Tax credits for solar and high efficiency hot water heaters were part of President Obama's economic stimulus package. The law brought old tax credits that expired in 2007 back into the effect (like those for energy efficient home improvements) and covers more areas. Home improvements must be made during the 2009 school year and must be made to the primary residence.

There is a 30% tax credit for the expense of installing a solar hot water heater for use in your home that had no maximum on the total amount. Solar hot water heaters for a swimming pool or for a hot tub are eligible for a tax credit. Old laws had a maximum of $2,000 or $4,000 for solar water heaters, geothermal heat pumps or wind energy projects. These credits are available until 2016 and cover both labor and material expenses.

Included in this stimulus package is a tax credit for high efficiency hot water heaters but in this case there is a cap. Gas or electric water heaters, such as the tankless varieties, may be eligible for a $1,500 tax credit if they have at least a .82 Energy Factor (EF) rating or have a 90% thermal efficiency. The tax credit depends on what other energy-efficient home improvements you are claiming.

The difference in tax credits between solar and high efficient hot water heaters indicates the importance the Obama administration places on encouraging Americans to use a renewable source of energy. Installing an All Energy Star solar hot water heaters will get you a tax credit. This summer we are going to install a solar hot water heater in our home to work along side our tankless heater.