The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Melisande on March 24, 2019, 12:54:03 PM
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Can anyone here explain how the federal tax credit works for the installation of solar panels. I know that it is 30% and that it is a credit, not a deduction -- so it directly reduces our tax bill. It is a non-refundable tax credit so it merely reduces your tax bill, it doesn't actually give you money.
But how does this work in practice? We typically have more than enough withheld during the year so that we get a small refund. Would we just get a larger refund, then? Or not?
Thanks ...
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You’ve got it right, it would be a larger refund as long as you have enough total tax liability. If the panels were, say, $30K, you would get a tax credit of $10K (30%). If you paid more than $10k total across the year, you would get that amount back when you file at the end of the year. If you paid less than $10K in taxes that year, say $7000, the remainder would roll over to the next year, when you could claim a credit of $3K against the next year’s taxes.
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When we installed our solar panels, we immediately stopped all tax withholding for the remainder of the year after determining that we were going to grossly overpay after the renewable energy tax credit was applied.
So our eventual tax refund was still near zero, but we got larger paychecks up until then.
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It was really simple. I ended up having about $500 credit that went over to the next year.
Be sure to check if your state has any incentives. I received a $1000 credit from MD.