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A solar tax credit is a federal tax credit for people who have purchased solar energy systems for their homes. The solar tax credit can be applied to both existing houses and newly built houses and additions, but not for rental properties. In 2011, up to 30% of the cost of building and installing these solar energy systems can be applied to the solar tax credit. This amount will be subtracted from the total income tax of the individual claiming the tax credit, provided that he or she has properly applied and submitted the necessary forms.
The two main types of solar energy systems are solar water heaters and solar panels, both of which are eligible for the solar tax credit. Solar water heaters collect and heat water using the heat energy that is generated by the sun, while solar panels convert the sun’s light energy into electricity. A solar tax credit for either system will remain effective until 31 December 2016.
To qualify for the tax credit, the solar water heater must derive at least 50% of its heating capabilities directly from the sun. This percentage is known as the qualifying property and if it is not met, the solar water heater will not be eligible for the solar tax credit. Additionally, the energy tax credit may not be claimed if the solar water heater is used for a swimming pool or hot tub, if the water is not used in the home, or if the heater is not certified by the Solar Rating and Certification Corporation (SRCC). Homeowners may only claim the tax credit for the solar heater, as opposed to the entire system for heating and storing water. If these requirements are met, 30% of the total cost of the water heater, the cost of the installation, and the cost of labor can be claimed for the tax credit.
Solar panels follow similar requirements as solar water heaters, and are also eligible for 30% of the total cost. They must provide electricity for the house and stay in use for the tax credit to remain. Additionally, solar panels must meet current safety guidelines and conform to general electrical and fire codes.
To apply for a solar tax credit, a person must fill out the Internal Revenue Service (IRS) Form 5695 after obtaining any necessary certification for the solar energy system. This form will be used on line 52 of the 1040 form to claim the tax credit. Each year will have a different Form 5695, and the tax credit should be claimed the year that the solar energy system was completed and put to use.