If you install solar equipment the IRS will give you
tax credits.  These tax credits apply to solar electrical
systems and solar water heaters.  Learn about the
requirements for solar tax credits.

Solar Electrical Tax Credits
The IRS gives you tax credits if you made energy saving improvements
to your home in 2007 if it is located in the United States.  For tax credit
purposes, costs are treated as being paid when the original installation
of the item is completed, or in the case of costs connected with the
construction or reconstruction of your home, when your original use of
the constructed or reconstructed home begins.  If less than 80% of the use
of an item is for non-business purposes, only that portion of the costs that
are allocable to the non-business use can be used to determine the credit.

Note that this is a TAX CREDIT, not a tax deduction.


Solar Tax Credit Background
The Energy Policy Act of 2005 (H.R. 6, Sec. 1335) established a 30% tax
credit up to $2,000 for the purchase and installation of residential solar electric
and solar water heating property.  An individual can take both a 30% credit
up to the $2,000 cap for a photovoltaics ( a device that converts solar energy
into electricity by the photovoltaic effect) system and a 30% credit up to a
separate $2,000 cap for a solar water heating system.  A 30% tax credit up
to $500 per 0.5 kilowatt (kW) is also available for fuel cells.  Initially scheduled
to expire at the end of 2007, the tax credits were extended through
December 31, 2008, by Section 206 of the Tax Relief and Health Care Act of
2006 (H.R. 6111).


Solar Tax Credit Requirements

You may be able to take a credit of 30% of your costs of qualified solar
electric property, solar water heating, and fuel cell property.  This includes labor
costs properly allocable to the onsite preparation, assembly, or original
installation of the property and for piping or wiring to interconnect such
property to the home.  This credit is limited to:

Solar water heating property must be certified for performance by the
Solar Rating Certification Corporation (SRCC) or a comparable entity
endorsed by the government of the state in which the property is installed.
Note that the tax credit does not apply to solar water heating property for
swimming pools or hot tubs.

Qualified Solar Electric Property Costs
Qualified solar electric property costs are costs for property that uses solar
energy to generate electricity for use in a home located in the United States
and used as your home. This includes costs relating to a solar panel or other
property installed as a roof or a portion of a roof.  The home does not have
to be your main home.

Qualified Solar Water Heating Property Costs
Qualified solar water heating property costs are costs for property to heat water
for use in a home located in the United States and used as your home if at least
half of the energy used by the solar water heating property for such purpose is
derived from the sun. This includes costs relating to a solar panel or other
property installed as a roof or a portion of a roof. To qualify for the credit, the
property must be certified for performance by the nonprofit Solar Rating Certification
Corporation or a comparable entity endorsed by the government of the state in
which the property is installed. The home does not have to be your main home.

Qualified Fuel Cell Property Costs
Qualified fuel cell property costs are costs for qualified fuel cell property installed
on or in connection with your main home located in the United States. Qualified
fuel cell property is an integrated system comprised of a fuel cell stack assembly
and associated balance of plant components that converts a fuel into electricity
using electrochemical means. To qualify for the credit, the fuel cell property must
have a nameplate capacity of at least one-half kilowatt of electricity using an
electrochemical process and an electricity-only generation efficiency greater than 30%.

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