Tax Credits Applicable on Solar Energy

In the middle of the cold months, most people get a rude shock when they see their utility bills. What many of us don’t know is that opting for solar energy helps in reducing the bills and also provides you with an attractive tax credit.

Solar Tax Credit

Solar energy, a form of alternative energy, is a clean and renewable type of energy. Producing solar energy on residential and commercial structures eliminates creation of pollutants and has considerable financial advantages as well. The concept of net metering is now widespread and well-established across 35 states. Net metering gives you the chance to sell energy from solar panel systems to utilities, consequently reducing, or even eliminating, utility bills. With the prices of oil and natural gas has become sky high and is constantly rising, the Federal Government is focusing on promoting and encouraging the use of solar energy.

The Energy Policy Act was enacted by the Congress in 2005. As per the Act, if any individual purchases and installs residential solar energy systems to carry out electric and water heating, a tax credit would be established. If an individual purchases and installs solar systems for either of the two aforementioned purposes, they will be entitled to a 30 percent tax credit. If an individual installs systems for both of the abovementioned purposes, their tax credit would double. Each tax credit is characterized by a cap of $2,000 with a view to avoiding tax abuse.

It should be remembered that tax credits are much more significant as compared to tax deductions. Before calculating the amount of tax you owe, tax deductions are carried out from your gross income. Tax deductions are calculated dollar for dollar on the amount of tax a taxpayer owes. For example, while preparing your tax returns, if you realize that you owe $5000 to the IRS, you would have tax credit deductions from this amount. In brief, tax credit ensures higher return son your money.

A number of prerequisites and restrictions apply on claiming solar tax credit. Tax credits are not applicable if you use the solar energy to heat up a hot tub or pool. Also, you need to prove that you installed a working system by having your system certified by a solar rating certification corporation. Also, the time period in which the system needs to be installed is 1^st January 2005 to the end of the year 2007. Moreover, individuals who have got a grant or financial aid from the Government for buying the solar system are not eligible for claiming the credit.

In any discussion of solar energy as a potential source of alternative energy, environmental benefits of the system are bound to be discussed at length. At the end of the day, it is surely going to be beneficial for the bank account of the user of the solar energy, thanks to the tax credit applicable to it.