How to properly claim the Residential Energy Credit for our upcoming solar installation?
My husband and I always file jointly and typically get around $8,000 in federal refunds each year. We both have our W-4s set at zero allowances and even have extra withholding taken out each paycheck. No dependents in our household. We're planning to install solar panels on our home next year (2025) which will cost approximately $40,000, and we want to take advantage of the Residential Energy Credit for about $13,000. After looking at IRS Form 5695, I'm confused about how this works. From what I understand, this credit isn't given to us as part of our refund but can only be used to offset what we actually owe in taxes? If that's the case, does this mean we need to adjust our W-4s to claim more allowances and stop the extra withholding so that instead of getting an $8K refund, we end up owing around $13K to the IRS? That way we can use the full credit? I'm planning to use the withholding calculator next, but wanted to check if my understanding of how this credit works is correct. Any guidance would be really appreciated!
20 comments
Join the conversation
Fatima Al-Sayed
You're on the right track, but there's an important distinction to understand. The Residential Clean Energy Credit (for solar installations) is actually a nonrefundable tax credit that can reduce your tax liability to zero, but any excess can be carried forward to future tax years. So you don't necessarily need to create a $13K tax liability in a single year. If your tax liability is only $5K, for example, you'd use $5K of the credit this year and carry forward the remaining $8K to use in future years until you've used the full amount of the credit. That said, you're correct that having less tax withheld from your paychecks would allow you to utilize more of the credit sooner. Instead of giving the government an interest-free loan through overwithholding (resulting in your refund), you could adjust your W-4s to have less withheld and apply more of the credit in the first year. The IRS Tax Withholding Estimator is definitely a good next step to figure out exactly how to adjust your withholding.
0 coins
Giovanni Marino
•Thank you for explaining that! I didn't realize we could carry forward unused portions of the credit. That's actually a relief - I was worried we'd lose part of the benefit if we couldn't generate enough tax liability in the first year. One follow-up question: is there a time limit on how long we can carry forward the unused credit? Does it expire after a certain number of years?
0 coins
Fatima Al-Sayed
•You're welcome! Yes, it's definitely a helpful feature of this credit. You can carry forward the unused portion of the Residential Clean Energy Credit for up to 20 years. So you have plenty of time to use it all up, even if you can't use the full amount in the first year. If you're looking to optimize, though, it generally makes financial sense to use the credit as quickly as possible rather than spreading it out over many years. The sooner you get the tax benefit, the sooner you can invest that money or use it for other purposes.
0 coins
Dylan Hughes
I went through this exact situation last year with my solar installation! I spent hours researching and stressing before I found this awesome AI tool that saved me a ton of headache. It's called taxr.ai (https://taxr.ai) and it was incredibly helpful in figuring out exactly how to maximize my residential energy credit. I uploaded my previous tax returns and solar installation documents, and it analyzed everything to show me precisely how to adjust my withholding to optimize the credit usage. It even projected my tax situation over multiple years so I could see how the credit carryforward would work in my specific case. The personalized recommendations were way more helpful than generic advice I kept finding online. The tool even created a custom letter I could give to my HR department explaining exactly what changes needed to be made to my W-4. Made everything super straightforward!
0 coins
NightOwl42
•Did it actually do all the math for you? I'm planning solar next year too but my situation is more complicated because I'm self-employed with irregular income. Would it work for me or is it just for W-2 employees?
0 coins
Sofia Rodriguez
•I'm always skeptical about these tax tools... How is this different from just using TurboTax or talking to a CPA? Seems like another way to squeeze money out of people who are already spending thousands on solar.
0 coins
Dylan Hughes
•Yes, it did all the calculations for me! It ran multiple scenarios based on my inputs. For your self-employment situation, it would actually be even more valuable because it handles complex income patterns. It helped my brother-in-law who's a freelancer figure out his estimated tax payments to optimize for his solar credit. It's different from TurboTax because it's specifically designed for tax planning across multiple years, not just filing a single year's return. Unlike a CPA consultation which can cost hundreds, this tool gives you unlimited scenario planning. And it doesn't just tell you what to do - it explains why certain strategies work better in your specific situation. I honestly learned more about tax planning from using it than from years of working with my previous accountant.
0 coins
NightOwl42
Just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. Wow, it was actually super helpful! I was worried because my income fluctuates so much as a freelancer, but it handled that perfectly. It showed me exactly how much to pay in estimated taxes each quarter to maximize my solar credit next year. The multi-year planning feature was really eye-opening - I could see how different withholding strategies would affect my taxes over the next 5 years, not just for 2025. The document they generated for my accountant saved me from having to explain everything myself, and my accountant was impressed with how thorough it was. Definitely worth checking out if you're doing solar!
