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How to take advantage of climate tax credits

Keep your overall tax situation in mind when calculating the discount on climate benefits

Vicky Volvovski
March 4, 2023

A woman prepares her taxes

There are lots of tax incentives available from the federal and state government for clean, climate friendly technologies.

In order to take advantage of tax credits, you must first owe taxes. Tax credits are applied against the amount of tax you owe, reducing your tax liability dollar-for-dollar. This means that the more tax you owe, the more valuable the tax credit becomes.

For example, let's say that you owe $1,000 in federal income taxes, and you are eligible for a $500 tax credit. If you claim the credit, your tax liability would be reduced to $500 ($1,000 - $500). In this way, tax credits can significantly reduce the amount of tax owed and increase your refund.

However, if you do not owe any taxes, you will not be able to take advantage of the tax credit. Tax credits are only applied against the amount of tax owed and cannot be used to create a tax refund. If your tax liability is zero, a tax credit will not provide any additional benefits.

It is important to understand your tax situation and any credits for which you may be eligible. By working with a tax professional or using tax preparation software, you can determine the best way to maximize the benefits of tax credits and reduce your tax liability.

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