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Get tax credits for energy improvements

One of the few silver linings to the rising cost of energy is that Uncle Sam has greater sympathy for you and will kick back some money if you purchase certain energy-saving products.

For 2007 tax return purposes, certain energy-efficient home improvements could make you eligible for a 10 percent tax credit. Eligible improvements include such relatively simple things as replacing windows and doors, adding insulation, and installing a high-efficiency air conditioner or furnace.

If you did any of that last year, they could get you a maximum tax break of $500. It's not much in the overall home-improvement scheme of things, but every tax-cut bit helps. Plus, there's no income phaseout associated with the tax break. And since it's in credit form, it reduces your federal tax bill dollar for dollar.

So be sure to claim the credit if you can this filing season. It might be your last chance.

There is some talk in Washington, D.C., of continuing the credit for these specific home improvements, but officially, the tax break for these energy upgrades expired when the new year began.

However, another portion of the Energy Tax Incentives Act of 2005, which is the legislation that ushered in the energy home improvement tax breaks, offers some additional tax-cutting hope for energy conscious homeowners in 2008. It covers much more generous tax credits for solar water, heat or power upgrades and this tax break does continue through this tax year.

Solar conversion can really pay off
The bigger tax credits, however, will come if you decide to convert some of your home's systems to solar power.

It wasn't very long ago that installing virtually any kind of solar device was a labor of love without much economic value. But with the federal incentives -- combined in many places with utility and state incentives -- solar is looking like a much better deal.

The provisions of this law originally allowed taxpayers to claim a tax credit each year in 2006 and 2007, but Congress extended them through 2008 for several expenses.

Allowable expenses:

The best solar deal
Solar equipment -- particularly solar water heaters -- is a lot more reasonably priced, easier to install and generally more practical than it's ever been.

While installing photovoltaic systems can be pricey with payback in the distant future, installing a solar water-heating system can pay for itself quickly and, as energy prices rise, continue to save a homeowner increasing amounts of money.

"I think that even without the tax credit, solar water-heating systems are economical. You'd almost be crazy not to get a solar water heater right now -- especially with natural gas prices going up," says Noah Kaye, policy and communications coordinator for the Solar Energy Industries Association.

Solar water-heating systems rely on relatively simple and cheap technology to circulate water through panels that face the sun, supplementing, and in some cases replacing, conventional water-heating systems.

The most common type of solar thermal system involves copper pipes that wind back and forth through a flat plate collector, typically mounted on a roof. The heated water is collected in an auxiliary water tank, or it can be routed straight into the main water tank, where it is either heated further by conventional means or is ready for use at the spigot or in a radiant, or radiator heating system.

Kaye estimates that a reliable system installed by a professional can cost as little as $3,500, with systems climbing to as much as $6,000 in cold climates where freezing is an issue. Once it's installed, the ongoing costs are near zero with only very occasional maintenance needed.

Next: "Installing a solar water heater can be a do-it-yourself project ..."
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