How do I claim the Federal Solar Tax Credit over two tax cycles?

Don’t have the tax liability to claim the federal tax credit in one tax season? Follow this guide on how to claim your federal tax credit over two cycles.

First you’ll need to fill out the IRS 5695 Form, “Residential Energy Credits”. Here, you’ll state the cost of your solar system and calculate the value of the credit, along with the amount of the credit that you will be able to claim. We’ll walk you through it step by step:

  • On line 1, enter the value of your total solar system installation cost.
    Example: $30,000

    irs5696-line1

  • It’s unlikely, but if you also installed a solar water heating system, a small wind turbine, or a geothermal heat pump, include these values on lines 2-4.
    Example: Just solar, no other tax credits claimed - so, 0 for each line.

  • On line 5, add everything up from 1-4.
    Example: $30,000

     

  • On line 6, multiply this amount by 0.30 to determine the amount of your credit.
    Example: $9,000

    irs5696-line5

  • On line 13, simply restate this amount, unless you are adding any tax credits carried over from the previous year or the fuel cell tax credit (lines 11 and 12).
    Example: $9,000

    irs5696-line13

Line 14 can be a bit tricky. Now that you’ve figured out how much your credit is worth, you need to use the “Residential Energy Efficient Property Credit Limit Worksheet” on page 4 of the instructions for Form 5695 to see if there are any limits on the tax credits you can claim.

  • On line 1, enter your total federal tax liability from Form 1040, line 47.
    Example: Let’s assume a $4,500 tax liability.

    irs1040-line1

  • On lines 2-9, enter additional tax credits you are claiming as referred to on each line – these can include tax credits for adoption expenses, interest on a mortgage, buying a home for the first time, or buying a plug-in hybrid or electric vehicle. If you aren’t claiming anything else, write 0 for each line.
    Example: 0

    irs1040-line2

  • On line 10, add the value of all of these other credits.
    Example: 0

    irs1040-line10

  • On line 11, subtract the value of these additional credits from your tax liability from line 1 to find the limit on the credit you can claim for this year.
    Example: $4,500

    irs1040-line11

Alright, we’re almost there! Now that you’ve done the math on how much of the ITC you can claim this year, return to Form 5695 and record the limit and calculate how much of your tax credit you’ll carry over to next year’s taxes.

  • On line 14, enter the value from line 11 of the worksheet.
    Example: $4,500

    irs5696-line14

  • On line 15, enter whatever is lower between line 13 (your total credit) and line 14 (the limit you can claim this year).
    Example: $4,500

    irs5696-line15

  • On line 16, subtract line 15 from line 13 to calculate the carry-forward tax credit for next year’s taxes.
    Example: $4,500 ($9,000 minus $4,500).

    irs5696-line16

For this example, the taxpayer only owes $4,500 in taxes this year, meaning that’s all the credit he can take now. The difference (in this case $4,500 on line 16) can be carried over to next year.

irs1040-line14-16

Now that you’ve finished the Form 5695, we can apply this to – Form 1040, your ultimate tax bill! Take the number from line 15 of Form 5695 ($4,500 in our example) and enter it on line 53, “Residential energy credits” of Form 1040.

irs1040-line53

OR, if you’re submitting Form 1040NR, this is found on line 50.

irs1040-line50

Congratulations, you’re done! In addition to saving money by generating your own solar power and helping to save the planet, you may get to save on your taxes this year – and maybe next year, too. In this case, the taxpayer owes $0 taxes this year and will get a further credit of $4,500 on next year’s tax return.

Not a bad deal… so long as you get those solar panels installed by the end of 2019!

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