Solar panel tax credit

[VolvoGirl]

Oh and it's not the total tax on line 24.  It's the tax on line 22 before any other taxes like the self employment tax or 10% Early Withdrawal Penalty on IRA/401K distributions.   

[NCperson]

@Kipmc7 @BrailMethod - please review the structure of the form 1040.  Look at the section headings in the left margin that take up the first inch or so on a piece of paper. 

1) Taxable Income is all reported and calculated on lines 1-15.

2) INCOME TAX and the NON-REFUNDABLE CREDITS is netted out on Line 22 (there are other taxes such as Self Employment and any 10% penalties related to IRA, etc. that get added on Line 23, so that Line 24 is TOTAL TAX.)  As pointed out by others, Line 22 can not go below zero; that is what makes the credits 'non-refundable: there is no refund available because Line 22 is not permitted to go below zero!/

3) The next section is PAYMENTS which include W-2 withholdings, and estimated tax payments PLUS  REFUNDABLE CREDITS (mostly addition CTC, EITC and AOTC credits). 

Once section 3) is subtracted from Section 2) the IRS determines whether the taxpayer owes money or gets a refund. 

My point is where folks get confused is that the tax and the non-refundable credits all get calculated WELL before we begin talking about withholdings from W-2s and estimated tax payments. 

[Kipmc7]

Deleted

[VolvoGirl]

Yes it's based on your Tax Liability.  I think that's what all the answers said.  Which post is incorrect?

[Kipmc7]

I agree. Another way to say that is that the ability to take the solar tax credit has nothing to do with how much you have paid or how much you still owe on April 15th. The ability to take or not take the credit is determined after looking at income and deductions and then finding tax due.  If the taxes due at that point are zero then you can't take the credit. (You can still take it in later years)

You may be entitled to a refund Before taking the solar tax credit and you could get a Bigger refund. You may have a tax due before taking the solar tax credit, and owe Less after taking the credit.

[Kipmc7]

It was higher up in a different thread. I deleted my comment and wrote a better one at a better place in the thread.

[NCperson]

@Kipmc7 you are correct; critically the credit is subtracted from what is on Line 22 (prior to the credit).  Line 22 can 't be less than zero, which is what makes it a non-refundable credit. 

[AdL63]

Can you please expand a bit on what “tax bill” means?  When I file my taxes I usually owe very little or get a small refund because what was withheld is close to my federal tax liability.  If the tax credit for installing solar panels is approximately $15,000 can that be applied to my federal tax liability which is around $55,000? In other words, will the credit reduce my tax liability to around $40,000 and I will get the over withholding back as a refund? Thanks.

[Vanessa A]

Yes, the credit is used to reduce your federal tax liability.  So in your case if you have a tax liability on line 16 of your form 1040 of $55,000, and you have a solar credit of $15,000, your tax liability would be reduced to $40,000.  So on line 24 of your 1040, you would have a tax liability of $40,000 (assuming no other credits).  Then, if you had $55,000 withheld from your wages, you would end up with a refund of $15,000 as your tax liability would have been reduced and now you are getting back what you paid in. 

[AdL63]

Thank you.