Form 5695 (2020) – Residential Energy Credits Checklist
Purpose
Form 5695 allows taxpayers to claim two distinct residential energy credits for the 2020 tax year: the Residential Energy Efficient Property Credit and the Nonbusiness Energy Property Credit.
The Residential Energy Efficient Property Credit applies to solar, wind, geothermal, and fuel cell installations at a 26% rate. The Nonbusiness Energy Property Credit covers energy efficiency improvements and equipment at a 10% rate, subject to a lifetime maximum of $500. For windows specifically, a separate $200 lifetime credit limit applies across all years after 2005.
2020 Filing Steps
Step 1: Verify Property Location and Eligibility
Confirm your property is located in the United States. For Part I (renewable energy credits), the property can be any home you used as a residence during 2020. For Part II (efficiency improvements), the property must be your main home. Answer questions on lines 17a and 7a accordingly. Non-U.S. properties are not eligible for either credit.
Step 2: Complete Part I for Renewable Energy Property
If you installed solar electric, solar water heating, small wind energy, or geothermal heat pump property in 2020, enter the costs on lines 1 through 4. Include labor costs for on-site preparation, assembly, and installation. Add these amounts on line 5, then multiply by 26% (0.26) on line 6. This 26% rate applies to qualifying property placed in service during 2020 and 2021.
Step 3: Calculate Fuel Cell Property Credits
For a qualified fuel cell property on line 8, first verify on line 7a that the property was installed at your main home in the United States. If yes, enter the complete address on line 7b. Multiply your fuel cell costs by 26% on line 9, then calculate the kilowatt capacity limitation on line 10 using the $1,000 per half-kilowatt multiplier. Enter the smaller amount from lines 9 or 10 on line 11.
Step 4: Apply Credit Carryforward from 2019
If you have an unused residential energy-efficient property credit from 2019, enter the carry-forward amount from your 2019 Form 5695, line 16, onto line 12 of your 2020 Form. Add lines 6, 11, and 12 to determine your total credit before the limitation on line 13.
Step 5: Determine Tax Liability Limitation
Complete the Residential Energy Efficient Property Credit Limit Worksheet found in the 2020 Form 5695 instructions. This worksheet calculates your available tax liability after accounting for other credits you’re claiming. Enter the result on line 14. This step ensures your credit doesn’t exceed your actual tax liability.
Step 6: Calculate Part I Credit and Carryforward
Enter the smaller of line 13 (total credits) or line 14 (tax liability limitation) on line 15. Transfer this amount to Schedule 3 (Form 1040), line 5. If line 13 exceeds line 14, calculate the difference and enter it on line 16 as your carry-forward to 2021.
Step 7: Verify Main Home Requirements for Part II
Complete line 17a to confirm improvements were made to your main home in the United States. Enter your main home’s full address on line 17b—answer line 17c regarding whether enhancements are related to home construction. Only improvements to existing homes qualify—expenses associated with constructing a new home are ineligible, even if installed after you moved in.
Step 8: Calculate Lifetime Limitation
Complete the Lifetime Limitation Worksheet in the instructions if you claimed nonbusiness energy property credits in any year after 2005. This worksheet totals your prior-year credits to determine remaining eligibility. Enter the result on line 18. If your cumulative credits equal or exceed $500, you cannot claim additional Part II credits in 2020.
Step 9: Document Energy Efficiency Improvements
Enter qualified energy efficiency improvements on lines 19a through 19d. Insulation must meet 2009 IECC prescriptive criteria (line 19a). Exterior doors, windows, and skylights must meet Energy Star version 6.0 requirements (lines 19b and 19d). Metal or asphalt roofs must meet Energy Star requirements with appropriate pigmented coatings or cooling granules (line 19c). Do not include labor costs for these building envelope components.
Step 10: Apply Window Expense Limitation
If you claimed window expenses on any Form 5695 filed before 2020, complete the Window Expense Worksheet in the instructions. Windows have a cumulative $200 lifetime credit limit across all tax years after 2005. Line 19e shows $2,000 as the maximum amount for initial calculation purposes, but line 19f reduces this by prior-year window claims. Enter the result from line 19g on line 19h (the smaller of lines 19d or 19g).
Step 11: Calculate 10% Efficiency Improvement Credit
Add lines 19a, 19b, 19c, and 19h to get your total qualified energy efficiency improvements on line 20. Multiply line 20 by 10% (0.10) and enter the result on line 21. This 10% rate applies only to qualified building envelope improvements and operates separately from the 26% renewable property rate.
Step 12: Document Residential Energy Property Costs
Enter costs for qualifying energy property on lines 22a through 22c, including labor for installation. Energy-efficient building properties, such as heat pump water heaters, heat pumps, central air conditioners, and qualifying water heaters, are eligible for a credit on line 22a (maximum $300). Natural gas, propane, or oil furnaces or hot water boilers go on line 22b (maximum $150). Advanced main air circulating fans go on line 22c (maximum $50). These caps represent per-component limits for 2020.
Step 13: Apply Nonbusiness Energy Property Credit Limits
Add lines 21 and 23 (residential energy property costs) on line 24. The maximum credit is $500 (line 25), but you must subtract any prior-year credits entered on line 18 (line 26) to determine your 2020 eligibility. Enter the result on line 27. Then enter the smaller of line 24 or line 27 on line 28.
Step 14: Complete Credit Limitation Worksheet for Part II
Complete the Nonbusiness Energy Property Credit Limit Worksheet in the instructions to calculate your available tax liability on line 29. Enter the smaller of line 28 or line 29 on line 30. Transfer this final credit amount to Schedule 3 (Form 1040), line 5, where it combines with your Part I credit.
Step 15: Report Credits on Your Tax Return
Both Part I (line 15) and Part II (line 30) credits flow to Schedule 3 (Form 1040), line 5, for the 2020 tax year. Attach Form 5695 to your Form 1040, 1040-SR, or 1040-NR. Retain manufacturer certifications and installation documentation for your records, but do not attach them to your return.
Key 2020 Requirements and Limitations
Credit Rates and Limitations
The 26% credit rate for renewable energy property applies to solar electric, solar water heating, small wind energy, geothermal heat pump, and fuel cell property placed in service in 2020 or 2021. This rate represents a step-down from the 30% rate available in 2019. The Nonbusiness Energy Property Credit remains at 10% for qualifying energy efficiency improvements, with a $500 lifetime maximum, effective after 2005.
Window-Specific Limitation
Windows face a separate $200 lifetime credit limit that applies cumulatively across all tax years after 2005. The Window Expense Worksheet tracks all prior-year window claims and subtracts them from the current year’s calculation to prevent taxpayers from exceeding this aggregate limit. This $200 cap is distinct from the $500 overall nonbusiness energy property credit limit.
Main Home Requirement
Part II credits require improvements to your main home—the residence where you live most of the time. Part I renewable energy credits can apply to any home you used as a residence during 2020, not just your main home. However, the fuel cell property must be installed at your main home. All properties must be located in the United States. Rental properties, second homes used exclusively for vacation, and investment properties do not qualify.
Schedule 3 Reporting
For 2020 returns, all residential energy credits must be reported on Schedule 3 (Form 1040), line 5. This represents the consolidated entry point for both Part I and Part II credits. Previous tax years used different reporting lines, so ensure you follow 2020-specific instructions when filing.
Construction vs. Existing Home Distinction
Part II efficiency improvement credits apply only to existing homes or additions to existing homes. Improvements made during new home construction are ineligible for the credit, even if the installation occurs after you move into the newly constructed home. This restriction does not apply to Part I renewable energy credits, which can be claimed for both new and existing home installations.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
