With energy costs rising and fuel reserves dwindling, moreand more people are turning to solar power. Solar panels capture energy from the sun,which can then be converted to electricity or used to heat water, depending onthe system you have in place. While solar electric and solar thermal systemsrequire significant initial investment, they are often cost effective in thelong run, especially for people with high energy usage. The good news is thatthe government (local, state and federal) offers tax incentives for investmentin solar power, making solar installation easier and more affordable.

The federal government passed the Energy Policy Act in 2005,which, among other things, established a federal tax credit for 30% (or up to$2,000) of the cost of the solar electric and/or solar thermal system. The bestthing about this is that it is a "tax credit" not a "tax deduction," which ismore valuable to the tax payer. Essentially,tax deductions only remove a percentage of the tax that is owed, while taxcredits directly knock off dollars from tax bills, regardless of how much a taxpayer owes.  For example, if you installboth a solar thermal system and a solar electric system, $4,000 can besubtracted directly from a tax bill!* 

There are of course some restrictions that go along with thesefederal solar incentives. First, solar systems can't be used to heat pools orhot tubs. Second, the tax credit is only applied to the cost of the system after state incentives are applied.  Also, good things don't last forever, andyour chance to claim this particular federal tax credit ends after December 31,2008. Starting in 2009, the credit will go down to 10% of eligible solar systemcosts.  So if you're thinking aboutinstalling solar panels you should take action soon.  

In addition to the generous federal tax credits for solarpower, many state and local governments offer benefits for individuals andbusinesses looking to go solar. For example, many states also offer tax creditsor direct monetary incentives for solar investments. Some states offer directmonetary credits for every watt of renewable power produced. The incentives arevaried from place to place, but you can find out what is available where youlive by checking the Database of State Incentives for Renewables &Efficiency (http://www.dsireusa.org/index.cfm?EE=1&RE=1).  Thiswebsite provides summaries of the incentives for all 50 states.  Also, if you are considering going solar,check with your utility to see if there is a "net metering" option. Basically,net metering allows you to "sell back" any unused electricity to the powergrid, giving you a credit on your utility bill. This essentially allows you to"store" excess renewable energy for a later time. 

Solar panels are not the right option for everyone, but they can be cost effective and convenient,especially with government incentives. If you are interested ininstalling your own solar system, the first step is to conduct some researchand decide whether or not solar panels may be a good fit for you and your home.The National Renewable Energy Laboratory is a good resource for initialinformation (http://www.nrel.gov/learning/re_solar.html). Also, try contacting a local solar installer who can give you detailedinformation on a system that could work for you, and who can help you understand all of the tax incentives thatare available in your area.  Additionally,you can post in the GreeniacsForums (http://www.greeniacs.com/GreeniacsForums/)or GreeniacsBlogs (http://www.greeniacs.com/GreeniacsBlogs/)to see if any Greeniacs in your area can recommend a local solar installer, andcheck out the GreeniacsDirectory (http://www.greeniacs.com/GreeniacsDirectory/).  Another resource for locating solarinstallation companies is Co-op America'sNational Green Page™ under the "Energy Products/Services-Renewables" category(http://coopamerica.org/pubs/greenpages/)and then you can search for providers in your area.

* This article does not constitute tax advice and should notbe relied upon as tax advice.  Pleaseconsult a Certified Public Accountant for tax advice.  This article is not intended or written to be, and cannot be used, by any person forthe purpose of avoiding tax penalties that may be imposed regarding thetransactions or matters addressed.

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