0 coins
Dmitry Ivanov
I had a similar situation with trying to claim some tax credits last year and spent WEEKS trying to get through to someone at the IRS for clarification. Busy signals, disconnections, being on hold for hours only to be told I was transferred to the wrong department... absolute nightmare. I finally found this service called Claimyr (https://claimyr.com) that got me through to a real IRS agent in under 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to answer all my questions about how the residential energy credits work with my specific tax situation and confirmed that carrying forward unused credits was the right approach. She even explained some documentation requirements I hadn't considered. Saved me so much frustration and probably prevented me from making some costly mistakes on my taxes.
0 coins
Ava Thompson
•How does this actually work? The IRS phone lines are so backed up, I don't understand how any service could get you through that quickly. Sounds too good to be true.
0 coins
Sofia Rodriguez
•Yeah right. So they somehow have a magic backdoor to the IRS that no one else has? I've heard of these services before and they're usually just taking your money to do exactly what you could do yourself - wait on hold. I'll believe it when I see it.
0 coins
Dmitry Ivanov
•It works by using automated technology to dial the IRS continuously and navigate the phone tree for you. When it finally gets through to the queue for a real person, it calls you and connects you directly. It basically does the waiting for you instead of you having to sit there on hold for hours. They don't have a special backdoor - they're just more efficient at the frustrating process of getting through the regular phone system. The technology basically keeps trying different IRS numbers and paths until it finds one that works. It's like having someone else wait in line for you at the DMV.
0 coins
Sofia Rodriguez
I need to eat my words. After being completely skeptical, I gave Claimyr a shot when I absolutely needed to talk to the IRS about my botched energy credit claim from last year. I was expecting it to be a waste of money, but I had an IRS agent on the phone in 17 minutes. SEVENTEEN MINUTES! After spending literal days trying on my own. The agent was able to help me fix the issue with my Residential Energy Credit that had been incorrectly applied. For anyone planning solar, definitely make sure you understand exactly how Form 5695 works before filing. I thought I did, but I messed up the carryforward portion and it caused a huge headache. Getting that quick access to the IRS let me sort it out before it became an even bigger problem.
0 coins
Miguel Herrera
Something nobody's mentioned yet - make sure you're aware of the recent changes to the Residential Clean Energy Credit! For 2025, it's still at 30% of qualified expenses for solar electric, solar water heating, fuel cells, small wind energy, battery storage, and geothermal heat pumps. But more importantly, check if your state has additional tax credits or rebates! We installed solar last year in NJ and got the federal credit PLUS a state incentive program benefit. Doubled our savings. Also, don't forget to look into net metering from your utility company. That's where the real ongoing savings come from after the tax credit.
0 coins
Giovanni Marino
•Good point about state incentives! I need to look into what's available in our state. Do you know if using state incentives reduces the amount you can claim for the federal credit?
0 coins
Miguel Herrera
•State incentives generally don't reduce your federal credit amount, but it depends on how the state benefit is structured. If your state gives you a tax credit, that doesn't affect your federal credit calculation. However, if your state gives you a rebate that directly reduces your system cost, then your federal credit would be calculated on that reduced amount. For example, if your system costs $40,000 and you get a $5,000 state rebate at purchase, your federal credit would be based on $35,000. But if you pay $40,000 and later get a $5,000 state tax credit, your federal credit would still be based on the full $40,000.
0 coins
Zainab Ali
Has anyone used the IRS's Tax Withholding Estimator for this purpose? I'm doing solar next year too and tried using it, but got confused because it doesn't seem to have a specific input for planned tax credits like the Residential Energy Credit.
0 coins
Fatima Al-Sayed
•The IRS Withholding Estimator doesn't have a specific field for the Residential Energy Credit, but you can account for it by adjusting the "Other Credits" section. When you get to Step 2 in the estimator, there's a section for tax credits where you can input the estimated amount. That said, the estimator is really designed for the current tax year, not planning for future years. For more complex multi-year planning with large credits like solar, you might want to use a more specialized planning tool or consult with a tax professional.
0 coins
Zainab Ali
•Thanks for that tip! I completely missed the "Other Credits" section. Will give it another try. I think I might still talk to a tax person just to be sure, but at least I can go in with a better understanding now.
0 coins
Laila Fury
One thing I haven't seen mentioned yet is the timing of when you actually place your solar system in service. The credit is claimed in the tax year when the system is placed in service (when it's installed and operational), not when you make the purchase or sign the contract. So if you're planning installation for 2025, make sure to coordinate with your installer about the timing. If installation spans across December 2025 and January 2026, you'll want to clarify which year the system is considered "placed in service" for tax purposes. Also, keep all your documentation! You'll need receipts showing the total cost of the system, and if you're including battery storage, make sure those receipts clearly show the battery capacity meets the 3 kWh minimum requirement to qualify for the credit. The IRS has been pretty clear that they're scrutinizing these large credits more closely, so having organized documentation will save you headaches if you get selected for review.
0 coins