Understanding Form 5695: Residential Energy Credits

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Understanding Form 5695: 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.

Residential Energy Efficient Property Credit

This credit is aimed at encouraging the use of renewable energy sources in residential properties. The following installations are eligible for the Residential Energy Efficient Property Credit:

  • Solar Electric Property: Costs related to solar electric systems that generate electricity for your home.
  • Solar Water Heating Property: Costs for solar water heating systems, provided that at least half of the energy used to heat the water comes from the sun.
  • Small Wind Energy Property: Costs for wind turbines that generate electricity for your home.
  • Geothermal Heat Pump Property: Costs for geothermal heat pumps that meet federal Energy Star guidelines.
  • Fuel Cell Property  

    Costs for fuel cells with a minimum capacity of 0.5 kilowatts and an efficiency of at least 30%. For most of these installations, the credit is equal to 30% of the costs, including labor, from 2022 through 2032.

    Filling out Form 5695 involves several steps:

    1.Part I: Residential Energy Efficient Property Credit

  • Calculate the cost of each eligible property.
  • Multiply the cost by the credit percentage to determine the credit amount.
  • Add up the credits for all eligible properties to get the total credit.

    2.Part II: Nonbusiness Energy Property Credit

  • List the costs of qualified energy efficiency improvements and residential energy property costs.
  • Calculate the credit for each type of improvement.
  • Add these credits to get the total Nonbusiness Energy Property Credit.

    3.Total Credit

  • Combine the credits from Part I and Part II.
  • Enter the total credit amount on your tax return.
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