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.