top of page
AdobeStock_81687188_BW(1).jpg
Search

A Quick Guide To IRS Form 5695

Updated: Apr 21


Man using a calculator on desk and spreadsheet on computer.

As you likely know, the Federal Solar Tax Credit was extended until 2035, making it more feasible for homeowners to install solar panels and reap the benefits. A tax credit decreases the amount owed in taxes for homeowners with adequate tax liability. In order to claim this and other residential energy credits and incentives, homeowners will need to properly fill out IRS Form 5695.


As a solar installer, you should be able to provide the information clients need to fill out this solar tax credit form – although we do recommend against giving any tax advice to clients. Direct them to tax professionals if they have questions on their eligibility or specific situation.


We’ll talk through what Form 5695 for 2023 entails so you can help clients understand what they need to do to claim various solar incentives and other qualifying home energy-efficiency upgrades.


What Is Form 5695 For Residential Energy Credits?


IRS Form 5695 is the paperwork clients can file with their income taxes to take advantage of financial incentives to go green. The Form 5695 worksheet is for calculating and claiming non-business energy property credits or residential energy-efficient property credits.


This form isn’t limited to the solar tax credit: It also applies to other renewable energy upgrades such as geothermal heat pumps, wind turbines, fuel cells, solar water heating systems, biomass and many other alternative energy devices.


How To Fill Out Form 5695


The most important step in filling out Form 5695 is to confirm eligibility. Luckily the form provides a checklist to help homeowners determine which of their green home improvements are eligible for the tax credit.


To get the correct tax credit, clients will need the following information:


  • The gross cost of the solar panel system – panels, racking, inverters, labor, and permitting. The gross amount is what was spent minus other cash rebates, state tax credits, or incentives received.

  • If the solar installation requires other home upgrades, such as a new electrical panel, clients may also be able to add them to the costs. Installers should be able to provide this inclusive system cost.


They’ll also need to enter information on Page 4 to calculate the limit of tax credits they’re able to claim. Be prepared by gathering information about expenses related to:


  • Adopting a child

  • Buying a battery-electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV)

  • Buying a home for the first time

What Qualifies For Form 5695?


IRS Form 5695 isn’t just for solar power systems. Other clean energy upgrades might also qualify for up to $1,200 in tax credits:


  • ENERGY STAR® certified appliances such as natural gas, propane, and oil water heaters or furnaces

  • Biomass stoves

  • Heat pumps

  • Exterior doors, windows, and skylights

  • Insulation and air sealing materials (installation costs are not included)

  • Energy-efficient roofing materials (installation costs are not included)

  • Home energy audits


If more clean energy upgrades were added to the home in previous years, but the client wasn’t able to claim the full value of the credit in a given tax year, they may be able to claim the carry-over credit. A tax professional can advise clients on the best move for their situation.


In addition to these upgrades included in the form, let’s briefly examine a few of the other programs available.


what qualifies for form 5695?

The Energy Efficient Home Improvement Credit


In 2022, the Nonbusiness Energy Efficient Property credit was expanded and renamed. It’s now known as the Energy Efficient Home Improvement credit. The earlier benefits remain in place for 2022, and the enhanced benefits will be in place from 2023 to 2032.


Nonbusiness Energy Efficient Property Credit: For expenses incurred in 2022, this is a 10% credit with a maximum lifetime credit of $500 for most items except doors, where the lifetime cap is $200. Eligible costs include installation and purchase costs of energy-efficient HVAC, water heaters, and biomass stoves. The credit covers purchase prices of energy-saving doors, windows, skylights, insulation, and certain roofing materials, but not the installation costs.


Energy Efficient Home Improvement Credit: For upgrades made in 2023 or later, the credit increases to 30%. The limit has increased from a lifetime $500 limit to $1,200 per year through 2032.



Overview Of The Federal Solar Tax Credit


Taxpayers might be familiar with the federal solar tax credit, which is now also known as the Residential Clean Energy credit. In short, eligible homeowners who install solar panels on their homes through the year 2034 can get a substantial federal tax credit.


The federal solar tax credit has been extended through 2032, so solar homeowners may qualify for a 30% tax credit. The credit goes down to 26% in 2033, to 22% in 2034, and then phases out completely in 2035.


Remember that these federal solar tax credits are not a deduction or refund. They are a one-to-one reduction in the taxes owed. If a client’s tax liability is less than the value of the tax credit, they may be able to carry the remaining balance over to another tax year. Again, encourage them to reach out to a tax professional for more assistance.


