tax credit question

[halfmonkey]

Your tax withholding from your payroll does not play a role in the tax credit scenario. If you withhold too much then you get a refund. If you withhold too little, you'll owe money. But whether you get a refund or owe money to Uncle Sam at the end of the year due to your tax withholding during the year does not have bearing on your final tax liability, which is based on your incomes minus deductions and such. That's why we only discuss tax liability here and not tax withholding. The tax credit is what you can claim, up to, but no more than your tax liability. If your tax credit is less than your tax liability, then you can claim it all. If your tax credit is more than your tax liability, then you can claim up to your liability, and carry the balance over and claim it next year(s).

That doesn't seem accurate to me but then again I'm not a cpa so forgive me if I'm completely coming out of left field.

So as far as I understand it, the tax credit you get from going solar can be used to pay for the taxes due on the federal side and not the state side if you owe taxes by the April 15th deadline. Any unused portion can be rolled up to year 2016.

So I say that I'm not sure what you're saying about the tax withholdings is accurate because the withholdings that you claim on your w-4 impacts how much tax is taken out of your pay check. If you claim zero, maximum tax is taken out. The higher the claims you make, the less taxes is taken out of each paycheck, correct?

So if I follow that logic and I claim zero with maximum taxes being taken out, let's say then when I go to file my taxes on April 15th, I end up receiving a refund on the federal taxes. If that's the case, then the solar tax credits can't be applied correct since I'm receiving a refund.

Now let's say I bump up my claims on the w-4 from a zero to let's say, 3 or even higher like 10 and they take out less taxes on my paychecks. When I go to file my tax return on April 15th and instead of receiving a federal tax refund, I need to pay $5k, wouldn't I be able to apply the solar tax credits to cover the $5k that I owe for federal taxes?

[Naptown]

It is a credit agsinst what is on line 46 of the 1040
Certain other credits may supersede this. And this is non refundable meaning if the total of all credits exceed what is on line 46 you will only get up to what is on line 46 and any remaining will carry forward to suceeding years through 2016

[bando]

That doesn't seem accurate to me but then again I'm not a cpa so forgive me if I'm completely coming out of left field.

So as far as I understand it, the tax credit you get from going solar can be used to pay for the taxes due on the federal side and not the state side if you owe taxes by the April 15th deadline. Any unused portion can be rolled up to year 2016.

So I say that I'm not sure what you're saying about the tax withholdings is accurate because the withholdings that you claim on your w-4 impacts how much tax is taken out of your pay check. If you claim zero, maximum tax is taken out. The higher the claims you make, the less taxes is taken out of each paycheck, correct?

So if I follow that logic and I claim zero with maximum taxes being taken out, let's say then when I go to file my taxes on April 15th, I end up receiving a refund on the federal taxes. If that's the case, then the solar tax credits can't be applied correct since I'm receiving a refund.

Now let's say I bump up my claims on the w-4 from a zero to let's say, 3 or even higher like 10 and they take out less taxes on my paychecks. When I go to file my tax return on April 15th and instead of receiving a federal tax refund, I need to pay $5k, wouldn't I be able to apply the solar tax credits to cover the $5k that I owe for federal taxes?

the number you select on your form W-4 when you work for an employer may not accurately match your ACTUAL tax liability. as i mentioned in my simple example, i was assuming that the w-2 withholdings matched that person's tax liability exactly. in a perfect world, if you had no other income or deductions (say you are single, one job, non-homeowner and no other income/deductions), the withholdings should be pretty close to what you owe.

in reality though, people have other income and deductions that the W-4 cannot "capture" (e.g., rental properties, home mortgage interest, student loan deductions, etc.), hence why the IRS allows you to select your own withholding rate based on your own expectations. but at the end of the year, when it's time to true-up what you have paid vs. what you owe, it's not always going to be $0, which is the whole reason you file tax returns anyway.

so that is why you should be looking at your tax liability, as in the example above where the withholdings could be MORE than your actual tax liability. you can only get the solar credit up to your tax liability. then you must carry forward the remainder.

so the answer to your question is really Yes and No. tax withholdings do play a part, but only to the extent they do not exceed your actual tax liability.

