A solar panel system seems to be an excellent way of generating less costly electrical power. A solar panel system can be used to either heat water, the air inside homes, and to supply pretty much any appliance that runs on electricity.
People who use a solar panel system or more to power their needs should be the IRS' friends, since the United States government alleges to be seeking alternative energy sources. So in this case one might think that the same government would give some tax credit to those who choose to invest in green energy sources, like in a solar panel system for example.
Well the value of solar panel systems in the IRS' eyes is shown in the Energy Policy Act of 2005 for Individuals. The EPACT says that any individual can make energy-conscious purchases, and will receive some tax benefits from doing so. The law will provide you with tax credits if you make your principal residence, which must of course be in the U.S., more energy efficient. The same Act will also give you some tax credits for buying specified energy-efficient items, like hybrid cars.
Having solar power systems will also earn tax credits only if they are on your main home, and if that home is situated in the U.S. A large part of the EPACT will remain in effect throughout this year, and it is expected to be renewed or expanded in 2008.
The EPACT of 2005 makes tax credit available to those individuals who add qualified solar panels to their homes in the U.S. one could credit up to $4,000 if they have both a solar panel system and a solar water heating system installed. The IRS allows one credit equal to thirty percent of the qualified investment in a solar panel system up to maximum $2,000, and it will also allow an equal credit for a solar water heating system. However you can't heat a hot tub or swimming pool with a solar panel system or a solar water heating system; furthermore in order to qualify for the IRS tax credit qualification, the solar panel system whatever its type must be placed in service between December 31, 2005 and January 1, 2008.
The IRS isn't the only institution that will offer incentives for a solar panel system. You may also be eligible for state rebates or tax incentives; you need to ask for information at your state's energy office. Your state may give incentives for installing solar panel systems, and the IRS tax credit will apply to the basis remaining after you have already taken the state incentives.
Now if you're thinking that a tax deduction is better than a tax credit you need to know that while a tax deduction will take away a percentage of the tax you owe, a tax credit will reduce your tax, dollar-for-dollar. So in principle, tax credit is better than tax deduction.
Even if EPACT wouldn't have been signed into law, and even if the IRS wouldn't offer tax credits for solar panel systems, installing them would still prove to be a wise investment. Many solar panel users find that a solar panel array will pay for itself within three to four years of use, and then with a little maintenance a solar panel system will save you money on your electricity bill.
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