Making your home more energy-efficient can save you money twice: once on your utility bills and again on your taxes. Form 5695 is the IRS form that lets you claim federal tax credits for qualifying energy improvements you made to your home in 2022. This guide breaks down what you need to know in plain English.

What Form 5695 Is For

Form 5695 helps you calculate and claim two different types of residential energy credits on your 2022 federal income tax return. Think of these as rewards from the federal government for making environmentally friendly improvements to your home.

The Two Types of Energy Credits

1. Residential Clean Energy Credit (Part I)
   This is the big one. You can claim 30% of the costs you paid for major renewable energy installations like solar panels, solar water heaters, wind turbines, geothermal heat pumps, biomass fuel systems, and fuel cells.
   • No dollar cap on most improvements (fuel cells limited to $500 per half-kilowatt).
   • Applies to both existing and newly constructed homes.
   • The home doesn’t have to be your primary residence — it just needs to be in the U.S. and used as a residence during 2022.
2. Energy Efficient Home Improvement Credit (Part II)
   This covers smaller-scale improvements to your main home only.
   • For 2022, it equals:
     • 10% of qualified energy efficiency improvements (e.g., insulation, doors, windows, roofs)
     • Plus the full cost of qualifying residential energy property (e.g., efficient water heaters, furnaces, AC units)
   • Lifetime caps apply: $500 total, $200 for windows, and specific caps ($50–$300) for certain items.

These are nonrefundable credits, meaning they can reduce your tax bill to zero but won’t produce a refund beyond what you owe.

When You’d Use Form 5695 (Late or Amended Filing)

You must claim these credits for the tax year when the installation was completed (or when you began using a new or reconstructed home).

If you installed qualifying improvements in 2022 but forgot to claim them, you can file an amended return using Form 1040-X.

Filing Deadlines and Timing Rules

• Generally, you have three years from when you filed the original return (or two years from when you paid the tax, whichever is later) to amend and attach Form 5695.
• For most 2022 returns filed by April 2023, you have until April 2026 to claim the credit.
• Costs are considered paid when installation is completed, not when purchased or contracted.
• Carryforward rule:
  • Residential Clean Energy Credit – carry forward unused amounts.
  • Energy Efficient Home Improvement Credit – cannot be carried forward.

Key Rules for 2022

Several key rules govern these credits for the 2022 tax year:

Credit Rates and Eligibility

• The Residential Clean Energy Credit jumped to 30% for 2022–2032, up from 26% in 2021.
• The Energy Efficient Home Improvement Credit was extended through December 31, 2022, but retained the $500 lifetime cap (in effect since 2006).

Home Eligibility

• The home must be in the U.S.
• For the Energy Efficient Home Improvement Credit:
  • Must be your main home (where you live most of the time).
  • Must be an existing home — not newly constructed.

Equipment Standards

• Equipment must be new and meet specific energy efficiency standards (e.g., Energy Star 6.0 or IRS-stated criteria).
• Used equipment does not qualify.

Subsidies and Rebates

• You must subtract subsidies or rebates from eligible costs before calculating the credit.
• Net metering payments (for selling excess electricity) do not reduce your credit.

Documentation

• You can rely on manufacturer certifications as proof of eligibility — keep them in your records (don’t attach to your return).
• AMT (Alternative Minimum Tax) filers can claim the credit.

Step-by-Step Filing Process (High Level)

Filing Form 5695 follows this sequence:

Step 1: Gather Documentation

Collect all receipts, contracts, and manufacturer certifications for your 2022 improvements. Include equipment, labor, and preparation costs. Keep records showing compliance with energy standards.

Step 2: Determine Which Credits Apply

Review Part I (Residential Clean Energy Credit) and Part II (Energy Efficient Home Improvement Credit) to identify which improvements qualify for each section.

Step 3: Complete Part I

Enter costs for solar, wind, geothermal, biomass, and fuel cell installations.

• Calculate 30% of eligible costs.
• Apply the fuel cell limitation.
• Use the credit limitation worksheet to determine usable credit.

