Tax credits are the most valuable end-of-year benefit, because they directly reduce the amount of taxes owed dollar for dollar. By subtracting directly from taxes owed, instead of from income calculations, a tax credit can be three or more times more valuable than a tax deduction. For example, a tax credit of $500 for someone in the 28 percent tax bracket is equivalent to a tax deduction of $1,700. Thus, the2010 � 2011 federal 10 percent tax credit up to $300 is one of the best available for a wood or pellet stove (but capped at $300, the 10 percent credit top out at a $3,000 bill, making it not as attractive for a $8,000 to $12,000 furnace or masonry stove)."

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Tax exemptions are worth a set dollar amount and are subtracted from taxable income at the end of the financial year. They are worth about 28 percent of their dollar value for most tax payers (depending on your tax bracket).

Tax deductions are also subtracted from taxable income, but they reflect an expense and are only valuable if you itemize your deductions, instead of taking the standard deduction. If you itemize, a deduction will probably be worth about the same as an exemption – 28 percent for many households; less for lower tax brackets and more for higher tax brackets. Renters and those who do not invest large amounts of money often do not find itemized deductions worthwhile.

Property taxes are often exempted for the value of renewable energy systems. For example, in New Hampshire, towns can exempt the value of biomass systems from local property taxes. In some states, property tax abatements or credits apply to renewable energy systems.

Rebates and vouchers save a consumer money directly when they purchase an item, or quickly thereafter, so they are more immediate for households than the end-of-year incentives. These incentives are much more valuable to low income households who may not pay taxes at the end of the year anyway, or those who couldn’t afford to wait that long. For change-out programs, rebates and vouchers are much more effective than tax incentives. A rebate could be instant, point-of-sale or may involve waiting a few weeks or more to get the rebate back in the mail.

Vouchers work like instant rebates, but you are usually issued the voucher earlier and must bring it and submit it as a cash equivalent at the time of purchase. They are then redeemed by the retailer at a government office or other issuing organization.

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Click here for incentives in your state. Look carefully at the type of incentives available in your area when calculating your potential savings, and check to see that you have correctly budgeted around them.