Form 5695 Checklist–2023 Tax Year
Purpose
Form 5695 claims two distinct residential energy credits for 2023: the Residential Clean Energy Credit (Part I) and the Energy Efficient Home Improvement Credit (Part II). Both credits apply a 30% rate to qualifying costs and require installation in or connection to your U.S. home.
The Residential Clean Energy Credit has no annual dollar cap, and unused amounts carry forward indefinitely. The Energy Efficient Home Improvement Credit has annual category-specific caps totaling up to $3,200 per year with no lifetime limit.
Filing Steps
Step 1: Verify Eligibility for Part I – Residential Clean Energy Credit
Confirm that the qualifying property was installed in or connected to your main U.S. home during 2023. Your main home is where you live most of the time. Temporary absences for illness, education, business, military service, or vacation do not change your main home status.
If you only have an unused credit carryforward from 2022, skip lines 1 through 11 and enter the carryforward amount directly on line 12.
Step 2: Calculate Credits for Solar, Wind, and Geothermal Systems
For qualified solar electric property (line 1), qualified solar water heating property (line 2), qualified small wind energy property (line 3), and qualified geothermal heat pump property (line 4), enter the full costs, including labor for onsite preparation, assembly, original installation, and interconnection wiring or piping.
Add these amounts on line 6a and multiply the total by 30% on line 6b. There is no dollar cap for these categories.
Step 3: Determine Battery Storage Technology Eligibility
For qualified battery storage technology (line 5), first verify that the system has a minimum capacity of 3 kilowatt hours. If yes, check the “Yes” box and enter the full costs on line 5b. Include this amount in line 6a.
If the capacity is less than 3 kilowatt hours, check the “No” box and do not include any battery costs. Battery storage must be installed in connection with your U.S. home.
Step 4: Calculate Fuel Cell Property Credit with Capacity Limitation
For a qualified fuel cell property (line 8), verify the installation occurred on or in connection with your main U.S. home located in the United States. Enter the full costs on line 8 and multiply by 30% on line 9.
Calculate the maximum allowable credit on line 10 by multiplying the kilowatt capacity by $500 per half-kilowatt. Enter the lesser of line 9 or line 10 on line 11.
Step 5: Apply Any Carryforward from the Prior Year
If you have an unused Residential Clean Energy Credit from your 2022 Form 5695 line 16, enter that amount on line 12. This credit carries forward indefinitely until fully used.
The credit is available for property placed in service through 2034, with rates of 30% for 2023 through 2032, decreasing to 26% in 2033 and 22% in 2034.
Step 6: Complete the Residential Clean Energy Credit Limit Worksheet
Use the worksheet in the Form 5695 instructions to calculate your tax liability limit on line 14. This amount is based on your Form 1040 line 18 minus certain other credits.
Enter the lesser of your total credit (line 13) or your tax liability limit (line 14) on line 15—report line 15 on Schedule 3 (Form 1040), line 5a.
Step 7: Calculate Carryforward to Next Year
If line 13 exceeds line 15, subtract line 15 from line 13 and enter the result on line 16. This unused credit carries forward indefinitely to 2024 and future years.
If line 15 equals or exceeds line 13, enter zero on line 16.
Step 8: Answer Part II Eligibility Questions for Energy Efficient Home Improvement Credit
Answer all gating questions on lines 17a through 17e. Line 17a mandates that you make the improvements to your primary residence in the United States. Line 17b requires you to be the original user of the components.
Line 17c requires that the components can reasonably be expected to remain in use for at least 5 years. Line 17e asks if improvements relate to new home construction.
If you answer “No” to lines 17a, 17b, or 17c, you cannot claim Part II credits. If you answer “Yes” to line 17e, skip lines 18a through 20b.
Step 9: Calculate Credits for Insulation, Doors, Windows, and Skylights
For insulation and air sealing materials (line 18a), enter costs for materials that meet International Energy Conservation Code (IECC) standards as of January 1, 2021. Do not include labor costs. Multiply by 30% on line 18b.
For the most expensive exterior door (line 19a), enter the price. Then, multiply it by 30% on line 19b, but do not enter more than $250.
For all other qualifying exterior doors (line 19c), enter the total costs. Multiply by 30% on line 19e, but do not exceed $500.
For exterior windows and skylights (line 20a), enter costs for Energy Star-certified products. Multiply the price by 30% on line 20b, but do not exceed 600.
Step 10: Calculate Credits for HVAC Equipment and Electrical Improvements
For central air conditioners (line 22a), natural gas, propane, or oil water heaters (line 23a), natural gas, propane, or oil furnaces or hot water boilers (line 24a), and electrical panel improvements (line 25a), enter costs for products meeting the highest efficiency tier established by the Consortium for Energy Efficiency (CEE).
Include labor costs. Multiply each by 30%, but do not enter more than $600 for any single category on lines 22b, 23b, 24b, or 25b.
Step 11: Calculate Home Energy Audit Credit
For home energy audits (line 26b), enter costs for inspections of your main home that included a written report by a home energy auditor identifying significant cost-effective energy efficiency improvements.
For 2023, the auditor was not required to be certified. Multiply costs by 30% on line 26c, but do not enter more than $150.
Beginning January 1, 2024, audits must be performed by or under the supervision of a Qualified Home Energy Auditor certified by a Qualified Certification Program.
Step 12: Apply Section A Aggregate Credit Limit
Add lines 18b, 19b, 19e, 20b, and 21 on line 27. This subtotal represents the qualified energy efficiency improvements in Section A.
Add lines 22b through 26c to line 27 and enter the total on line 28. The combined total of all items included in line 28 cannot exceed $1,200. If your calculated line 28 exceeds $1,200, enter $1,200.
Step 13: Calculate Heat Pump and Biomass Equipment Credits
For electric or natural gas heat pumps (line 29a), heat pump water heaters (line 29b), and biomass stoves or boilers with at least 75% thermal efficiency (line 29c), include the labor cost.
Add these amounts on line 29d, and multiply by 30% on line 29e, but do not enter more than $2,000. This $2,000 cap is separate from and in addition to the $1,200 aggregate limit in line 28.
Step 14: Complete the Energy Efficient Home Improvement Credit Limit Worksheet
Add line 28 and line 29e, entering the result on line 30. This is your total Energy Efficient Home Improvement Credit before tax liability limitation.
Complete the worksheet in the instructions to calculate your tax liability limit on line 31. Enter the lesser of line 30 or line 31 on line 3—report line 32 on Schedule 3 (Form 1040), line 5b.
Step 15: Maintain Required Documentation
Maintain manufacturer certifications that confirm products meet energy efficiency requirements.
For Part I, retain documentation of costs, including invoices that show labor for installation, wiring, and piping. For Part II, retain manufacturer certifications for qualified energy efficiency improvements and residential energy property.
Do not attach certifications to your return. The IRS may request documentation during the verification process.
Key Differences Between 2023 and Prior Years
The Residential Clean Energy Credit rate increased to 30% for property placed in service in 2023 through 2032, up from lower rates in prior years. Battery storage technology became eligible starting with expenses paid after December 31, 2022, requiring a minimum 3-kilowatt-hour capacity.
The Energy Efficient Home Improvement Credit replaced the prior nonbusiness energy property credit, eliminating the $500 lifetime limit and establishing annual category-specific caps with a $1,200 aggregate limit for most improvements plus a separate $2,000 limit for heat pumps and biomass equipment. Biomass fuel property costs are no longer allowed for the Residential Clean Energy Credit for property placed in service after December 31, 2022.
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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.
