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Form 5695 For Energy Tax Credits


Going green is not just beneficial for the environment it’s also a great way to boost your finances. Making energy-efficient upgrades to your home can not only reduce your energy bills but also offer some sizeable tax savings.

The Federal government wants to encourage citizens to go green, which is why they provide a range of tax credits. To claim these tax credits, you’ll need to fill out Form 5695.

Here’s what you need to know about it.

What’s Form 5695?

Form 5695 is what you need to fill out to calculate your residential energy tax credits. You need to submit it alongside Form 1040.

There are two parts that cover the two main tax credits for residential green upgrades. You only need to fill out the parts that are relevant to you.

How to Fill Out Form 5695

Before you begin, you need to remember that a single mistake can lead to financial penalties and an audit. The IRS is extremely vigilant when determining whether to accept an application for a tax credit on Form 5695.

Part One

The first part of Form 5695 is designed for those claiming the residential energy-efficient property tax credit.

You need to enter the amount you spent on the purchase and installation of any energy-generating upgrades to your property.

Be specific when listing the purchases, especially when it comes to heat pumps and other solar systems.

Make sure you enter your credit limit on line 14, which is based on your total tax liability. Below line 15, you’ll be instructed on how to enter the tax credit onto Form 1040.

Part Two

The second part of Form 5695 is designed for the residential energy property credit.

You’ll need to list any energy related home improvements you’ve made to your home, in this regard, along with their associated costs.

Lines 23 to 28 will tell you how to calculate the total value of your tax credit. You should also refer to page six on the IRS worksheet for Form 5695, which can be found on the IRS website.

Line 30 will tell you how to add this to Form 1040.

You don’t worry about figuring out your tax credits on your tax return if you use online tax filing.

The tax program will accurately calculate these tax credits, based on your answers to questions about your energy efficient improvements.

Residential Tax Credits Available Now

The Bipartisan Budget Act of 2018 brought back a few residential energy tax credits, which originally expired back in 2016.

Through December 31st, 2017, these tax credits can be claimed retroactively. There are two primary tax credits you’ll need to look into.

Residential Energy-Efficient Property Credit

energy efficient house

New and existing homes qualify for these tax credits. Upgrades that are eligible for this tax credit include:

Geothermal Heat Pumps – All of these pumps must conform to the standards of the Energy Star program.

Wind Turbines – This credit only applies to certain wind turbines. Any wind turbine installed can generate 100 kilowatts of electricity or less.

Solar Water Heaters – Solar water heaters are eligible, but they must be used to generate heated water within the home. Heaters used for hot tubs or swimming pools are not eligible for the credit.

Solar Panels – Solar panels are eligible. The only aspect you need to look out for is that your system must meet the requirements of the electrical and fire code.

The residential energy-efficient property credit can be used for upgrades made to both primary and secondary residences.

The cost of the installation should be included when you file Form 5695. The credit is worth 30% for upgrades made prior to December 31st, 2019.

All tax credits on these products are eligible until December 31st 2021. After 2019, the value of the credit will be steadily reduced, so it’s worth installing these energy-efficient upgrades now.

The Nonbusiness Energy Property Credit

The Nonbusiness Energy Property Credit is only available on primary residences. New constructions and rental properties don’t count.

These improvements are eligible for a tax credit:

  • Biomass stoves
  • Advanced main air circulating fans
  • Air source heat pumps
  • Central AC
  • Boilers, furnaces, and fans powered by oil, propane, and gas.

Popular improvement, such as insulation, new windows, doors, highlights, and roofs are eligible for this tax credit, but you won’t be able to claim the installation costs.

Any new upgrades must have the Energy Star approval. Make sure you keep both the certification from the manufacturer and any receipts in case you get audited.

Form 5695 can be complicated. There’s zero margin for error as the IRS is so strict about awarding tax credits to these projects.

If you need help, we recommend online tax filing this tax season because of all of the tax benefits that you will receive. The tax preparation program asks you simple questions to fill in the proper forms, gets you every energy tax credit and deduction that you qualify for, and you will get the largest refund possible.