Making your home more energy-efficient can save you money on utility bills—and on your taxes. Form 5695 is the IRS form that helps homeowners claim two valuable tax credits for green upgrades: the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit. Here's everything you need to know in plain English.

What Form 5695 Is For

Form 5695 is your ticket to claiming federal tax credits when you invest in renewable energy or energy-efficient improvements for your home. Think of it as the IRS's way of rewarding you for making environmentally friendly upgrades. The form covers two distinct programs:

The Residential Clean Energy Credit (Part I)

The Residential Clean Energy Credit (Part I) covers major renewable energy installations like solar panels, wind turbines, geothermal heat pumps, solar water heaters, fuel cells, and battery storage systems. This credit equals 30% of your total costs—including equipment and installation labor—with no annual dollar limit for most property types. If you installed a $20,000 solar panel system in 2024, you could claim a $6,000 credit.

The Energy Efficient Home Improvement Credit (Part II)

The Energy Efficient Home Improvement Credit (Part II) covers smaller-scale upgrades to existing homes, including insulation, energy-efficient windows and doors, heat pumps, water heaters, furnaces, central air conditioners, home energy audits, and electrical panel upgrades. This credit also equals 30% of costs but comes with specific annual limits: generally $1,200 per year for most improvements, with a separate $2,000 limit for heat pumps and biomass equipment, and $150 for home energy audits.

Both credits are nonrefundable, meaning they can reduce your tax bill to zero but won't generate a refund beyond what you owe. However, unused Residential Clean Energy Credit can be carried forward to future tax years.

IRS Form 5695

When You’d Use Form 5695 (Late/Amended Filings)

You must file Form 5695 with your tax return for the year the improvements were installed and placed in service—not simply purchased. If you bought solar panels in December 2024 but they weren't installed until January 2025, you'd claim the credit on your 2025 return, not 2024.

Forgot to claim your credit? You're not out of luck. You can file an amended return using Form 1040-X to claim a missed energy credit. According to IRS guidelines, you generally have three years from the date you filed your original return, or two years from when you paid the tax (whichever is later) to file an amended return and claim a refund. For example, if you installed qualifying improvements in 2023 but forgot to claim the credit, you can still amend your 2023 return through the applicable deadline in 2027.

There's no penalty for filing a late original return if you're owed a refund (though you might lose the refund if you wait too long). Simply prepare a complete original return including Form 5695, showing the improvements made during that tax year.

Energy Efficient Home Improvement Credit – Timing

Key Rules or Details for 2024

Several important requirements determine whether you qualify for these credits in 2024:

Home requirements

For the Residential Clean Energy Credit, the property can be any home you use as a residence in the United States—your main home, a second home, or even a newly constructed home. For the Energy Efficient Home Improvement Credit, stricter rules apply: improvements must be made to your main home (where you live most of the time), it must be an existing home (no new construction), and it must be located in the United States.

Original use

You must be the original user of the qualifying property. Used or previously installed equipment doesn't qualify. For Energy Efficient Home Improvement Credit items, components must have an expected lifespan of at least five years.

Certification requirements

Most qualifying products must meet specific energy efficiency standards. Starting in 2024, home energy audits must be conducted by a Qualified Home Energy Auditor certified by a recognized program. Manufacturers provide written certifications that products meet requirements—keep these for your records, but don't attach them to your return.

Important 2024 change for home energy audits

Beginning January 1, 2024, home energy audits must be performed by (or under the supervision of) a Qualified Home Energy Auditor who is certified at the time of the audit. The written report must include the auditor's name, EIN or other taxpayer ID, certification attestation, and the name of the qualified certification program.

Subsidy adjustments

If you received a subsidy from a utility company or other entity for your improvements, you must reduce your qualified costs by that amount before calculating your credit. This includes subsidies paid directly to contractors on your behalf.

Business use limitation

If you use your home partly for business, you can claim the full credit only if business use is 20% or less. Above 20%, the credit is prorated based on the nonbusiness portion.

IRS Instructions for Form 5695

Step-by-Step (High Level)

Here's how to successfully claim your residential energy credits:

Step 1: Verify eligibility

Confirm that your home, improvements, and usage meet the basic requirements outlined above. Check that products meet required efficiency standards as applicable.

Step 2: Gather documentation

Collect receipts, invoices, and manufacturer certifications for all qualifying improvements. Document total costs including equipment and installation labor (labor counts for most credits but NOT for windows, doors, and insulation). For home energy audits, ensure the written report includes all required information from the qualified auditor.

Step 3: Calculate qualified expenses

Subtract any subsidies, utility rebates, or purchase-price adjustments from your total costs. Determine which improvements fall under the Residential Clean Energy Credit (Part I) versus the Energy Efficient Home Improvement Credit (Part II).

Step 4: Complete Form 5695

Part I covers renewable energy installations with line-by-line entries for solar, wind, geothermal, battery storage, and fuel cell costs. Multiply your total by 30% and apply the tax liability limitation. Part II has two sections: Section A for building envelope improvements (windows, doors, insulation) and Section B for energy property (heat pumps, water heaters, etc.). Apply the specific dollar limits for each category.

