Energy Tax Credit
The United States Government is concerned about the high cost of energy and the negative environmental impact of out of control energy consumption. The Energy Tax Credit is a result of this concern.
It has long been the policy of the Government to use the tax laws and the Internal Revenue Service to encourage activities that are considered to be in the common good. Tax credits are a powerful incentive and are much more effective than tax deductions. A tax deduction only reduces the amount of taxable income, but the tax credit reduces the actual tax owed. The Energy Tax Credit is a good example of this policy at work.
There are a plethora of reasons that the Government is concerned about energy consumption. They are a mix of environmental, social, and political concerns. The bottom line, however, is that the Government has reasons for wanting to reduce energy consumption and so does the individual who is often bearing the increasing energy costs. So, the Energy Tax Credit is certainly a win/win situation.
The Energy Tax Credit includes a credit for certain energy efficient improvements to your home. The improvements must meet certain requirements established by the Government and be made to a primary residence in the United States. The maximum amount of the credit is $500.
Solar energy systems are another section of the Energy Tax Credit. Qualified solar energy systems for water heating or photovoltaic systems can produce a credit of 30% of the actual cost of the system up to a maximum credit of $2000. Fuel cells are another item covered under the Energy Tax provisions and yield a credit of $500 for each .5 kilowatt of power generation capacity.
These Energy Tax Credits as well as the tax credits available for certain energy efficient cars such as gasoline-electric hybrids or fuel cell vehicles are all part of the Energy Policy Act of 2005. The tax credits involved are all allowed in the tax years of 2007 and 2008, and it is hopeful that they will be renewed after that. However, it would be wise to take advantage of them now. Such win/win situations are rare in the world of taxation, but with Energy Tax Credits, you are being allowed to reduce your tax debt by doing something that will reduce your energy costs.