the solar company because they do not know your tax situation and cannot "guarantee" what your refund on your return will be.  

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