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What about the Federal Tax Credit for Solar Hot Water system?
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The Federal tax credit is fairly simple. A tax credit is an amount that you can deduct from what you owe the government in taxes. Let us say that you owe the IRS $10,000.00 at the end of the year. Over the same year, you paid into the IRS $11,000.00. This means that you have over paid your taxes and the IRS will send you a check for $1,000.00. If you also get a tax credit of $2,000.00, then the IRS will send you a check for $3,000.00. One thousand dollar that you over paid and two thousand dollars in a tax credit. Tax credits are what they call dollar for dollar. You get back one dollar for each dollar that is in the tax credit.
How does the Federal Solar Hot Water Tax Credit work? The tax credit is 30% up to $2,000.00. This means no matter what you spend, you can not get a credit of over $2,000.00. Let us say that you purchase a Solar Hot Water system that costs $8,000.00 installed. Thirty percent of $8,000.00 is $2,400.00. This amount is over $2,000.00, therefore, you would only get the $2,000.00 credit, the maximum amount. Now, let us say that you purchased a Solar Hot Water system that costs $4,000.00 installed. Thirty percent of $4,000.00 is $1,200.00. Because the $1,200.00 is less than $2,000.00, you will receive the full amount or $1,200.00.
If we use the example above where you paid in $11,000.00 in deductions during the year and at the end of the year you had a tax liability of 10,000.00. You filled your taxes and the IRS would normally send you a check for $1,000.00. With the above $1,200.00 Solar Hot Water Tax Credit, the IRS would send you a check for $2,200.00.
If you would like the information directly from the IRS, click on the link below.