The Residential Clean Energy Tax Credit – Is it refundable?

Essentially every single homeowner in U.S. who purchases a solar PV system for their home is going to be applying for the Residential Clean Energy Tax Credit (also often called the Investment Tax Credit or ITC), currently a 30% federal tax credit. Solar sales professionals need to understand the basics of this tax credit, so that it can be clearly explained to prospective residential solar customers.

In this snippet from the Customer Contracts & Agreements course, instructor Brittany Heller answers one of the most common questions homeowners ask – “is this tax credit refundable?”

If you’d like a quick primer on the Residential Clean Energy Tax Credit first, check out this blog post – What is the Residential Clean Energy Credit and IRS Form 5695?

Let’s talk about a couple of the commonly asked questions about this. Oftentimes homeowners might not have a lot of tax liability. If the tax credit is more than their tax liability, will they get a refund back?  

This is a non refundable tax credit. That means that you’re not going to get a tax refund for the amount of the tax credit that exceeds your tax liability. 

Homeowners may get a tax refund at the end of the year due to the tax credit if their reduction in tax liability means that there was an overpayment of taxes during the year.  This often occurs when employers are deducting taxes for their employees over the course of the year. That’s the case for pretty much all W2 employees, I’d say. 

Still, the refund is going to be limited by the taxpayer’s total tax liability.  The good thing is  homeowners can carry over any unused amount of tax credit into that next tax year.