Solar tax credit

[Mcec2018]

I just installed solar panels and I have a 10k tax credit.

I normally do not have a Tax liability at the end of the year.

However, would it be wise to create a

Tax Liabilty so I can take advantage of the 10k tax credit?

The way I would do that is to withdraw some of my 401k to pay off some debt.

I'm not sure if that would help or not..

I'm looking for some advice on this matter.

Thank you...

[Alicia65]

A solar credit is a nonrefundable credit. That means if there is no tax liability there is no credit. The good news is you can carryforward the credit as long as the credit is available. Your question about creating a liability to take advantage of the credit. By cashing in a 401 K you will pay both tax and a 10% penalty. You can use the credit to offset the income tax but not the 10% penalty on the amount withdrawn.

[mbpeddie]

Hello,

Congratulations on installing your solar panels! A great investment!

I would like to clarify the statement that you do not normally have a tax liablility at the end of the year. Do you mean that you do not normally owe taxes but have a refund instead?

I will assume that you mean you normally have a refund. You may still have a tax liablility that you can use the solar tax credit  against to reduce it to zero. If you do not have enough liablilty to use up the credit, you can carry it forward to the next year.Unfortunately the energy credit is not refundable.

I have included a link with more information on the energy credits:

https://turbotax.intuit.com/tax-tips/going-green/federal-tax-credit-for-solar-energy/L7s9ZiB4D

Regarding taking money out of your 401K to pay off debts and increase a tax liablility, that is not something I would advise. You would be subject to a 10% penalty of the amount withdrawn if it is an early withdrawal - withdrawn before the age of 59 1/2