I understand how the tax credit for solar energy works and how the electric vehicles works but if I have both in the same tax year, how do they calculate it?

[joemorales87]

when solar for home and electric vehicle are on same year, does the IRS calculate the credit deductions individually, or do they just add all up and whatever excess you lose?

[TaxGuyBill · Accepted solution]

They are calculated individually, but unfortunately the Solar Credit is applied first, and the electric vehicle credit does not carry over.

That means that if the total of your credits are more than your total income tax on your tax return (Line 47 of your Form 1040), the excess would be lost (unless you still have unused Solar Credit, then that unused amount would carry over but the electric vehicle credit would be lost).

In the event you think your total credits will be more than your total income tax, if you can 'create' more income by converting any Traditional IRAs to Roth IRAs, that would be beneficial.

[joemorales87]

Thank you so much, that is exactly what I feared. I will probably hold on installing panels till early next year, since vehicle is now ready for delivery and no backing on that.  Hopefully there will be not sudden changes on panel tax credit, as someone said it is unconstitutional to make changes to promised credits, but then again, who knows.

[joemorales87]

Hello TaxGuyBill, wondering how can I calculate how much income I need to create in order to increase my tax liaibility by a certain amount? Any recommendations on where I can go to calculate it or anyone that can help me? Thanks in advance

[TaxGuyBill]

There are a million moving parts to a tax return, and with the many changes to 2018 taxes that complicates things even further.

As a vague, general concept, if you are in the 25% tax bracket, then your income tax would increase by 25% of your income.  So in that simplified scenario, converting $10,000 of Traditional IRA to a Roth IRA would result in $2500 of additional income tax.

If you have the CD/downloaded version of TurboTax, they do have a "What If?" worksheet that may be useful.

[joemorales87]

Thank you, that makes sense.

[TaxGuyBill]

Somebody just pointed out I may be wrong.

The Worksheet in the Instructions seem to indicate that you can still carry forward the unused Solar Credit to future years.  Although that is not how I interpreted what the official Internal Revenue Manual says, that is what the Instructions seem to say and that is how TurboTax handles it.

[joemorales87]

Can you direct me where you read it in the official IRS MANIAL so I can read it?

[joemorales87]

if i can really carry over the remaining amount that would definitely help deciding to go ahead now with both purchases, if not I will delay home solar till Jan and hope they dont cancel the credit for 2019.

[TaxGuyBill]

The other person was able to do some research, and it seems like the personal-version of the Electric Vehicle Credit is treated differently than the business-version of the Electric Vehicle Credit.  Based on that (actual Law), the Internal Revenue Manual is incomplete with that aspect.

In other words, the Law says it is allowable and the unused Solar Credit will be carried forward.

[solarguyben]

I don't think that's the case. The instructions for Form 8936, line 21 specifically say to account for the credit from Form 5695 (Residential Energy Credit) while calculating your tax liability. Based on that text, you can't pre-reduce your solar tax credit in the hopes of claiming the EV credit instead.

[dmertz]

solarguyben, the credit for qualified solar electric property is not to be included on Form 8936 line 21.  Line 21 is to include only the residential energy credit from Form 5695 Part II (insulation, doors, roof and windows) line 30.  The credit for qualified solar electric property costs is calculated on Form 8936 Part I, not Part II.  See the instructions for Form 8936 line 21:  https://www.irs.gov/pub/irs-pdf/i8936.pdf

[solarguyben]

I see now. You're right about that, but there's an additional wrinkle.

The Residential Energy Credit is reported on line 53 of Form 1040, and the instructions for line 14 of Form 5695 don't ask you to consider the credit from line 54 of Form 1040 in calculating your "limitation based on tax liability. By what method can you reduce the credit from Form 5695 based on the number you'll be entering in line 54?

[joemorales87]

Thank you all for your input. I was able to consult with a tax expert and they assured that both credits are independently calculated, so if there is any portion of the home solar that I cannot get this year because it is more than my tax liability, I would be able to carry over to next year. Again, thank you all!

[solarguyben]

Really glad to hear that, @joemorales87