A tax credit is a tax benefit offered by either the IRS or a state/local government for spending money on projects such as a solar energy installation at ones home or business.
The benefit comes in the form of a direct reduction in the amount of incometaxes you might owe or by an increase in the amount of refund you get. For example, if you owed $5,000 in Federal incometaxes and received a $1,000 tax credit, you would now only owe $4,000. You don’t receive an incometax credit when you buy the product, like an instant rebate. You claim the tax credit on your federal incometax form at the end of the year.
This is very different from a tax deduction, which does not directly reduce the amount you owe. A tax deduction reduces the amount your tax is calculated on. Receiving a $1,500 tax deduction might only reduce what you owe by a few hundred dollars.
1) Solar hot water heating and solar panel systems placed in service by December 31, 2016 are eligible for the 30% tax credit, with no upper limit, (for existing homes and new construction), as are small wind systems. In order to qualify for the tax credit, solar water heaters must meet Energy Star requirements. More information on renewable tax credits is available from the Energy Star website.
2) Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30% of the cost, with no maximum (for existing homes and new construction.) These credits are effective through December 21, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet Energy Star criteria.
3) Though available, residential fuel cell and micoturbine systems are rare in application. Some systems may be eligible for a 30% tax credit, with no upper limit through 2016 (for existing homes and new construction), subject to certain criteria.
4) The $2,000 cap that had applied to geothermal heat pumps has been removed, leaving in place the 30% tax credit on qualified solar energy systems, geothermal heat pumps, small wind turbines, and fuel cell systems. Install all four and you qualify for an $8,000 tax credit.
5) Biomass stoves are eligible for a tax credit of 30% of the cost, up to $1,500. The stove must burn biomass fuel to heat a home or heat water. It must have a thermal efficiency rating of at least 75% as measured using a lower heating value.
For more detailed energy tax credit information check the Department of Energy.
Here is a listing from DSIRE on:
Business Energy Investment Tax Credit (ITC)
Last DSIRE Review: 02/18/2009
Incentive Type: Corporate Tax Credit
Eligible Renewable/Other Technologies: Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Wind, Biomass, Geothermal Electric, Fuel Cells, Geothermal Heat Pumps, CHP/Cogeneration, Solar Hybrid Lighting, Direct Use Geothermal, Microturbines
Applicable Sectors: Commercial, Industrial, Utility
Amount: 30% for solar, fuel cells and small wind;
10% for geothermal, microturbines and CHP
Maximum Incentive: Fuel cells: $1,500 per 0.5 kW
Microturbines: $200 per kW
Small wind turbines placed in service 10/4/08 - 12/31/08: $4,000
Small wind turbines placed in service after 12/31/08: no limit
All other eligible technologies: no limit
Eligible System Size: Small wind turbines: 100 kW or less
Fuel cells: 0.5 kW or greater
Microturbines: 2 MW or less
CHP: 50 MW or less
Equipment/Installation Requirements: Fuel cells, microturbines and CHP systems must meet specific energy-efficiency criteria
Authority 1: 26 USC § 48
Authority 2: H.R. 1424: Div. B (The Energy Improvement and Extension Act of 2008)
Date Enacted: 10/3/2008
Effective Date: 10/3/2008
Authority 3: H.R. 1: Div. B, Sec. 1103 (The American Recovery and Reinvestment Act of 2009)
Date Enacted: 2/17/2009
Effective Date: 1/1/2009
Tags: solar energy tax credits, solar energy residential tax credits, federal solar tax credit, solar tax credit(s), solar tax incentives, solar energy tax breaks