What are energy tax credits?

Energy tax credits are incentives to lower taxes for people who use alternative energy resources. These are authorized by the U.S. Congress. They work by reducing income tax owed by a dollar-for-dollar basis. In contrast, a tax deduction lowers the amount of income subject to tax.

In 2014, two energy tax credits include a tax liability reduction of 30 percent for any amount spent purchasing and installing environmentally friendly equipment in the home and a plug-in electric vehicle tax credit for individuals buying plug-in electric vehicles. For the environmentally friendly equipment tax credit, the equipment must be installed before 2017, and this credit is only available on a primary residence.