Solar installation

[EMR1]

We are installing solar on our house this summer.  Is there anything we need to do to maximize our return so we can get the most back the first year?  I know if we don't use it all the first year it can carry over to the next year, but the amount of our solar loan anticipates the full amount of the federal rebate the first year.  

[IanM123]

Hello @EMR1  great question! I've seen some rather optimistic information about the impact of these credits in Solar proposals so I am not surprised you've heard you will get it all in one year. This is certain possible but it will depend on your tax situation for the year when you install the solar panels. Solar panels fall under the Residential Clean Energy Property Credit and that credit is equal to 30% of eligible expenditures (you can find a list of what that includes and a bunch more info in this IRS Fact Sheet: https://www.irs.gov/pub/taxpros/fs-2022-40.pdf).  That credit however is a nonrefundable credit - which means it cannot reduce your tax liability below 0 so the amount is limited based on your tax in the year you take the credit. However, as you are aware, any amount of the credit that is not used is carried forward to be used in future years (but will be subject to the same limits are far as not reducing tax below 0). As far as maximizing in concerned, that would be rather individual to your tax situation and the amount of the expected credit. In the general case, there is not much to actively maximize as the credit will be limited to your tax liability for the year - something which is hard to directly control unlike changing withholding (which in that case doesn't affect the amount of the credit in anyway). Congratulations on the solar panels - it's a very cool way to upgrade a home and enjoy some tax benefits along with a reduced energy bill!

[Faith C]

Thank you for asking and congrats on getting your solar! Yes, you are right. Energy credit is non-refundable credit so if you don't use it all the first year, it can be carried over to the next year. If you want to get max credit, you want to make sure you have eough tax liability since the energy credit reduces your tax liability. Here is an article for your reference that lower withholding or change W-4 allowance will NOT maximize solar tax credit . 

If you really want to max out the credit for the first year, you can consider increase your taxable income, such as making more money from W-2, investment, converting traditioanl IRA to Roth IRA, distributing retirement money, and etc. However, please keep in mind, your solar credit is still there and can be rolled over to the following year. Do not distribute your retirement fund just to maximize your solar credit for the first year. Always begin with end and plan accordingly according to your financial situations. You may use our Tax Calculator for tax planning purpose and hope you find it helpful. 

Please feel free to contact us if you have any further questions. We appreciate for your continuous support.