Question about solar tax credit

[hnguyen11033]

Hi all,

Can someone please help me clear my confusing on solar tax credit.
Total system cost of about $10,000 x 30% (credit) = $3,000 in tax credit

Each year, due to 3 kids and a mortgage. I get about $6000 in federal tax refund. Should I change my withholding (increase allowances) so that I owe the government money and use the $3k in credit or do nothing. Based on my reading, withholding has nothing to do with the tax credit and tax liability.

For example:

Let's say this year I made $100,000 with no deductions and my tax bracket is 30% = $30,000 in tax liability. If my employer withhold $40,000 (withhold) - $30,000 (liability)= $10,000 refund check. Since I have $3,000 in solar credits, my tax liability becomes $27,000? Which means $40,000 (withhold) - $27,000 (liability) = $13,000 refund check? Am I correct? If that is the case, then there is no point in changing the number of allowances and risk getting audit. I am pretty sure my tax liability even after all deductions are more than $3,000.

Thanks

[sensij]

Correct. There is no reason to change your withholdings, it has no effect on your liability.

[MikeInRialto]

I concur!! I spoke to my tax guy last year and that is what he explained to me. Last year changed my withholding and have been claiming NINE even though it is ONE, so each month since last January i've been getting an extra $500. I received an extra $6K which was used to help buy my system - i only had to come up with just under $8K. And although i will only be getting a tax credit of $4100, I should still be ok and still get a refund when I claim 1 come tax season (weeks from now)

That being said.... it's just another way of getting money upfront instead of at the end of the year - Why let the IRS get interest on money you're entitled to is what i read from someone else's post sometime last year.
-

Also to add and clarify, it is a tax CREDIT and NOT A REFUND!!

-Example: let's say your solar panel system cost $10K = $3K federal tax credit But...

You made $30K - $8K (single person standard deduction) = $22K taxable income so your TAX is $2,396 = you only get to offset your taxes by $2396 instead of $3000 (30% of $10K) - It has NOTHING to do with how much gets taken out of your check each month.

[compchat]

Why let the government use your money for free? You should never over withold. All you must do is make certain that you pay as much tax as you did the previous year to prevent penalities and interest. The tax credit may be taken over several years. You apply the tax credit for 2015 when you file your tax return in 2016. If you owed 5000 in taxes in 2015 your payment to the IRS in April 2016 would be 5000-3000= 2000.

I'm an independent contractor so that I can adjust my estimated taxes taking into consideration the 30% tax credit. For instance I'm not going to pay the 4th estimated payment because my tax credit from the solar installation should more than cover it. If you're not certain ask your accountant.

[organic farmer]

Keep in mind that whether you get the Tax Credit or not you may still be able to use the full expense as a tax write-off.

We did not finance any of our Solar-Power system. We bought as much as we could afford each year. It took us three years to finally get all of it in-place. Each year's expenses we used as write-offs.

Tax Credits are a different topic from tax write-offs.

The year that you finish your system, you may use the 30% Tax Credit [if you qualify], and you may also use the 100% write-off.

[Plut]

I concur!! I spoke to my tax guy last year and that is what he explained to me. Last year changed my withholding and have been claiming NINE even though it is ONE, so each month since last January i've been getting an extra $500. I received an extra $6K which was used to help buy my system - i only had to come up with just under $8K. And although i will only be getting a tax credit of $4100, I should still be ok and still get a refund when I claim 1 come tax season (weeks from now)

That being said.... it's just another way of getting money upfront instead of at the end of the year - Why let the IRS get interest on money you're entitled to is what i read from someone else's post sometime last year.
-

Also to add and clarify, it is a tax CREDIT and NOT A REFUND!!

-Example: let's say your solar panel system cost $10K = $3K federal tax credit But...

You made $30K - $8K (single person standard deduction) = $22K taxable income so your TAX is $2,396 = you only get to offset your taxes by $2396 instead of $3000 (30% of $10K) - It has NOTHING to do with how much gets taken out of your check each month.

MikeInRailto is exactly correct. I just wanted to add that in the scenario above you would get the $2,396 the first year and then the remaining $604 would carry over to the next tax year.

[MikeInRialto]

MikeInRailto is exactly correct. I just wanted to add that in the scenario above you would get the $2,396 the first year and then the remaining $604 would carry over to the next tax year.

But if the Federal tax credit expires this year - does that mean you wouldn't be able to carry credit over into 2017 taxes?

[organic farmer]

The tax credit was extended.

[diogenes]

The tax credit was extended.

when?

[J.P.M.]

when?

About 10 days ago or so. It was in all the papers.

[organic farmer]

http://www.seia.org/policy/finance-tax/solar-investment-tax-credit

[Plut]

Direct quote from energy.gov

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.

Solar-electric property

30% for systems placed in service by 12/31/2019
26% for systems placed in service after 12/31/2019 and before 01/01/2021
22% for systems placed in service after 12/31/2010 and before 01/01/2022
There is no maximum credit for systems placed in service after 2008.
Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
The home served by the system does not have to be the taxpayer’s principal residence.

[Yaryman]

Originally posted by organic farmer View Post
The tax credit was extended.

when?

Funny, well it's not really funny, but several of the non stop Solar Company ads still running mention the tax credit expiring in 2016.

I realize it's costly to redo a TV commercial, but if it's factually incorrect then I certainly wouldn't give those people my money.

[hnguyen11033]

Keep in mind that whether you get the Tax Credit or not you may still be able to use the full expense as a tax write-off.

We did not finance any of our Solar-Power system. We bought as much as we could afford each year. It took us three years to finally get all of it in-place. Each year's expenses we used as write-offs.

Tax Credits are a different topic from tax write-offs.

The year that you finish your system, you may use the 30% Tax Credit [if you qualify], and you may also use the 100% write-off.

Not really sure what you mean by write-off. I know that I am qualify for the 30% tax credit. I can write-off the $10,000 system and get a 30% tax credit?

[organic farmer]

Not really sure what you mean by write-off. I know that I am qualify for the 30% tax credit. I can write-off the $10,000 system and get a 30% tax credit?

If you itemize your Income Tax filing [for example if you have a home mortgage then you likely use the mortgage as a write-off, If you pay for any form of health care then you likely use the medical expenses as a tax write-off.]

We used 100% of our solar system expenses as a tax write-off.

Plus there is the tax credit thing for 30% of the amount.