What is the best way to take advantage of federal solar tax credit

[VVB]

I am installing solar panels on the roof. Will I be able to use the federal tax credit only if I owe some taxes at the time I file the tax return? What is the best way to take advantage of the solar tax credit? Would it be reasonable to adjust federal withholdings, so that I would owe more taxes and the federal solar tax credit could be applied?

[ToddZ1]

Hello @VVB!  Thank you for your question.  

As you may already know, the federal tax credit for residential solar energy for 2022 is 26% of the total cost of the solar panels.  This credit is a non-refundable tax credit, which means it can only be used for taxes that you owe.  You cannot use the credit to get money back from the IRS.  If you do not utilize the entire credit in 2022, you can carry the credit forward and use the balance in future years.  While you can adjust your federal withholding at any time with your employer, there is no need to do so to take full advantage of the credit because you can carryforward any unused credit amount to future years. 

Here is a helpful article about the federal tax credit for residential solar energy:  https://turbotax.intuit.com/tax-tips/going-green/federal-tax-credit-for-solar-energy/L7s9ZiB4D

[VVB]

Thanks for the explanation, ToddZ1. I have a follow up question. Am I going to get a tax refund, if due to the reduction in tax liability (due to applied solar tax credit) there was overpayment during the year (my employer deducts taxes for me over the course of the year)?

[ToddZ1 · Accepted solution]

That's a good question, @VVB.  If you overpaid your taxes through withholding and/or estimated tax payments, you would receive a refund of the credit amount.  However, remember the credit itself is not refundable.  So any excess credit that could not be used to offset overpayment in 2022 would be a carryforward to future years.