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The Alternative Power Solutions

How Solar Tax Credits Work

There seems to be a lot of confusion with how solar tax credits work. It seems like a good idea on the surface – and actually in this case it is — but it isn’t always the easiest idea to explain.

The most important thing to realize is that incentives and tax credits do not go on forever, so if you are even remotely considering investing in some type of solar powered system, first do your research into how long the tax credits are available so you can make an informed decision about whether and when to jump onboard the solar energy wagon.

The Federal Investment Tax Credit will provide homeowners who install some type of energy saving device, such as solar panels or a solar water heater as much as thirty percent of the cost by allowing a credit on the buyer’s federal income tax.

The program is called Residential Renewable Energy Tax Credits. It states that citizens who buy solar systems can get up to a 30 percent tax credit if they do so before the end of the year 2016. This includes solar water heaters, solar panels – and the subsequent solar power system, geothermal heat pumps, fuel cells and other systems that generate power, including those produced by wind and other methods.

In the same vein, there are tax credits for businesses who go solar or who use other forms of renewable energy in their businesses.

There are also tax credits – called Federal Tax Credits for Energy Efficiency — for owning hybrid vehicles and for homeowners who have bought energy efficient products such as windows, insulation, doors, roofs, furnaces, air conditioners and so on. The tax credit is up to 30 percent of the cost of these home improvements up to $ 1,500 and they must have been purchased by December 31, 2010.

All of this is possible because of The American Recovery and Reinvestment Act of 2009, which was an extension to many tax credits in the Energy Policy Act of 2005.

So while taking advantage of that credit is over, the solar tax credit is still around, but it is important to jump on it now, because the understanding is it won’t be around after 2011.

In addition, taxpayers would do well to look outside of just federal tax credits. There are also available tax credits from some states and even local governments and utility companies.

In addition, there may be rebates from your state for appliances purchased that fall under the Energy Star umbrella.

It is important to realize how a tax credit works. A tax credit is not going to eliminate money owed if you end up owing money on your taxes, but it might be able to reduce the amount of money you do owe. It is not the same as some other credits, but it will help bring your tax bill down if you owe and may even tip you over the edge if you don’t owe and make the difference between you getting a refund or not.

Frank Yocanis has been writing about Arizona solar energy for more than a decade. He is an expert on how solar companies in Arizona will enhance our world and our lives.