Video: Federal Tax Credit for Solar Energy

Hello, I'm Jeremy from TurboTax with important news on how you can reduce your tax bill and protect the environment at the same time.

Have you installed solar powered equipment in your home this year? Or are you considering it? If so, the federal government will reward your environmentally conscious home improvements with an energy tax credit equal to 30 percent of your purchase and installation costs. There is no maximum on the amount of credit you can claim.

Essentially, the credit works like this. If you spend $10,000 dollars to buy and install solar panels on your roof, your credit will equal $3,000 dollars. If at the end of the year, you owe $5,000 dollars in taxes, the tax credit reduces your tax liability to $2,000 dollars. If you haven't purchased the solar powered equipment yet, don't worry. You have until 2016 to do so.

There is, however, one notable limitation to the energy tax credit. It is only available for improvements that you make to your main home which is generally your principle residence where you live for most of the year. You can also increase your tax savings by claiming similar tax credits for energy efficiency improvements.

A maximum $1,500 dollar tax credit that is equal to 30 percent of your cost to purchase energy efficient equipment is also available for items such as wood stoves or energy efficient water heaters. But before you make these purchases, be sure that the packaging has the energy star label. Otherwise, it will not qualify for the energy tax credit. For more information about this and other tax topics, visit TurboTax.com.