To qualify, solar hot water systems must provide domestic hot water, be certified by the Solar Rating and Certification Corporation and half the energy used by the home must come from solar energy. Systems used to heat water for swimming pools and hot tubs do not qualify. Only the equipment used in heating water is counted: the IRS has not specified what is covered, but guidance found on the Energy Star web site states, "…if the component is a critical piece of the product's energy efficiency then it is covered, but if it's the same component that you would use on a non-qualified product (a regular roof), then it would not be covered".
A list of certified systems can be found here.
Solar electric systems must provide electricity for the home and meet fire and electrical codes. A professional solar installer can ensure that your system meets the applicable codes and qualifies for the tax credit.
A tax credit is offsets the amount of tax you owe. As an example, if you owe $200 in taxes a $100 tax credit reduces your liability to $100. A tax deduction reduces your taxable income, which may not have as great an impact as a credit on your tax bill.
To apply for the credit, save your receipts and your Manufacturer's Certification Statement. The tax credit is "non-refundable", which means you cannot get more in tax credit than you paid in taxes. In some cases it may be possible to carry the credit forward to a future year.
Individual tax situations vary and tax rules get complicated quickly. To determine your best options consult an income tax professional.
The Energy Star program is run jointly by the US Environmental Protection Agency and the US Department of Energy.