Solar Tax Credit
The Solar Tax Credit is the common name given to a provision of the Energy Policy Act of 2005 that allowed tax credits for certain solar related items used in home improvements.
The Energy Policy Act of 2005 established some serious tax credit incentives designed to reduce the reliance on fossil fuels in the United States. These credits were prime examples of the tax codes being used to encourage policy that was deemed in the best interest of the country. Included in the act were credits for energy efficient appliances, hybrid automobiles, and solar energy heating panels. The credit concerned with solar energy was referred to as the Solar Tax Credit.
It is important to note that the credits applied only to items purchased and put into service after December 31, 2005 and before January 1, 2008. So, although the credit has now expired, it may be taken on your 2007 tax return if items were put into service this past year. The credit is based on 30% of the cost of the installed systems up to a maximum of $2000.
The systems had to meet certain other qualifications as well. The systems included solar panels for heating, solar water heating systems, and fuel cell power plants. The solar heating units had to have an efficiency rating of at least 30% and produce at least 0.5 kilowatts of electricity. The 30% of actual cost up to a maximum of $2000 could be taken on all three systems separately. The fuel cell power plant credit was limited, however, to an additional qualification of $500 per .5 kilowatt.
It was also a requirement that no part of the systems be used to heat either a hot tub or a swimming pool. It is not clear how this would apply to a home totally solar heated that had a hot tub, but it would seem the presence of the hot tub in the home would disqualify the home from the credit according to the instructions for claiming the credit.
The Solar Tax credit created a big surge in the sales and subsequent development of solar energy during the life of the credit provision. Many industry officials fear that this will now cease and progress toward solar energy as an alternative fuel source will take a decline seriously hurting the investors that supported it so vigorously during the span of the credit.