Step 4: Complete Part II

Check your lifetime limitation worksheet — if you’ve already claimed $500 or more in prior years, you’re ineligible.
If still eligible:

• Enter costs for insulation, doors, roofs, windows, and energy-efficient property.
• Apply 10% rule and item caps.

Step 5: Attach to Your Tax Return

Attach Form 5695 to Form 1040, 1040-SR, or 1040-NR.
The credit amount flows to Schedule 3 of your return.

Step 6: Retain Records

Keep all receipts, certifications, and your completed Form 5695 for at least three years (or longer if needed for basis adjustments).

Common Mistakes and How to Avoid Them

Even well-intentioned taxpayers often make mistakes with these credits. Here’s what to watch for:

Mistake #1: Claiming Credits for New Construction

Only existing homes qualify for the Energy Efficient Home Improvement Credit.
Solution: Wait until you occupy the home before claiming post-construction improvements.

Mistake #2: Ignoring the Lifetime Cap

Many overlook the $500 lifetime limit for Part II.
Solution: Complete the Lifetime Limitation Worksheet before filing.

Mistake #3: Including Labor Costs for Part II

Labor counts for Part I (renewable energy) but not for Part II (energy efficiency).
Solution: Separate invoices clearly.

Mistake #4: Not Reducing for Subsidies or Rebates

Credits must exclude subsidized amounts.
Solution: Subtract all incentives before entering costs.

Mistake #5: Using Non-Qualifying Equipment

Products must meet Energy Star or IRS technical criteria.
Solution: Keep manufacturer certifications.

Mistake #6: Using the Wrong Year’s Form

Always use the correct year’s version — 2022 for 2022 taxes.
Solution: Download at IRS.gov/pub/irs-prior/f5695--2022.pdf.

Mistake #7: Ignoring Item-Specific Caps

Item caps still apply under the $500 total cap.
Solution: Apply per-item limits before totaling.

What Happens After You File

After filing your return with Form 5695:

Credit Application

• The credit directly reduces your tax bill dollar-for-dollar.
• Nonrefundable — if it exceeds your tax owed, no refund is generated.

Home Basis Adjustment

• Reduce your home’s tax basis by the credit amount claimed.
  • Example: $20,000 solar cost with $6,000 credit → basis reduced by $6,000.

Carryforward of Unused Credit

• Unused Residential Clean Energy Credit (Part I) can be carried forward.
• Keep your 2022 Form 5695 for future reference.

Documentation Requests

• The IRS may audit and request proof.
• Keep all records for at least three years (longer is better).

Processing Time

• Typical refund timelines apply (around 21 days for e-filed returns with direct deposit).

FAQs

Q1: Can I claim the credit for a rental property or vacation home?

• Part I: Yes, if located in the U.S. and used as a residence in 2022.
• Part II: No, only for your main home.

Q2: What if I paid in 2021 but installation finished in 2022?

Claim the credit for 2022, the year installation was completed.

Q3: Can married couples filing separately both claim the same home?

No. Only one taxpayer may claim the credit. Joint owners must agree on who claims it.

Q4: Do solar panels on a rental property qualify?

No. Credits apply only to personal residences where you lived during the year.

Q5: I already claimed $500 in prior years. Can I claim more for 2022?

No. The $500 lifetime cap applies.
However, you can still claim the Residential Clean Energy Credit, which has no lifetime limit.

Q6: What if I moved after installation but before filing?

You can still claim it — eligibility is based on when improvements were made, not where you live now.

Q7: Can I claim the credit under the AMT?

Yes. Both credits apply even if you’re subject to the Alternative Minimum Tax.

Additional Resources

• IRS Form 5695 (2022)
• Instructions for Form 5695 (2022)
• About Form 5695
• Energy Credits FAQs

Note: This guide applies to the 2022 tax year. Energy credit rules changed significantly in 2023 under the Inflation Reduction Act. Check the current year’s instructions for updated limits and credit structures.