Will I receive the solar tax credit even if I use the standard deduction?

[benwhiting]

I have a small family with a single income, so we typically use the standard deduction and receive a moderate tax refund.

I'm considering solar panels for our roof, but I am concerned that we won't be able to receive the full tax refund because we don't itemize our deduction and don't have much tax liability.

What data do I need to look at to determine whether I can expect the full solar credit amount?

[JaredS_CPA]

Hello benwhiting,

Thank you for participating in the Ask the Experts Event. As to your question, yes, you can still receive the solar tax credit if you take the standard deduction. Deductions reduce your taxable income, credits reduce the tax you pay, so they are different.

Having said that, you will only receive a credit up to the amount of your tax liability (which is the total tax due before any withholding or other payments and credits are applied). If you don't use the full credit in the year you first claim it, you can carry it forward until used up.

I hope that helps.

[benwhiting]

Thanks, Jared. That is a helpful clarification.

Where would I look in last year's tax return to see what my typical tax liability is, so I can compare that with the estimated solar tax credit?

How many years can I carry the credit forward?

[JaredS_CPA]

It's a little complicated, but begin with line 16 and then look at lines 17-23. They will have some additional taxes, but also some credits, where the net effect with line 16 is line 24. You will need to understand if any of the amounts in lines 17-23 will continue for the year you claim the credit to determin what your total tax will be.

It's difficult to find a definitive answer as to how long the credit can be carried forward, even on the IRS website. I've seen next year, 5 years, 10 years, as long as the credit is still available, etc. The credit is available for the next 10 years, so I think you will be safe.

[benwhiting]

Are you saying I can only claim a portion of the solar tax credit equal to my total liability?

So hypothetically, if my liability is $2200, my withholdings are $1500, and I have a $1500 child tax credit (none of these are my actual numbers)...that would be an $800 refund, right?

If you add the solar tax credit, does that mean I claim $2200 of the total credit and my refund becomes $3000?

I understand there are other lines to take into account, but I want to make sure I'm understanding the basic principle here.

[JaredS_CPA]

Yes, your understanding is correct.