What is the residential energy efficient property credit?

The residential energy efficient property credit is a special credit which you are entitled to claim for certain energy efficiency equipment used on your residential property in 2006 or 2007. The specifics here get a bit technical, but the basics are as follows.

You can claim 30% of any qualified photovoltaic property costs, up to a maximum credit of $2,000. Qualified photovoltaic property costs are those costs associated with the use of solar energy to generate electricity for your home. Think solar panels.

You can also claim 30% of any qualified solar water heating property costs, again up to a maximum credit of $2,000. Qualified solar water heating property costs are those costs associated with the use of, as one might guess, equipment which heats water using solar energy (specifically, at least half of the energy used by the equipment must come from the sun). This includes solar panels which are used to help generate hot water. However, this credit does not apply to devices which are used for heating pools or hot tubs.

Finally, you can claim 30% of the costs associated with fuel cell generation of power, up to a maximum of $500 for each half-kilowatt of capacity produced.

To claim this credit, you should use Form 5695.