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Tax Credits for Saving Energy 
 
by kmhagen October 05, 2005

Tax credits are available for saving energy by making your home more energy efficient or using vehicles that are more fuel-efficient or use alternative fuels. A total credit of up to $500 is availabe on energy-conserving home improvements, up to $2,000 for solar-powered water heating systems, and there are tax credits for the purchase of hybrid or other qualifying vehicles.

You may be able to claim a tax credit for 10% of the cost of energy-saving home improvements, up to a lifetime maximum of $500.  There are lower limits on certain types of improvements, but by combining them, you could save up to $500.  A credit is a direct reduction of your taxes, as opposed to a deduction on your income It is a dollar-for-dollar savings.

Energy Efficiency Tax Benefits for Home and Business

The tax benefits available for making energy-saving improvements in your home or your business include the following:

  • Tax credits for solar energy systems in residences,
  • Tax deductions for highly energy-efficient commercial buildings,
  • Tax credits for highly energy-efficient new homes,
  • Tax credit for energy-saving home improvements,
  • Tax credits for residential fuel cell systems, and
  • Tax credits for fuel cells and microturbines used in a business.

Solar Energy

There are two credits available for the use of solar energy in your home.  There is a 30% tax credit, up to a maximum of $2,000, for a solar-powered water heating system that you install for use in your home, provided the system is not used just for heating swimming pools and hot tubs.  To be eligible for this credit, the system must be certified by the Solar Rating and Certification Corporation (SRCC) and must produce 50% or more of the hot water needed in the residence.  The second credit is for 30% of the cost of a solar photovoltaic (PV) system, also up to a maximum of $2,000.   There is no qualification requirement for a PV system.  A taxpayer can claim either or both of these solar energy credits.  There is also a production tax credit of 30% available to manufacturers of these solar energy systems.

Consumers may also see some indirect benefits in the form of lower prices and reduced energy bills for energy-efficient appliances, such as washers, dryers, dishwashers, and refrigerators, as a result of a $100 or higher credit available to the manufacturers of these appliances, if they meet the current Energy Star energy-efficiency standards.

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