The proper name is Residential Energy Efficiency Property Credit.
The IRS supports efforts by individuals to reduce energy costs and to generate their own energy.
Individuals (but not businesses) can obtain a tax credit for residential energy improvements. The credit is 30% of the cost of solar water heating, solar electric, fuel cells, small wind energy and geothermal heat pump.
There are a few simple rules associated with these credits.
First, the credit is available for energy equipment installed in or on the individual’s residence. This could be a first or second home owned by an individual and located in the United States. It does not apply to rental properties. The property could be existing or new home construction.
There is an exception in that there is no credit for equipment meant to heat swimming pools or hot tubs.
Secondly, the cost includes the cost of the equipment and the installation. There is a temptation for an individual to include other costs of repairs made in conjunction with the installation. The rule is that only the costs directly related and necessary to installing the energy equipment are eligible for the credit. If an individual also repairs his roof during the process, these costs are not deductible because they are not necessary to install the energy equipment.
Finally, you can rely on the manufacturer’s statement that the equipment qualifies for the energy credit. If you have any questions be sure to check with your income tax preparer.