What does Tax Credit mean?

[fw12]

What is the name of your state? Nevada

I'm planning to purchase a Tankless Water Heater, which qualifies for a $300 tax credit.

What does Tax Credit Mean? Does it mean I get to subtract $300 off my gross income before income tax is calculated?

OR

Does it reduce my tax liability by $300. In other words, after all calculations, and it comes out that I owe say $1,000, does it mean I then owe $700?

Thanks.

[irsos]

A tax credit is a dollar for dollar reduction of tax liability.

[fw12]

Thanks a lot for your answer.