ExpertMedium1 markMultiple Choice
CPA · Question 15 · Area 1: Individual Tax
A taxpayer installs solar electric property in their home in Year 1 for $20,000. The Residential Clean Energy Credit rate is 30%. The taxpayer's tax liability before credits is $4,000. What is the credit amount and treatment of any excess?
A taxpayer installs solar electric property in their home in Year 1 for $20,000. The Residential Clean Energy Credit rate is 30%. The taxpayer's tax liability before credits is $4,000. What is the credit amount and treatment of any excess?
Answer options:
A.
Credit: $6,000; Excess $2,000 is lost.
B.
Credit: $4,000; Excess $2,000 is refunded.
C.
Credit: $6,000; Used $4,000; Carryforward $2,000.
D.
Credit: $4,000; Excess $2,000 is lost.
How to approach this question
1. Calculate Credit: $20,000 * 30% = $6,000.<br/>2. Determine Type: Non-refundable personal credit.<br/>3. Apply Limit: Limited to tax liability ($4,000).<br/>4. Determine Excess treatment: Residential Clean Energy Credit allows carryforward of unused portion.<br/>5. Result: Use $4,000, Carryforward $2,000.
Full Answer
C.Credit: $6,000; Used $4,000; Carryforward $2,000.✓ Correct
The credit is 30% of $20,000 = $6,000. Since the tax liability is only $4,000, the taxpayer uses $4,000 to reduce tax to zero. The remaining $2,000 is carried forward to the next tax year.
Common mistakes
Thinking the credit is refundable or that the excess is lost.
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