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Can the federal solar tax credit offset capital gains incurred?

Forum|Forum|2 years ago
August 7, 2023
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I want to sell a few long-term held stocks this year that will result in capital gains. I also purchased and installed a new solar array for my home (not a rental property). Can I use the federal solar credit to offset the capital gains tax?

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Best answer by rjs

The tax on capital gains is not a separate tax. It's included in the total income tax on your tax return.

A tax credit does not offset income. It offsets the tax on your tax return. But a credit does not offset any particular part of the tax. The total credits are offset against the total income tax. The Residential Clean Energy Credit, which is the credit you can claim for solar panels, is a nonrefundable credit. So your total nonrefundable credits, including the Residential Clean Energy Credit, will be offset against your total income tax, including the tax on your capital gains.

rjsAnswer

Employee

The tax on capital gains is not a separate tax. It's included in the total income tax on your tax return.

A tax credit does not offset income. It offsets the tax on your tax return. But a credit does not offset any particular part of the tax. The total credits are offset against the total income tax. The Residential Clean Energy Credit, which is the credit you can claim for solar panels, is a nonrefundable credit. So your total nonrefundable credits, including the Residential Clean Energy Credit, will be offset against your total income tax, including the tax on your capital gains.

Hal_Al

Employee

Q. Can I use the federal solar credit to offset the capital gains tax?

A. Yes.

As others have said, the solar credit offsets the total income tax on all your income, including any tax on your capital gains.

O

Opus 17

Employee

The solar credit does not offset self-employment tax, only income tax. And I believe it does not offset certain other schedule 2 taxes, such as the penalty on early IRA withdrawals or excess IRA contributions, household employee's tax, additional Medicare tax, the repayment of the first time homebuyer credit, and some other non-routine taxes. But yes, as stated, the solar credit offsets other income taxes, including capital gains.

rjs

Employee

@Opus 17 wrote:

The solar credit does not offset self-employment tax, only income tax. And I believe it does not offset certain other schedule 2 taxes . . .

That's correct. The only taxes on Schedule 2 that can be offset by the solar credit, or any other nonrefundable credit, are AMT and repayment of excess advance premium tax credit. Those two additional taxes are in Part I of Schedule 2. The nonrefundable credits do not offset any of the taxes in Part II of Schedule 2 (lines 4 through 20), which includes all of the taxes that Opus 17 listed.

I slightly revised my reply above to refer specifically to income tax.