residential solar credit and child tax credit

This is a bit of a long shot but perhaps someone here can answer. We had a $40,000 residential solar system installed this year and are thus eligible for a $12,000 tax credit. We also have two young children so are eligible for $4,000 (2x $2,000) in child tax credits. Our federal tax liability (before either credit) will be around $12,000. In a normal year (without the solar credit) we would take the $4,000 tax credit and our resulting tax liability would be $8,000.

What is the order in which the two credits are applied? If the solar credit is applied first (case A), our tax liability drops to zero and then the child tax credit is applied. This is the tricky part – only $2,800 of the child tax credit is refundable (meaning even our tax liability were zero we would only get $2,800 back, not the full $4,000). I suspect this is the order they would be applied in because the solar credit is not refundable (although it can be carried over, which wouldn’t matter in this case because we’d first apply, and use up, the entire $12,000). If the child tax credit is applied first (case B), we would get the entire $4,000 tax credit and then use $8,000 of the solar credit and carry over the remaining solar tax credit ($4,000) to 2020.

As I said, my suspicion is that case A applies here. Case B would be fine as we’d be getting the full $16,000 eventually ($12,000 this year and $4,000 next year), but with Case A, our tax credit would drop to $14,800 (we lose the $1,200 non-refundable portion of the child tax credit). $1,200 isn’t a huge deal but it is essentially free money. If case A applies, we would plan to harvest some capital gains (sell stocks with a long-term capital gain to the extent necessary to create $1,200 in additional federal tax, repurchase the same stocks at the same price, thereby taking a step up in basis and would be subject to less tax later on) to essentially take a free step up in basis.

Thanks!

submitted by /u/geokra
[link] [comments]This is a bit of a long shot but perhaps someone here can answer. We had a $40,000 residential solar system installed this year and are thus eligible for a $12,000 tax credit. We also have two young children so are eligible for $4,000 (2x $2,000) in child tax credits. Our federal tax liability (before either credit) will be around $12,000. In a normal year (without the solar credit) we would take the $4,000 tax credit and our resulting tax liability would be $8,000. What is the order in which the two credits are applied? If the solar credit is applied first (case A), our tax liability drops to zero and then the child tax credit is applied. This is the tricky part – only $2,800 of the child tax credit is refundable (meaning even our tax liability were zero we would only get $2,800 back, not the full $4,000). I suspect this is the order they would be applied in because the solar credit is not refundable (although it can be carried over, which wouldn’t matter in this case because we’d first apply, and use up, the entire $12,000). If the child tax credit is applied first (case B), we would get the entire $4,000 tax credit and then use $8,000 of the solar credit and carry over the remaining solar tax credit ($4,000) to 2020. As I said, my suspicion is that case A applies here. Case B would be fine as we’d be getting the full $16,000 eventually ($12,000 this year and $4,000 next year), but with Case A, our tax credit would drop to $14,800 (we lose the $1,200 non-refundable portion of the child tax credit). $1,200 isn’t a huge deal but it is essentially free money. If case A applies, we would plan to harvest some capital gains (sell stocks with a long-term capital gain to the extent necessary to create $1,200 in additional federal tax, repurchase the same stocks at the same price, thereby taking a step up in basis and would be subject to less tax later on) to essentially take a free step up in basis. Thanks! submitted by /u/geokra [link] [comments]Read More

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