FAQs: Using IRS Form 5695


Here are a few questions homeowners might have about IRS Form 5695.


Who fills out Form 5695?


Homeowners who have made clean energy upgrades to their homes should fill out IRS Form 5695 to help them claim the tax credit for these upgrades. This tax form should be completed with their tax return to receive the residential energy credit.


What is the energy tax credit for 2024?


When U.S. lawmakers passed the Inflation Reduction Act of 2022, they raised the amount of the tax credit to 30% of the total cost of renewable energy upgrades until 2032. It was previously scheduled to be 23% before expiring in 2024. As a result, qualified homeowners can claim a 30% federal tax credit for systems installed in 2022 through 2032.


Can I claim expenses from previous years on Form 5695?


Form 5695 is used to claim residential energy credits for the current tax year. If you have expenses from previous years, you should file an amended return for that specific year to claim those credits. It's important to consult a tax professional or refer to the latest IRS guidance for accurate instructions on claiming credits for previous years.


Do I need to submit documentation with Form 5695?


While submitting documentation with Form 5695 when filing your tax return is not required, it is strongly recommended that you retain all relevant documents and receipts. Having supporting documentation readily available will help ensure accuracy and compliance with tax regulations in the event of an audit or if the IRS requests additional information.


Can I claim the residential energy credits on Form 5695 for a rental property?


No, the residential energy credits available on Form 5695 can only be claimed for primary residences or second homes, and they are generally not applicable to rental properties. However, there is a separate credit for certain energy improvements made to qualifying rental properties, called the Energy-Efficient Commercial Building Tax Deduction. It's important to review the latest IRS guidance and consult a tax professional for personalized advice regarding rental properties and energy credits.


How do I get IRS Form 5695?


The Internal Revenue Service (IRS) has Form 5695 for 2023 available online, along with instructions for providing all the information. Homeowners can also use tax preparation software, such as TurboTax or H&R Block, to access and complete Form 5695. These software tools typically guide users through the process and help maximize eligible tax credits.


When will Form 5695 be available?


The IRS has released Form 5695 for tax year 2023, and it is now available to download on its website as a PDF. You can also access the form through tax preparation software, including TurboTax and H&R Block. There is a common misconception that Form 5695 is not ready for tax year 2023, but this is not true.


Where can I get Form 5695 instructions?


The IRS published detailed instructions for completing Form 5695 for Residential Energy Credits, and the PDF is available for download. IRS Form 5695 instructions explain who can take the tax credit, the requirements for claiming it, and how to fill out the form line by line.


What other home efficiency upgrades can be claimed on Form 5695?


Many upgrades related to going green might qualify, including the purchase and installation of energy-saving water heaters, furnaces, doors, windows, air conditioning units, heat pumps, biomass stoves, and small wind energy turbines.


What is the solar tax credit form?


The solar tax credit form is a form used to claim the Residential Renewable Energy Tax Credit, which provides a credit for the costs of installing qualified clean energy property, such as solar panels, in residential homes. IRS Form 5695 allows homeowners to report and claim the credit on their federal income tax return, along with other qualifying home upgrades that improve home energy efficiency.


Can homeowners carry a solar tax credit forward for future tax years?


Homeowners can carry forward any unused portion of the solar tax credit to future tax years, according to the US Department of Energy. The Residential Energy Credits, which include the solar tax credit claimed on Form 5695, allow for a carryover of any excess credit not fully utilized in the current tax year. However, it's essential to check the latest IRS guidelines or consult with a tax professional for the most accurate information.


Form 5695 For Residential Energy Credits


Solar panel systems have a high up-front cost, so filling out IRS Form 5695 is critical to shortening clients’ payback period. If homeowners run into difficulties completing the form, recommend that they get help from a qualified tax professional. Beware of giving tax advice and recommend clients speak with a tax expert.


Also, reminding solar customers about filing form 5695 can be a way to provide excellent customer service. Many solar contractors send out a mass email reminding customs during tax season when they are filling out their tax returns to complete the form.


About GreenLancer

Our mission is to simplify solar and EV charger design, engineering, and field service management for clean energy contractors. To accelerate renewable energy adoption, we offer numerous services, including solar permit plan sets, engineering reviews, and solar field services.


To learn more about important topics for solar installers, check out the GreenLancer blog. We are dedicated to educating solar contractors to help their businesses thrive.



Comments


bottom of page