Costs allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of such storage don’t qualify for the residential clean energy credit. Qualified battery storage technology costs are costs for battery storage technology that is installed in connection with your home located in the United States and has a capacity of at least 3 kilowatt hours. To claim the solar tax credit, you’ll need all the receipts from your solar installation, as well as IRS form 1040 and form 5695 and instructions for both of those forms. Tax experts are crucial for accurately interpreting IRS regulations related to energy credits and for compliance during audits.

What Is IRS Form 5695 and Why Does It Matter for Homeowners?

If you’re wondering how to file taxes smartly in 2025 and take full advantage of energy-related incentives, you’re in the right place. In this article, you’ll learn what IRS Form 5695 is, how it works, who qualifies, and how to maximize your tax benefits for energy-efficient home improvements. If you check the “No” box, you can’t claim the home energy audit credit. You can only claim the energy efficient home improvement credit on one main home.

• Eligible upgrades include geothermal heat pumps, solar water heating systems, small wind energy generators, battery storage systems with a minimum capacity of 3 kWh, and other qualified improvements.
• Form 5695 offers homeowners a valuable opportunity to claim tax credits for energy-efficient upgrades.
• If you make additional energy-efficient home improvements in the fiscal year, you may qualify for other tax credits.
• Fortunately, there are energy efficiency tax credits available that many homeowners qualify for, resulting in significant savings.

In 2024, they installed qualified fuel cell property at a cost of $20,000 with a kilowatt capacity of 5. Ava paid $12,000 towards the cost of the property and Bruce paid the remaining $8,000. The amount to be allocated is $16,670 ($1,667 x 10 (kilowatt capacity x 2)). The amount of cost allocable to Ava is $10,002 ($16,670 x $12,000/$20,000). The amount of cost allocable to Bruce is $6,668 ($16,670 x $8,000/$20,000).

To claim the solar tax credit, you need to complete IRS Form 5695, “Residential Energy Credits,” when filing your federal tax return. This form will help you calculate the credit amount based on your qualified solar energy installation expenses. Ensure you have all related receipts and documentation to support your claim. To qualify for the credit, the qualified energy property must have been originally placed in service by you. Some solar roofing tiles and solar roofing shingles serve the function of what qualifies for form 5695 both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit.

There are no limits on the amount of credit you can claim, except for fuel cell property which is limited to $500 per 0.5 kilowatt of capacity. IRS Form 5695 allows you to report and claim the credit on your federal income tax return, along with other qualifying home upgrades that improve home energy efficiency. It’s essential to ensure your upgrades meet these criteria to benefit from tax credits. The document itself uses the term “Residential Energy Credits” which is the specific term used by the IRS to calculate non-refundable credit for a residential energy-efficient property.

To qualify for the credit, you must be the original user of the qualified energy efficiency improvements. The U.S. Code and the instructions for Form 5695 do not clearly state whether home ownership is necessary for the residential energy efficient property credit. However, other IRS publications often refer to homeowners when discussing the credit.

Keep digital or paper copies of all invoices, certifications, and proof of payment. These will support the amounts claimed on Form 5695 if audited by the IRS. Palmetto Solar, LLC (“Palmetto”) makes every attempt to ensure that the information contained in this website has been obtained from reliable sources.

Unlike before, you can use Form 5695 every year through 2032, provided you continue to make qualified energy improvements. If the total on line 27 is more than $1,200, then the credit allocable to you is further limited. The numerator is the sum of the amounts on lines 18a, 19a, 19c, 20a, 22a, 23a, 24a, 25a, and 26b. The denominator is the total amount paid by you and all other occupants for the corresponding properties.

Solar Repairs

• Compare the values on lines 13 and 14 to determine the amount to enter on line 15, which should be the smaller of the two.
• Understanding these points can help you make an informed decision about whether a PPA or system ownership is the right solar solution for you.
• If you share ownership of the home with someone else, each owner must submit their own Form 5695.
• A typical installation of a solar energy system can average around $32,386 before applying any incentives.

For example, let’s say that you purchase solar panels in February 2024, and they are installed during the first week of May. In this scenario, you should fill out the form whenever you are filing your 2024 taxes, which—for most people—falls in the late winter or early spring of 2025. Homeowners often have questions about IRS Form 5695 and how to claim Residential Energy Credits for solar panels and other clean energy upgrades. You made the smart decision to install a solar system in 2024—now it’s time to make sure you get the full benefit of the Federal Solar Tax Credit.

Overview Of The Federal Solar Tax Credit – IRS 5695

If you are a homeowner with solar panels, the depreciation of your system should garner no tax implications. Instead, solar panel depreciation deductions are generally only available for business owners or clean energy systems on commercial properties. Palmetto is a clean energy company that believes solar power can change our world for the better, but we are not tax preparation experts. We recommend you seek out the advice of a licensed accountant or tax professional if you have any specific questions about filling out Form 5695 to claim the Residential Clean Energy Credit.

Fortunately, there are energy efficiency tax credits available that many homeowners qualify for, resulting in significant savings. To maximize your savings and understand all eligible upgrades, consult a tax professional. Also, other programs may provide incentives for energy efficiency and cost savings, complementing the benefits of IRS 5695.

Worksheets are provided with Form 5695 instructions to determine the exact credit amount. The solar tax credit is a federal tax credit for solar systems you can claim on your income taxes, and reduces your federal tax liability. The tax credit is calculated based on a percentage (30% in the year 2024) of the total cost of your solar energy system. If you installed a qualifying renewable energy system, such as solar panels, you must complete IRS Form 5695 for 2024 to claim the Residential Clean Energy Credit. Submit this form with your tax return to apply the credit to your federal tax liability.

State-specific solar incentives and tax credits

By filing Form 5695, taxpayers receive tangible financial relief while contributing to a sustainable future. Accurately entering the amounts spent on qualifying improvements and selecting the right credit rates is key to maximizing your tax credit within the designated limits. Palmetto is committed to providing green solutions for a clean and renewable energy future, including solar power systems, battery storage, and our Palmetto Protect monitoring service. Contact us to learn more about how we can help you maximize your solar experience.

Section B—Residential Energy Property Expenditures Lines 21a Through 21c

The residential clean energy credit (Part I) is available for both existing homes and homes being constructed. The energy efficient home improvement credit (Part II) is only available for existing homes. Yes, you can carry forward unused tax credits to future tax years if your current tax liability is lower than your credits, enabling you to optimize your savings over time.

This credit can significantly reduce your tax bill, but to claim it, you’ll need to complete IRS Form 5695 when you file your taxes. Joint occupants of a home who are claiming the energy efficient home improvement credit must check the box on line 32c and attach a statement explaining how they allocated the credit among each occupant. For purposes of taking the credit, you can rely on a manufacturer’s certification in writing that a product is qualified energy property. Enter the full address of each home where you installed qualified residential energy property. You cannot claim the credit for expenses related to the construction of a new home. If you are claiming the credit only for expenses for qualified improvements to an existing home or for an addition or renovation to an existing home, check the “No” box.

A tax professional can guide you through the documentation required to substantiate your claims, ensuring that all necessary information is correctly reported. Drawbacks include strict eligibility criteria, limitations on covered improvements, and a $500 cap on the Nonbusiness Energy Property Credit. Credits are non-refundable, requiring accurate documentation to avoid denied claims. By making renewable energy upgrades more affordable and providing substantial tax relief, it encourages wider adoption of energy-efficient technologies. Then, compare the 5695 credit to your total tax liability before any credits are applied.