[halfmonkey]

the number you select on your form W-4 when you work for an employer may not accurately match your ACTUAL tax liability. as i mentioned in my simple example, i was assuming that the w-2 withholdings matched that person's tax liability exactly. in a perfect world, if you had no other income or deductions (say you are single, one job, non-homeowner and no other income/deductions), the withholdings should be pretty close to what you owe.

in reality though, people have other income and deductions that the W-4 cannot "capture" (e.g., rental properties, home mortgage interest, student loan deductions, etc.), hence why the IRS allows you to select your own withholding rate based on your own expectations. but at the end of the year, when it's time to true-up what you have paid vs. what you owe, it's not always going to be $0, which is the whole reason you file tax returns anyway.

so that is why you should be looking at your tax liability, as in the example above where the withholdings could be MORE than your actual tax liability. you can only get the solar credit up to your tax liability. then you must carry forward the remainder.

so the answer to your question is really Yes and No. tax withholdings do play a part, but only to the extent they do not exceed your actual tax liability.

Right, so in my explanation of my understanding, if I increase my claims from zero to say 10 and reduce my paycheck tax withholdings to a bare minimum, therefore underestimating my taxes, I should end up needing to pay federal taxes come April 15th. This is assuming a very basic model to not include interest deductions, child care deductions, etc.

Therefore, if on April 15th, the federal gov says I owe federal taxes of $5k, wouldn't I be able to apply my solar tax credits towards this payment? In other words, if I have a solar tax credit of $8k and I owe $5k on April 15th, I should be able to use $5k of the $8k to pay for the obligation and roll $3k to the following year, correct? Or if my solar tax credits is less than what I owe, I would still need to write a check for the difference, correct?

[Naptown]

Look at a 1040
Then re read my earlier post

[bando]

Right, so in my explanation of my understanding, if I increase my claims from zero to say 10 and reduce my paycheck tax withholdings to a bare minimum, therefore underestimating my taxes, I should end up needing to pay federal taxes come April 15th. This is assuming a very basic model to not include interest deductions, child care deductions, etc.

Therefore, if on April 15th, the federal gov says I owe federal taxes of $5k, wouldn't I be able to apply my solar tax credits towards this payment? In other words, if I have a solar tax credit of $8k and I owe $5k on April 15th, I should be able to use $5k of the $8k to pay for the obligation and roll $3k to the following year, correct? Or if my solar tax credits is less than what I owe, I would still need to write a check for the difference, correct?

Yes, that is correct.

I think i see what you really trying to say... if what you are asking is "should i withhold less on my paychecks if i am going to buy a solar PV system (in the same tax year)?" , then yes, you may do that to get more money out of your paychecks instead of having to wait for a big refund the following April.

for instance, let's say you plan to install a solar system in early 2014, well you wont' be able to take the credit on that until you file taxes in 2015. So yes, you may go to your employer and fill out another W4 and increase the # of allowances to whatever you see fit to offset that solar tax credit.

the W4 withholding is a personal preference. some people don't like to owe anything come April 15 so they are more conservative and enjoy receiving some kind of refund. if you do some tax planning in advance to account for the solar tax credit, then you can adjust your withholding if you so desire. the problem is if you decide later to not install it or don't manage to get it done by 12/31/2014, then you will get hit with a big tax bill and/or penalties for not withholding enough throughout the year. and don't forget that you must go back to your employer in 2015 and fill out another W4 to more accurately reflect your tax liability.

[Volusiano]

the problem is if you decide later to not install it or don't manage to get it done by 12/31/2014, then you will get hit with a big tax bill and/or penalties for not withholding enough throughout the year.

I remember that one year I got a rather large unexpected bonus from work at the end of the year and I didn't withhold enough throughout the year, I was also required to pay quarterly estimated tax for the next year or two until I've established that I no longer under-withhold anymore.

[liteguy1]

How about this scenario.....

....Off grid well. Does the credit apply to the whole system, well, DC pump, batteries, panels etc or just the solar portion?

Would love to do the whole thing? Ideas?

[Volusiano]

....Off grid well. Does the credit apply to the whole system, well, DC pump, batteries, panels etc or just the solar portion?

