Federal Tax Credit for Solar Energy Systems

Tax credits are available for qualified solar water heating and photovoltaic systems. The credits were recently extended for 8 years for solar. The tax credit is for 30% of the cost of a residential solar electric installation but there is a $2,000 cap for solar hot water . This is effective for property placed in service after December 31, 2008. This credit is not limited to the $500 home improvement cap.

Solar Electric Photovoltaic Systems

Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement. Use IRS Form 5695 PDF

Solar Water Heating

At least half of the energy generated by the “qualifying property” must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household.

• The credit is not available for expenses for swimming pools or hot tubs.
• The water must be used in the dwelling.
• The system must be certified by the Solar Rating and Certification Corporation (SRCC).

Additional Provisions

• Eliminate the prohibition on utilities from benefiting from the credit;
• llow Alternative Minimum Tax (AMT) filers, both businesses and individuals, to take the credit;
• uthorize $800 million for clean energy bonds for renewable energy generating facilities, including solar.

The solar tax credits were originally enacted in the 2005 and have created unprecedented growth in the U.S. The amount of solar electric capacity installed in 2007 was double that installed in 2006.