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I live in Iowa, and am considering a solar panel install on my house. It is likely the install will take place in 2020 making it eligible for the 2020 state and federal tax credits. I get that I will pay for the cost of the system up front (financing in my case) and that that tax credits are applied after the fact when I file each year. The quote from the installation company assumes a 26% Federal credit and 50% of that is eligible for the State of Iowa, so 13%.

I have 3 kids, make a middle class income, have a stay at home spouse, and am a homeowner, so usually get some money back in taxes each year. Most years I have a small liability to the state, and a reasonable refund from the Feds.

I heard that the credits roll over for a few years, but not indefinitely. I expect over the course of my career I will make more money and my tax bracket (and total tax liability) will go up, but I don't know if it will make a difference soon enough.

Is there a risk that my personal tax liability is not large enough to actually take advantage of the credits? How long of a window do I have to use them?

UPDATE: Here are the numbers

  • The total cost of the project is $23,181.
  • The Federal Credit is $6,027
  • The State Credit is $3,014
  • Federal Taxes in 2018 were $4,320 (line 11a of my 1040)
  • State Taxes in 2018 were $2,573 (line 39 of my IA 1040)
  • I had other deductions and credits, the largest being the Child tax credit. The result was that my withholding is relatively small.
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  • We would need hard numbers to tell you for sure. At the very least, can you tell us 1) the cost of the system, 2) the amount you ultimately pay to state and federal governments every year? There may be other factors, these three numbers will let us get pretty close to your answer.
    – bvoyelr
    Dec 13, 2019 at 15:57
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    Don't look at your refund amount, look at your total tax paid. That will tell you if you pay enough tax to make use of a credit.
    – D Stanley
    Dec 13, 2019 at 16:00
  • @bvoyelr, D Stanley, I updated with relevant numbers if you have any thoughts
    – Jon
    Dec 13, 2019 at 18:00
  • I'm in to a 7k system for $3200 after the federal and state credits. Do not pay $23000. Source everything independently and hire the installers directly (job site drive by, cash deal). Handle permitting yourself. It's not rocket surgery. Maybe the installers can get you an inverter or optimizers at cost for the right deal.
    – acpilot
    Dec 15, 2019 at 5:17
  • @acpilot, thanks for the tip!
    – Jon
    Dec 16, 2019 at 13:56

2 Answers 2

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I have 3 kids, make a middle class income, have a stay at home spouse, and am a homeowner, so usually get some money back in taxes each year. Most years I have a small liability to the state, and a reasonable refund from the Feds.

A refund or payment you make in April is when you settle with the government. The size of the refund is not related to how much you pay in taxes, it is just the difference between what was withheld from your paychecks, and what your actual tax situation is.

Look at your main tax form that should have a line that has the total taxes, and then a line for what you have paid so far, the difference is the refund.

Now if you income is very low there can be special programs that can bring the taxes to zero, or even a negative number. If you are in that situation then additional credits might not help.

In you case if your get the solar credit then your refund in April 2021 should be larger than normal.

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  • I updated with some real dollars, hopefully that helps?
    – Jon
    Dec 13, 2019 at 17:47
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Assuming you can take the credit for 100% of the tax owed in any year, then yes. You would take $4320 on your 2020 return (assuming the tax owed is the same as 2018) and would owe no tax that year. That would leave $1707 to use as a credit against your 2021 taxes. So yes, you should be able to use all the Federal tax credit.

Don't know about Iowa specifically, but states tend to mirror the Federal tax.

Of course this is the government we're talking about, so they could possibly change the rules. And I'm not a tax accountant, so I could easily have missed something :-)

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  • Do any of my other deductions/credits limit the amount I could apply per year?
    – Jon
    Dec 13, 2019 at 19:19

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