Would love to do the whole thing? Ideas?

I think only the solar system and site preparation qualifies. Well and pump is not part of the solar system nor is it site preparation. Batteries for off grid storage in my opinion is is not part of the solar system. That's part of the energy storage system, so not qualified either.

[rcrummett]

Roofing

I got a quote on a system and they say I need to put down new shingles before they install the solar system.

Do you believe a re-roof on the roof only where the solar is going is eligible?

Also, Im going to do the PV system myself can I claim any labor costs, fuel costs to go pick up the system....

[liteguy1]

I think only the solar system and site preparation qualifies. Well and pump is not part of the solar system nor is it site preparation. Batteries for off grid storage in my opinion is is not part of the solar system. That's part of the energy storage system, so not qualified either.

That's what I kinda thought but figured I'd ask. Will see what the CPA says...

[Volusiano]

I got a quote on a system and they say I need to put down new shingles before they install the solar system.

Do you believe a re-roof on the roof only where the solar is going is eligible?

Also, Im going to do the PV system myself can I claim any labor costs, fuel costs to go pick up the system....

I'm not a tax accountant, so this is only my personal opinion. I have cement tile roof and the tiles can last 40 years, but the underlayment can't last as long. Usually 15-25 years according to my roofer. So I had my roofer inspect the condition of my underlayment where the panels were going to go. He said it's in good shape and can probably last another 5 to 10 years (had 17 years on it so far). But I didn't want to have to take the panels off later to replace the underlayment in 5 or 10 years, so I had my roofer replace the underlayment ONLY the area underneath the panels. I did not replace the cement tiles, however, since they're supposed to last 40 years.

I chose to claim my underlayment replacement in the area of the panels as site preparation. The rationale for this is because I need to prepare that area under the panels to last as long as the life of the panels, because I can't replace it later after the panels are already on (without a cost). So this justifies in my mind as site preparation. My installer told me they've seen many other clients of them doing the same thing using the same rationale. So at least I'm not the odd ball out doing this only.

So yes, I believe you should be able to claim a re-roof under the panels only as site-preparation. Again, only my personal opinion and I'm not a tax accountant.

As far as the labor cost, my personal opinion is that I wouldn't claim it, because technically there's no actual dollar cost incurred to you. Yes, there's effort and sweat and tears and time, but you still don't lose $ out of your own pocket to pay for it. So you can't claim $ credit for something you didn't pay with $. Fuel cost to pick up the system, on the other hand, should qualify in my opinion because you actually pay $ for it.

[J.P.M.]

I got a quote on a system and they say I need to put down new shingles before they install the solar system.

Do you believe a re-roof on the roof only where the solar is going is eligible?

Also, Im going to do the PV system myself can I claim any labor costs, fuel costs to go pick up the system....

Inspection/servicing of a roof before solar install is always cheap insurance. Tax consequences are something for your tax advisor's comment/recommendation. Often, roof repair can come under site prep. considerations.

[Funkeechild]

I have one question that I didn't see answered anywhere. I understand all about the solar credit. One exceptions I was wondering if it is just the federal taxes paid that can be refunded or is social security and medicaid also? I don't make very much money and neither does my wife and we don't pay much in taxes and I had a 6.6 kw system installed leaving me with a $6600 credit that I most likely won't be able to fulfill just thru getting my federal taxes back, so I wasn't sure if it included any of the other taxes we pay. Obviously not the state taxes but I didn't know about the other stuff (i.e. Social security, medicaid or care, whichever is federal, ect....). The other part to my question is I recently heard that they pushed the solar rebate to 2019. Everyone was saying we could take the credit up until 2016 since it was pushed to 2016....does that mean now that it is pushed to 2019 I can take it for 2015 (installed yr) thru 2019? So claim partial credits over 4 yrs? Thx for your help!!! sorry to revive the old thread

[inetdog]

AFAIK you cannot only use the credit against income tax, not other Federal deductions or payments.

For those whose Federal Income Tax is prepaid by estimated payments, payroll deductions (W-2) or other means, note that the credit is against your total income tax calculated, not just what you end up having to pay along with your return. Even if you do not have to pay anything with your return, the credit can increase the amount of refund coming to you.