Step 5: Transfer to your tax return

Enter your Residential Clean Energy Credit on Schedule 3 (Form 1040), line 5a. Enter your Energy Efficient Home Improvement Credit on Schedule 3 (Form 1040), line 5b. Attach Form 5695 to your Form 1040, 1040-SR, or 1040-NR.

Step 6: Carry forward unused credits

If your Residential Clean Energy Credit exceeds your tax liability for 2024, carry the unused portion to 2025 by completing line 16 of Form 5695. The Energy Efficient Home Improvement Credit cannot be carried forward—unused amounts are lost.

Energy Efficient Home Improvement Credit

Common Mistakes and How to Avoid Them

Mistake #1: Claiming credits for rental property

You cannot claim these credits for a property you rent to others or don't personally live in. Landlords don't qualify. Solution: Only claim credits for homes you actually use as a residence.

Mistake #2: Including labor costs incorrectly

Labor counts toward the Residential Clean Energy Credit and most Energy Efficient Home Improvement Credit items, but NOT for windows, doors, skylights, or insulation. Solution: Carefully separate equipment and labor costs, and only include labor where allowed.

Mistake #3: Forgetting to subtract subsidies

Utility rebates and manufacturer subsidies must reduce your qualified costs. Solution: Review all financial assistance received and adjust your expenses accordingly before calculating the credit.

Mistake #4: Exceeding annual limits

The Energy Efficient Home Improvement Credit has specific caps: $1,200 total for most items, $600 per item for things like windows or doors (with $500 total for all doors and $250 per door), $2,000 for heat pumps, and $150 for audits. Solution: Calculate each category separately and apply the appropriate limit.

Mistake #5: Claiming the wrong year

The credit applies to the tax year when property is installed and placed in service, not purchased. Solution: Use installation completion dates, not purchase dates, to determine the correct tax year.

Mistake #6: Missing manufacturer certifications

While you don't submit certifications with your return, you need them for your records in case of an audit. Solution: Request written certification from manufacturers or sellers that products meet efficiency requirements.

Mistake #7: Confusing the two credits

Mixing up which improvements qualify for which credit leads to incorrect calculations. Solution: Use Part I for major renewable energy systems and Part II for efficiency improvements to existing homes.

What Happens After You File

Once you file Form 5695 with your tax return, the credit directly reduces your tax liability dollar-for-dollar. If you owe $5,000 in taxes and claim a $3,000 energy credit, you'll only owe $2,000.

The IRS processes your return normally. Because these are relatively common credits with clear documentation requirements, most returns with Form 5695 aren't flagged for additional review if properly completed.

If you're due a refund: The energy credits reduce your tax owed and can increase your refund when combined with withholding and estimated payments. You'll receive your refund through your chosen method (direct deposit or check) within the standard IRS timeframe.

If the credit exceeds your tax liability: For the Residential Clean Energy Credit, you can carry forward the unused portion to 2025 and beyond until it's fully used. Report this carryforward on line 16 of next year's Form 5695. For the Energy Efficient Home Improvement Credit, unused credit cannot be carried forward—it expires if you don't have sufficient tax liability in 2024.

Audit considerations: Keep all supporting documentation—receipts, invoices, manufacturer certifications, contractor statements, and home energy audit reports—for at least three years after filing. The IRS may request this documentation if your return is selected for examination. Having organized records makes responding to IRS inquiries straightforward.

Future improvements: The credits remain available through 2032 at the 30% rate, then phase down to 26% in 2033 and 22% in 2034. You can claim the credit every year you make qualifying improvements, subject to annual limits.

Residential Clean Energy Credit Information

FAQs

Q1: Can I claim both credits in the same year?

Yes! If you made both types of improvements—say, installed solar panels (Residential Clean Energy) and replaced windows (Energy Efficient Home Improvement)—you can claim both credits on the same Form 5695 for the same tax year.

Q2: Do I need to own my home to claim these credits?

For most situations, yes. However, if you're a member of a condominium association or tenant-stockholder in a cooperative housing corporation, you can claim your proportionate share of qualifying improvements made by the association or corporation.

Q3: What if I share a home with someone who isn't my spouse?

Each occupant who paid for improvements completes their own Form 5695. You claim credit based on the amount you actually paid. Special allocation rules apply for fuel cell property and when aggregate credits exceed limits—check the joint occupancy provisions in the Form 5695 instructions.

Q4: Are state or utility rebates taxable income?

It depends. Many state energy efficiency incentives are labeled "rebates" but don't qualify as purchase-price adjustments under federal tax law—these may be taxable income. Utility subsidies specifically for purchasing clean energy property generally reduce your qualified costs rather than being included in income. See IRS Notice 2013-70 and Announcement 2024-19 for specific guidance.

Q5: Can I claim a credit for improvements to a second home or vacation property?

For the Residential Clean Energy Credit, yes—you can claim credits for any residence you use in the United States (except fuel cells, which only qualify for your main home). For the Energy Efficient Home Improvement Credit, no—only your main home qualifies.

Q6: What happens if I sell my home after claiming the credit?

You don't have to repay the credit if you sell your home. However, you must reduce your home's cost basis by the amount of credit claimed, which could affect capital gains calculations when you sell.

Q7: When will I know if my home energy audit qualifies?

Starting in 2024, the auditor must be certified by a qualified certification program at the time of the audit. The written report must include the auditor's certification information. Verify your auditor's credentials before scheduling the audit.