What are Tax Credits and Tax Deductions?
There is an important difference between a tax deduction and a tax credit. A tax deduction is subtracted from income before total tax liability is computed. On the other hand, a tax credit is subtracted directly from the total tax liability. This means that a deduction and a credit have very different values, with a credit being 3 or more times more advantageous to the taxpayer than a deduction. For example, a tax credit of $1,000 for someone in the 28% tax bracket is equivalent to a tax deduction of $3,571. Tax Credits for Solar Photovoltaics and Solar Water Heating Systems The Federal Tax Credits for solar energy were modified and extended in 2008. Now, Federal tax credits are available for residential and commercial solar energy systems placed in service between January 1, 2006 and December 31, 2016. Residential Tax Credits For solar water heaters and solar electric (PV) systems placed in service before January 1, 2009, the tax credit is 30% of the equipment and installation cost, w
